2017 WEL Networks
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Annual Report
44
2 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and
are based on historical experience and other factors,
including expectations of future events that are believed to
be reasonable under the circumstances.
The Group makes estimates and assumptions concerning
the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. The
estimates and assumptions that have a risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
(i)
Estimated fair value of electricity lines distribution
and fibre network assets, substation land and buildings
The Group estimates the fair value of the distribution
network, substation land and buildings and fibre network
by using independent valuers. The fair value is based on a
discounted cash flow methodology for distribution network
assets and buildings. The fair value for land is based on
market value for highest and best use. Refer to note 8.
(ii)
Estimated lives of electricity lines and fibre
network assets
The useful lives of the components of the distribution
network are estimated based on their respective tenure
period. These calculations require the use of estimates.
Changes to the underlying assumptions of the valuation
in the future could have a material effect on the carrying
amount of the distribution network. Refer to note 8.
(iii)
Impairment testing of Goodwill
The Group is required to test goodwill and other
non-amortising intangible assets at least annually for
impairment. Determining the receivable amount for
impairment testing purposes requires the use of judgement
and estimation in relation to future forecast performance of
the underlying cash-generating unit. Refer to note 10.
(iv)
Deferred tax asset
Included in the balance sheet at 31 March 2017 is deferred
tax liability of $16.9 million arising principally from the
recognition of tax on the revaluation of the network assets
and recognition of tax losses in Ultrafast Fibre Limited. NZ
IAS 12 Income Taxes requires the recovery of the losses
to be probable in order to be recognised in the balance
sheet. For the losses to be recoverable the Group requires
to have, within prescribed limits, continuity of ownership
through to the period in which the losses are utilised and
foreseeable profits to use against.
The shareholders agreement provided for joint and
equal control between Crown Fibre Holdings and
Waikato Networks Limited throughout the concession
period and control is not determined by the number of
A shares held. This view was submitted to the Inland
Revenue Department together with Enable, Northpower
and Crown Fibre Holdings and a non-binding indicative
view was received. The purchase of CFH’s A shares by
WNL is a 50% change in shareholding, and therefore the
minimum 49% shareholder continuity requirement has
been maintained. On this basis the Group has continued
to recognise the total deferred tax asset associated with
these losses on the basis that recovery of the losses is
probable. Refer to note 15.
(v)
Acquisition of Ultrafast Fibre Limited
The acquisition of Ultrafast Fibre Limited involves
significant judgement and estimation in determining the
fair value of the previously held equity interest as well as
the fair value of assets acquired and liabilities assumed.
Refer to note 20.
The Group has adopted the provisions of NZ IFRS-3
Business Combinations which permits presenting the
acquisition of Ultrafast Fibre Limited on a provisional basis.
WEL NETWORKS LIMITED
Notes to the financial statements
For the year-ended 31 March 2017
(continued)
