Page 43 - NZPM Annual Report 2020

NZPM GROUP LIMITED
Notes to the Consolidated Financial Statements for the year ended 31 March 2020

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as
a financial liability. Derivatives are not offset in the financial statements unless the Group has both legal right and intention to offset.
A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12
months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current
liabilities.

Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable
that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the
reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the
cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of
the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable
is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be
measured reliably.

Co-operative share capital
Ordinary shares and redeemable preference shares (RPS) are classified as co-operative share capital. When shares are acquired,
the amount of the consideration paid is recognised directly as a liability. Shares are accounted for as a liability because under the
Co-operative Companies Act 1996, under certain conditions specified in the Act, shareholders have the right to surrender shares in the
Group and receive payment.
Dividends on RPS and rebate dividends on ordinary shares are recognised as a liability in the period in which they are approved and
declared by the board of directors.

Rebate dividends
The total amount of rebate dividends paid are approved by the board of directors on an annual basis. Rebate dividends are
recognised when declared. The rebate dividend is only paid to ordinary shareholders of NZPM Group Limited and is calculated
according to the promptness of payments and total amounts received by Plumbing World Limited, (a subsidiary of the Group). The
rebate dividend is fully imputed for tax purposes (including dividend withholding tax). Rebate dividends are paid out of tax paid
profits and are therefore deemed to be dividends for tax purposes.

4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 3, the directors are required to make judgements
(other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may
differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.

Critical judgements in applying the Group’s accounting policies
The critical judgements, apart from those involving estimations (which are presented separately below), that the directors have made
in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in
financial statements are:

• provision for obsolete inventory - assessing the expected level of future sales demand for inventory on hand at each location, or
sales demand in other locations, if it is practical and economic to move the inventory to a new location that has the sales demand;
• leases - the number of potential renewal periods in the lease term; and
• leases - the incremental borrowing rate to use if the Group were to borrow over a similar term and type of asset which is used to
discount the future lease payments.

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NZPM GROUP LIMITED ANNUAL REPORT 2020