MCY Mercury NZ ( MRP Mighty River Power)

[Snoopy]

Hello Snoopy

Would a quicker way of getting this value be to look at the balance in the Asset Revaluation Reserve? The 2020AR has a balance of $3.28b. I also noticed the current year movement is "net of taxation". This balance would represent the accumulation of "thin air assets" or "thin air equity" since inception.

Ah I see the figure you refer to in AR2020 on p51.

Balance of 'Asset Revaluation Reserve': $3,281m

However I see they arrived at that figure by adding in a 'net of tax' Asset Revaluation of $205m for the year. My calculated figure was $213m using the current NZ company tax rate of 28%. How did I work that out?

From p58 AR2020: $253m (hydro) + $43m (geothermal) = $296m (total asset revaluation)

$296m x (1-0.28) = $213m

So I take it whoever compiled the annual 'Consolidated Statement of Change in Equity' must have used a higher tax rate?

Just to expand on this matter a bit more (from where I see it, I in no way class myself as a tax expert)....

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It seems if you bring a new asset onto your books it comes with a partially offsetting 'deferred tax' entry on the liability side of the balance sheet. The implication here being that should this asset ever be sold for a profit, an accompanying tax bill will be generated (the deferred tax liability becomes an actual tax liability?). I don't really understand this, because I thought that profits on capital assets are not taxable in New Zealand. In the case of Mercury these 're-valued assets' are core company assets, being long lived hydro stations and geothermal power stations. They will never be sold. So I guess the deferred tax liability will never be crystallised?

I am all ears if anyone can better explain this topic!

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The other problem I have is that the total of all the revaluations that I have added up of $1,856m is rather lower than the $3,821m Balance of 'Asset Revaluation Reserve' figure that you have requoted Ferg!

SNOOPY