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## 2. Accounting policies (continued) 

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

## CONSOLIDATED WATER CO. LTD. 

(Expressed in United States dollars) 

Reporting currency: The functional currency of the Company and its foreign subsidiaries are their respective local currencies. The consolidated operations are reported using United States dollars. It is the intention of the Company to declare and pay dividends in United States dollars. 

The exchange rate between the Cayman Islands dollar and the United States dollar has been fixed during all periods presented at CI$1.00 to US$1.20. In addition, the exchange rate between the Belize Dollar and the United States dollar has been fixed during all periods presented at Bel$1.00 to US$0.50. Accordingly, no foreign currency gain or losses arise on the translation of the foreign subsidiary’s operations due to the fixed exchange rate. 

Foreign currency: Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Foreign currency transactions are translated at the rate ruling on the date of the transaction. Net exchange gains of $3,812 (1999: $36,512; 1998: $31,846) are included in other income. 

Cash and cash equivalents: Cash and cash equivalents comprise cash at bank on call and highly liquid deposits with an original maturity of three months or less. 

Spares inventory: Spares inventory, which consists primarily of replacement spares and parts, are valued at the lower of cost and net realizable value on a first-in, first-out basis. 

Inventory of water: Inventory of water represents the cost of desalinated potable water produced and purchased by the Company and held in the Company's reservoirs at year end. The value of the inventory of water is based on the lower of average cost of producing and purchasing water during the year and the volume of water on hand at year end or net realizable value. 

Property, plant and equipment: Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using a straight line method with allowance being made for estimated residual values. Rates are determined based on the shorter of the license expiry date or the estimated useful lives of the assets as follows: 

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Additions to property, plant and equipment comprise of the cost of the contracted services, direct labour and materials. 

Intangible asset: The intangible asset consists of the contract acquired on the acquisition of Belize Water Ltd. (Note 3) on July 21, 2000 and is being amortised on a straight line basis over the remaining period of the license, which expires in April 2011. 

Obligations under Water Purchase Agreement: The Company assumed substantially all the benefits and risks of the plant and equipment under the Water Purchase Agreement (Note 14). The assets have been capitalized at the amount specified in the agreement and the related obligation is recorded as a liability of the Company. Interest expense is calculated based on the outstanding balance of the obligation. 

