148 Adaro Energy Annual Report 2009
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PT ADARO ENERGY Tbk AND SUBSIDIARIES Schedule 510
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2009 AND 2008
Expressed in million Rupiah, unless otherwise stated
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
j. Deferred exploration and development expenditure continued
Ultimate recoupment of deferred exploration expenditure is dependent upon successful development and commercial exploitation or, alternatively, sale of the respective area. Deferred exploration expenditure on each area of interest is reviewed
at the end of each accounting period. Exploration expenditure in respect of an area of interest which has been abandoned, or for which a decision has been made by the Group’s D irectors against its commercial viability are written-off in the period in
which the decision is made.
Mine development expenditure and incorporated costs in developing an area of interest prior to commencement of operations in the respective area, as long as they meet the criteria for deferral, are capitalised.
Deferred exploration and development expenditure represents the accumulated costs relating to general investigation, administration and licences, geology and geophysics expenditure and costs incurred to develop a mine before the
commencement of commercial productions. Deferred exploration and development expenditure is amortised on a straight -line basis from the date of commercial
production of the respective area of interest over the lesser of the life of the mine and the remaining term of the CCA.
k. Leases
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the
consolidated statement of income on a straight-line basis over the period of the lease. Leases of fixed assets where the Group has substantially all the risks and rewards of ownership are classified as finance
leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate of interest on the outstanding finance balance. The interest element of the finance cost is charged to the consolidated statement of income over
the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Fixed assets acquired under finance leases are depreciated similarly to owned asset. If there is no reasonable certainty that
the Group will hold the ownership by the end of the lease term, the asset is depreciated over the shorter of the useful life of the asset and the lease term.
l. Environmental obligations
Restoration, rehabilitation and environmental expenditures incurred during the production phase are charged to cost of revenue as incurred.
Provision for decommissioning, demobilisation and restoration provides for the legal obligations associated with the retirement of property, plant and equipment and other long-lived asset that results from the acquisition, construction or development
andor the normal operation of such assets. The retirement of such assets is its other than temporary removal from service including its sale, abandonment, recycling or disposal in some other manner.
These obligations are recognised as liabilities when a legal obligation with respect to the retirement of an asset is incurred, with the initial measurement of the obligation at fair value. An asset retirement cost equivalent to these liabilities is capitalised
as part of the related asset’s carrying value and is subsequently depreciated or depleted over the asset’s useful life. These obligations are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-
tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in these obligations due to passage of time is recognised as interest expenses.
The changes in the measurement of these obligations that result from changes in the estimated timing or amount of the outflow of resources embodying economic benefits required to settle the obligation, or a change in the discount rate will be
added to or deducted from, the cost of the related asset in the current period. The amount deducted from the cost of the asset should not exceed its carrying amount. If a decrease in the liability exceeds the carrying amount of the asset, the excess is
recognised immediately in the consolidated statement of income. If the adjustment results in an addition to the cost of an asset, the Group will consider whether this is an indication that the new carrying amount of the asset may not be fully
recoverable. If it is such an indication, the Group will test the asset for impairment by estimating its recoverable amount, and will account for any impairment loss incurred, if any.
A liability for asset retirement obligation is incurred over more than one reporting period when the events that create the obligation occur over more than one reporting period. For example, if a facility is permanently closed but the closure plan is
developed over more than one reporting period, the cost of the closure of the facility is incurred over those reporting periods when the closure plan is finalised. Any incremental liability incurred in a subsequent reporting period is considered to be an
additional layer of the original liability. Each layer is initially measured at fair value. A separate layer shall be measured, recognised and accounted for prospectively. The obligations consist primarily of costs associated with mine reclamation,
decommissioning and demobilisation of facilities and other closure activities.
