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Adaro Energy Annual Report 2008 www.adaro.com
Adaro in Summary From Us to You
Running Adaro Management Report
Owning Adaro
PT ADARO ENERGY Tbk Schedule 58
FORMERLY PT PADANG KARUNIA AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2008 AND 2007 Expressed in million Rupiah, unless otherwise stated
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
h. Fixed assets and depreciation continued
Interest and other borrowing costs, such as discount fees on loans either directly or indirectly used in financing the construction of a qualifying asset, are capitalised up to the date when construction is complete. For borrowings directly
attributable to a qualifying asset, the amount to be capitalised is determined as the actual borrowing costs incurred during the year, less any income earned on the temporary investment of such borrowings.
For borrowings that are not directly attributable to a qualifying asset, the amount to be capitalised is determined by applying a capitalisation rate to the amount
expended on the qualifying asset. The capitalisation rate is the weighted -average of the borrowing costs applicable to the total borrowings outstanding during the period, excluding borrowings directly attributable to financing the qualifying asset
under construction.
i. Impairment of long-lived assets
At the balance sheet date, the Group undertakes a review to determine whether there is any indication of asset impairment. Fixed assets and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price or value in
use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Reversal of impairment is recorded as income in the period when the reversal occurs.
j. Deferred exploration and development expenditure
Exploration expenditure incurred is capitalised and carried forward, on an area of interest basis, provided one of the following conditions is met:
i such costs are expected to be recouped through successful development and exploitation of the area of interest or,
alternatively, by its sale; or ii
exploration activities in the area of interest have not yet reached the stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and acti ve and significant operations in or in relation to the
area of interest are continuing. 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 directors 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 l ife of the mine and the remaining term of the CCA.
k. Finance lease
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 are charged to the consolidated income statement 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 finance balance outstanding. 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.
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Contact Us Governing Adaro
Financial Report Corporate Social Responsibility
PT ADARO ENERGY Tbk Schedule 59
FORMERLY PT PADANG KARUNIA AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2008 AND 2007 Expressed in million Rupiah, unless otherwise stated
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
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 a tangible long-lived asset that results from the acquisition, construction or development andor the normal operation of a
long-lived asset. The retirement of a long-lived asset 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. These obligations are accreted to full value over time through
charges to the consolidated statement of income. In addition, 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. 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.
For environmental issues that may not involve the retirement of an asset, where the Group is a responsible party and it is determined that a liability exists, and amounts can be quantified, the Group accrues for the estimated liability. In determining
whether a liability exists in respect of such environmental issues, the Group applies the criteria for liability recognition under the applicable accounting standards.
m. Stripping costs
Stripping costs are recognised as production costs based on the annual planned stripping ratio. The annual planned stripping ratio is determined based on current knowledge of the disposition of coal resources and is estimated not to be materially
different from the long term planned stripping ratio of the Group. If the actual stripping ratio exceeds the planned ratio, the excess stripping costs are recorded in the consolidated balance sheet as deferred stripping costs. If the actual stripping ratio is
lower than the planned stripping ratio, the difference is adjusted against the amount of deferred stripping costs carried forward from prior periods or is recognised in the consolidated balance sheets as accrued stripping costs. Changes in the planned
stripping ratio are considered as changes in estimates and are accounted for on a prospective basis.
n. Deferred financing costs
Costs incurred to obtain financing are deferred and are amortised as an adjustment to finance charges on a straight -line basis over the terms of the related financing agreements. Commitment fees incurred subsequent to obtain the financing are
recorded as finance charges.
o. Deferred expenses
Expenditures which are considered as providing benefits in future periods are recorded as deferred expenses and recognised as expenses during the periods in which the benefit is realised.
p. Provision for employee benefits
i Post-retirement benefit obligations
A defined benefit plan is a pension plan that defines an amount of pension benefit to be provided, usually as a function of one or more factors such as age, years of service or compensation.
The Group is required to provide a minimum amount of pension benefit in accordance with Labour Law No. 132003 or the Group’s Collective Labour Agreement the “CLA”, whichever is higher. Since the Labour Law or the CLA set the
formula for determining the minimum amount of benefits, in substance pension plans under the Labour Law or the CLA represent defined benefit plans.
