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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 510
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
p. Provision for employee benefits continued
i Post-retirement benefit obligations continued
The liabilities recognised in the consolidated balance sheets in respect of the defined benefit pension plan are the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with
adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is determined based on the periodic calculation of independent actuaries using the projected unit c redit method. The
present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality government bonds considering currently there is no deep market for high-quality corporate
bonds that are denominated in the currency in which the benefit will be paid, and that have terms of maturity approximating the terms of the related pension liabilities.
Actuarial gains and losses arising from experience adjustments, changes in actuari al assumptions and amendments to the pension plan, when exceeding 10 of the defined benefit or 10 of the fair value of the programme’s assets, are
charged or credited to the consolidated statement of income over the average remaining service lives of the related employees.
ii Termination benefits
Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date. The Group recognises the termination benefits when it is demonstrably committed to terminati ng the employment of
current employees according to a detailed formal plan with a low possibility of withdrawal.
q. Taxation
Deferred income tax is provided using the liability method for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for financial reporting purposes. The tax rate used to calculate the deferred income tax
by the Company and its subsidiaries, except for Adaro, is the current or substantially enacted tax rate. The tax rate used by Adaro is, according to CCA, 35 for the first 10 years from the date of the agreement and 45 for the subsequent years.
Deferred tax assets relating to future tax benefits and the carry forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the future tax benefits and unused tax losses can be
utilised. Amendments to taxation obligations are recorded when an assessment is received or, if appealed against, when the results of
the appeal are determined.
r. Revenue and expense recognition
Revenue represents revenue earned from the sale of the Group’s products and services, net of returns, trade allowances, duties and Value Added Tax “VAT”.
Revenue from sales of goods is recognised when all the following conditions are met: -
the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; -
the Group retains neither continuing managerial involvement nor effective control over the goods sold; -
the amount of revenue can be measured reliably; -
it is probable that the economic benefits associated with the transaction will flow to the Group; and -
the costs incurred or to be incurred with respect to the sales transaction can be measured reliably. When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the
transaction should be recognised by reference to the stage of completion of the transaction at the balance sheet date. The outcome of a transaction can be estimated reliably when all the following conditions are met:
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated with the transaction will flow to the Group;
- the stage of completion of the transaction at the balance sheet date can be measured reliably; and
- the costs incurred for the transaction, and the costs to complete the transaction, can be measured reliably.
When the outcome of a transaction involving the rendering of services cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable.
Expenses are recognised as incurred on an accrual basis.
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Contact Us Governing Adaro
Financial Report Corporate Social Responsibility
PT ADARO ENERGY Tbk Schedule 511
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
s. Accounting for derivative financial instruments and hedging activities
Derivative financial instruments are initially recognised in the balance sheet at cost and subsequently are remeasured at their fair value. The method of recognising the resulting gain or loss is dependent on the nature of the item being hedged. The
Group designates certain derivatives as either 1 a hedge of the fair value of a recognised asset or liability or of an unrecognised firm commitment fair value hedge; or 2 a hedge of a forecasted transaction cash flow hedge.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges and that are highly effective are recorded in the consolidated statement of income, along with any changes in the fair value of the hedged asset or liability that
is attributable to the hedged risk. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss existing in equity at that time remains in equity and is recognised when the committed or forecasted transaction is ultimately recognised in the consolidated statement of income. When a committed or forecasted transaction is
no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated statement of income.
Changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that are highly effective, are recognised in equity, in the fair value reserve account.
Amounts deferred in equity are subsequently released to the consolidated statement of income and classified as revenue or expense in the periods during which the hedged forecasted
transaction affects the consolidated statement of income. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in
the consolidated statement of income. At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as
well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions.
The Group also documents its assessment, both at the hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
t. Earnings per share
Basic earnings per share is computed by dividing net income by the weighted-average number of ordinary shares outstanding during the period or the year.
Diluted earnings per share is computed by dividing net income adjusted for the interest expense and the foreign exchange gains or losses on convertible bonds, and its related tax effects, by the weighted-average number of issued and fully paid
shares during the period, assuming that all options have been excercised and all the convertible bonds have been converted.
u. Segment reporting
A business segment is a distinguishable component in providing a product or service which is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component in providing
products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments.
The Group segments its financial reporting as follows: i
business segments primary, where the Group’s business activities are classified into coal mining and trading, mining services and others power plant services and building management; and
ii geographical segments secondary in which sales are classified based on target market areas.
v. Share issuance costs
Incremental costs directly attributable to the issuance of new shares are shown in equity as a deduction, net of tax, from the proceeds.
w. Difference in value from restructuring transactions of entities under common control
Restructuring transactions among entities under common control are accounted for using the pooling -of -interests method. The difference between the transfer price and the book value of each restructuring transaction among entities under common
control is recorded under the account “difference in value from restructuring transactions of entities under common control” in the equity section of the consolidated financial statements.
