Schedule 517 PT BAYAN RESOURCES AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 MARCH 2008 AND 2007 AND 31 DECEMBER 2007, 2006 AND 2005
Expressed in million Indonesian Rupiah, unless otherwise stated
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued n. 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. Current
enacted or substantially enacted tax rates are used to determine deferred income tax. 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.
o. Stripping costs
For mining areas where stripping is performed based on a life of mine average stripping ratio, stripping costs are recognised as production costs based on the average life of mine stripping ratio. When the actual
stripping ratio exceeds the life of mine average, the excess stripping costs are deferred and recorded in the consolidated balance sheets as deferred stripping costs. When the actual stripping ratio is lower than the life of
mine average, 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 estimated
average life of mine stripping ratio are accounted for on a prospective basis over the remaining mine life.
p. Environmental expenses
Restoration, rehabilitation and environmental expenditures incurred during the production phase are charged to cost of goods sold as incurred.
q. Accounting for derivative financial instruments and hedging activities
Derivative financial instruments are initially recognised in the consolidated balance sheets 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 statements of income, along with any changes in the fair value
of the hedged asset or liability that is attributable to the hedged risk. 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 hedging reserve account. Amounts deferred in equity are subsequently released to the consolidated statements of income and classified as revenue or expense in the
same periods during which the hedged forecasted transaction affects the consolidated statements of income.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the consolidated statements of income.
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 statements of income. When
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Schedule 518 PT BAYAN RESOURCES AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 MARCH 2008 AND 2007 AND 31 DECEMBER 2007, 2006 AND 2005
Expressed in million Indonesian Rupiah, unless otherwise stated
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued q. Accounting for derivative financial instruments and hedging activities continued
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 statements 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.
r. Provision for decommissioning, demobilisation and restoration
Effective 1 January 2008, the Group established a provision for decommissioning, demobilisation and restoration of certain mine-related assets as required by the Statement of Financial Accounting Standards
“SFAS” No. 16—Fixed Assets Revised 2007, which became effective 1 January 2008. The estimated costs are recorded as part of the carrying values of the assets and depreciated over the remaining useful life of the
related assets. The provision has been recorded as “provision for decommissioning, demobilisation and restoration” in the balance sheet and is accreted to full value through the income statements.
s. Basic earnings per share
Basic earnings per share is computed by dividing net income by the weighted-average number of ordinary shares outstanding during the periodyear.
t. Segment reporting
A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment
is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic conditions.
The Group segments its financial reporting as follows: i business segments primary, where the Group’s business activities are classified into coal
and non-coal; and ii geographical segments secondary, which classifies sales based on target market areas.
u. Sharing of production
As stipulated in the CCoW, the Government is entitled to take 13.5 of total coal produced from the final production processes established by GBP, PIK, TSA, WBM and FKP. In accordance with Presidential Decree
No. 751996 dated 25 September 1996, for GBP and CCoW for PIK, TSA, WBM and FKP, these companies pay the Government’s share of production in cash, which represents 13.5 of sales after deduction of selling expenses.
These companies recognise this entitlement on an accrual basis as royalty expense as part of cost of revenue.
v. Dividends
Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s consolidated financial statements in the period in which the dividends are declared.
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