Adaro Energy Annual Report 2008 www.adaro.com
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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.
