Adaro Energy Annual Report 2008 www.adaro.com
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Contact Us Governing Adaro
Financial Report Corporate Social Responsibility
PT ADARO ENERGY Tbk Schedule 57
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
f. Investments in debt and equity securities continued
Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to- maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are
classified as current assets. Held-to-maturity investments are carried at amortised cost using the effective yield method. Investments not classified as either held-to-maturity or trading securities are classified as available-for-sale, and are included
in non-current assets unless management has expressed an intention to hold the investment for less than 12 months from the balance sheet date or unless they need to be sold to raise operating capital, in which case they are included in current assets.
Realised and unrealised gains and losses arising from changes in the fair value of trading investments are recognised in the consolidated statement of income in the period in which they arise. Unrealised gains and losses arising from changes in the
fair value of securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in
the consolidated statement of income as gains and losses from investment securities. The costs of securities sold are determined on the basis of the weighted average method.
g. Impairment of investment in equity and debt securities
At the balance sheet date, the Group undertakes a review to determine whether there is any indication of impairment of investments in equity and debt securities. Provision is only made when there has been a significant reduction or a permanent
decline in the value of the investment.
h. Fixed assets and depreciation
Fixed assets, except land, are stated at cost of acquisition less accumulated depreciation. Fixed assets, except the land and fixed assets of Adaro, are depreciated to their estimated residual value using the straight-
line method over their expected useful lives as follows:
Years
Buildings 20
Infrastructure 20 - 30
Operational equipment 8 - 10
Project equipment 4
Mining equipment 4
Vehicles 4
Office equipment 4 - 5
The fixed assets of Adaro are depreciated using the straight-line method to their estimated residual value, over the lesser of the estimated useful lives of the assets, the life of the mine or the term of the CCA, stated as follows:
Years
Buildings 10 - 21
Machinery, operational equipment and vehicles 3 - 20
Office equipment 10
Crushing and handling facilities 10 - 30
Roads and bridges 17 - 30
Stockpile facilities 17 - 20
Dock facilities 20
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated statement of income during the financial period in which they are incurred.
For assets which are no longer utilised or sold or surrendered to the Government, the carrying amount and its accumulated depreciation are eliminated from the consolidated financial statements, and the resulting gains and losses on the disposal of
fixed assets are recognised in the consolidated statement of income. The accumulated costs of the construction of buildings and plant and the installation of machinery are capitalised as
construction in progress. These costs are reclassified to fixed asset accounts when the construction or installation is completed. Depreciation is charged from that date.
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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.
