Page 130 - Pakistan Oilfields Limited - Annual Report 2021

NOTES TO AND FORMING

PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2021

4.13.2 Exploration costs

All exploration costs, other than those relating to exploratory drilling, are charged to income as
incurred. Exploratory drilling costs i.e. costs directly associated with drilling of an exploratory well,
are initially capitalized pending determination of proven reserves. These costs are either charged to
income if no proved reserves are found or transferred to development costs after impairment loss,
if proved reserves are found.

All capitalized costs are subject to review for impairment at least once a year and any impairment
determined is immediately charged to income.

4.13.3 Development costs

Development costs are stated at cost less accumulated amortization and impairment losses.
Expenditure on drilling of development wells, including unsuccessful development wells, is
capitalized within development costs. Capitalized development costs are amortized on a unit of
production basis over the total proved developed reserves of the field or @ 5% per annum where
the life of the field is more than 20 years.

4.14 Investments in subsidiary and associated companies

These are carried at cost less impairment losses. The profits and losses of the subsidiary and
associated companies are carried forward in the financial statements of the subsidiary and
associated companies and not dealt within or for the purpose of these financial statements except
to the extent of dividend declared by the subsidiary and associated companies. Gain and loss on
disposal of investment is included in income currently.
4.15 Stores and spares

Stores and spares are valued at cost determined on moving average formula less allowance for
obsolete items. Stores in transit are stated at invoice value plus other charges paid thereon.

4.16 Stock in trade
Stocks are valued at the lower of average annual cost (including appropriate production overheads)
and net realizable value. Net realizable value is determined on the basis of estimated selling price of
the product in the ordinary course of business less costs necessary to be incurred for its sale.
4.17 Impairment of non-financial assets

Assets that have an indefinite useful life, for example land, are not subject to depreciation and are
tested annually for impairment. Assets that are subject to depreciation are reviewed for impairment
at each statement of financial position date, or wherever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An impairment loss is recognized for
the amount for which the asset's carrying amount exceeds its recoverable amount. An asset's
recoverable amount is the higher of its fair value less costs to sell and value in use. For the purposes
of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows. Non-financial assets that suffered an impairment are reviewed for possible
reversal of the impairment at each statement of financial position date. Reversals of the impairment
loss are restricted to the extent that asset's carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortization, if no new impairment loss
had been recognized. An impairment loss or reversal of impairment loss is recognized in income
for the year.

128 PAKISTAN OILFIELDS LIMITED