Page 137 - Pakistan Oilfields Limited - Annual Report 2021

NOTES TO AND FORMING

PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2021

4.25 Joint arrangements

Investments in joint arrangements are classified as either joint operations or joint ventures
depending on the contractual right and obligations of the parties to the arrangement. The
Company has assessed the nature of its joint arrangements and determined them to be joint
operations. The Company has recognized its share of assets, liabilities, income and expenditure
jointly held or incurred under the joint operations on the basis of latest available audited accounts
of the joint operations and where applicable, the cost statements received from operators of
the joint arrangements for the intervening period up to the statement of financial position date.
4.26 Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise cash in hand,
demand deposits and other short term highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of change in value, and
finances under mark up arrangements.

4.27 Dividend distribution

Dividend distribution to the shareholders is accounted for in the period in which dividend is
declared.
4.28 Leases

4.28.1 Right of use asset

The Company assesses whether a contract is or contains a lease at inception of the contract. If
the Company assesses contract contains a lease and meets requirements of IFRS 16, the Company
recognises a right-of-use asset and a lease liability at the lease commencement date. The right-
of-use asset is initially measured at cost, which comprises the initial amount of the lease liability
adjusted for any lease payments made at or before the commencement date, plus any initial direct
costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore
the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the
commencement date to the earlier of the end of the useful life of the right-of-use asset or the end
of the lease term. The estimated useful lives of right-of-use assets are determined on the same
basis as those of property, plant and equipment. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

4.28.2 Lease liability

If applicable, the lease liability is initially measured at the present value of the lease payments that
are not paid at the commencement date, discounted using the interest rate implicit in the lease or

if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the
Company uses its incremental borrowing rate as the discount rate.

Lease payments in the measurement of the lease liability comprise the following:
a. fixed payments, including in-substance fixed payments;
b. variable lease payments that depend on an index or a rate, initially measured using the index or
rate as at the commencement date;

ANNUAL REPORT 2021 135