Page 138 - Pakistan Oilfields Limited - Annual Report 2021

NOTES TO AND FORMING

PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2021

c. amounts expected to be payable under a residual value guarantee; and
d. the exercise price under a purchase option that the Company is reasonably certain to exercise,
lease payments in an optional renewal period if the Company is reasonably certain to exercise
an extension option, and penalties for early termination of a lease unless the Company is
reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured
when there is a change in future lease payments arising from a change in an index or rate, if there
is a change in the Company’s estimate of the amount expected to be payable under a residual
value guarantee, or if the Company changes its assessment of whether it will exercise a purchase,
extension or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of
the right-of-use asset has been reduced to zero.

Variable lease payments are recongnised in profit or loss in the period in which the condition that
triggers those payments occurs.
The Company has opted not to recognize right of use asssets for short-term leases i.e. leases with
a term of twelve(12) months or less. The payments associated with such leases are recognized in
profit or loss when incurred.

4.28.3 During the year Rs 421,660 thousand (2020: Rs 998,207 thousand) have been capitalised in
Development & Decommissioning costs and Exploration & Evaluation assets in respect of short-
term leases.

5. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of financial statements in conformity with approved accounting standards requires
the use of certain accounting estimates. It also requires management to exercise judgment in the
process of applying the Company’s accounting policies. Estimates and judgments are continually
evaluated and are based on historical experience, including expectation of future events that are
believed to be reasonable under the circumstances. The areas where various assumptions and
estimates are significant to the Company’s financial statements or where judgment was exercised
in application of accounting policies are as follows:
i) Estimated crude oil/gas reserves used for amortization of development and
decommissioning costs - note 4.13 and 13
ii) Estimated useful life of property, plant and equipment - note 4.12 and 12.1
iii) Estimated costs, discount and inflation rate used for provision for decommissioning costs
- note 4.7 and 9.2
iv) Estimated value of staff retirement benefits obligations - note 4.9 and 36
v) Provision for taxation - note 4.5 and 31

vi) Price adjustment related to crude oil sales - note 4.24 and 23
vii) Impairment of financial assets - note 4.21
viii) Right of use asset and corresponding lease liability - note 4.28

136 PAKISTAN OILFIELDS LIMITED