Page 193 - Pakistan Oilfields Limited - Annual Report 2021

NOTES TO AND FORMING

PART OF THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2021

4.5 Foreign currency transactions and translation

Transactions in foreign currencies are recorded at the rates of exchange ruling on the date of
transaction. All assets and liabilities in foreign currencies are translated into rupees at the rates of
exchange ruling on the date of the statement of financial position. Exchange differences are dealt
with through the statement of profit or loss.

4.6 Taxation
Provision for current taxation is based on taxable income at applicable tax rates, adjusted for royalty
payments to the Government.

Deferred tax is accounted for on all temporary differences using the liability method. Deferred
tax liability has been calculated at the estimated effective rate of 30% after taking into account
availability of future depletion allowance and set off available in respect of royalty payments to the
Government whereas deferred tax liability of CAPGAS has been calculated at applicable tax rate.

4.7 Provisions

Provisions are recognized when the Group has a legal or constructive obligation as a result of past
events, when it is probable that an outflow of resources will be required to settle the obligation and
a reliable estimate of the amount can be made.

4.8 Provision for decommissioning costs
Provision for decommissioning costs is recognized in full for development wells and production
facilities. The amount recognized is the present value of the estimated cost to abandon a well
and remove production facilities. A corresponding intangible asset of an amount equivalent to
the provision is also created and is amortized on unit of production basis over the total proved
developed reserves of the field or @ 5% where the life of a field is more than 20 years.

Most of these abandonment and removal events are many years in the future and the precise
requirements that will have to be met when the abandonment and removal event actually occurs
are uncertain. Abandonment and asset removal technologies and costs are constantly changing, as
are political, environmental, safety and public expectations. Consequently, the timing and amount
of future cash flows are subject to significant uncertainty.

The timing and amount of future expenditures are reviewed annually, together with the interest rate
to be used in discounting the cash flows. Any difference between the liability recognized and actual
costs incurred are charged/credited to statement of profit or loss in the year of decommissioning.

The effect of changes resulting from revisions to the estimate of the liability are incorporated on a
prospective basis.

The decommissioning cost has been discounted at a real discount rate of 1.30% (2020: 1.65%) per
annum.
4.9 Employee compensated absences

The Group provides for compensated absences for all eligible employees in accordance with the
rules of the Group.

ANNUAL REPORT 2021 191