Page 195 - Pakistan Oilfields Limited - Annual Report 2021

NOTES TO AND FORMING

PART OF THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2021

Depreciation is provided on straight line method at rates specified in note 13.1 to the financial
statements. Depreciation is charged on additions from the month the asset become available for
the intended use upto the month in which these are derecognized.

Maintenance and normal repairs are charged to income as and when incurred. Major renewals and
improvements are capitalized and the assets so replaced, if any, are retired. Gains and losses on
derecognition of assets are included in income currently.

4.14 Other intangible assets

These are carried at cost less accumulated amortization and accumulated impairment losses, if any.
Amortization is calculated using the straight line method over the period of useful life of the asset
at the rates specified in note 16. Costs associated with maintaining intangibles are recognized as
expense as and when incurred. Amortization on additions is charged from the month in which an
intangible asset is acquired or capitalized, while no amortization is charged for the month in which
the intangible asset is disposed off.

4.15 Exploration assets / costs and development costs

4.15.1 Exploration and development costs are accounted for using the “Successful Efforts Method” of
accounting.
4.15.2 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 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.

4.15.3 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.

4.16 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.

4.17 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.

ANNUAL REPORT 2021 193