Page 196 - Pakistan Oilfields Limited - Annual Report 2021

NOTES TO AND FORMING

PART OF THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2021

4.18 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.
4.19 Trade debts and other receivables

Trade receivables are amounts due from customers for services performed in the ordinary course of
business. If collection is expected in one year or less, they are classified as current assets. If not, they
are presented as non-current assets.

Trade receivables are recognised initially at the amount of consideration that is unconditional,
unless they contain significant financing components when they are recognised at fair value. They
are subsequently measured at amortised cost using the effective interest rate method, less loss
allowance. Refer note 4.22 for a description of the Group’s impairment policies.

4.20 Financial instruments

Financial assets and financial liabilities are recognised in the statement of financial position when
the Group becomes a party to the contractual provisions of the instrument. All the financial assets
are derecognized at the time when the Group loses control of the contractual rights that comprise
the financial assets. All financial liabilities are derecognized at the time when they are extinguished
that is, when the obligation specified in the contract is discharged, cancelled or expired. Any gains
or losses on de-recognition of the financial assets and financial liabilities are taken to the statement
of profit or loss.

4.21 Financial assets

Classification
The Group classifies its financial assets in the following measurement categories:

(i) Amortised cost where the effective interest rate method will apply;
(ii) Fair value through profit or loss (FVTPL); and
(iii) Fair value through other comprehensive income (FVTOCI)

The classification depends on the entity’s business model for managing the financial assets and the
contractual terms of the cash flows.

194 PAKISTAN OILFIELDS LIMITED