Page 213 - Pakistan Oilfield Limited - Annual Report 2022

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Annual Report 2022

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.
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.