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SapuraCrest Petroleum Berhad
Annual Report 2010
noteS to the FinAnCiAl StAtementS
31 January 2010
2. SigniFiCAnt ACCounting PoliCieS (Cont’D)
2.2 Summary of significant accounting policies (cont’d)
(g) impairment of non-financial assets (cont’d)
An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of
an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of
any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the
unit or groups of units on a pro-rata basis.
An impairment loss is recognised in profit or loss in the period in which it arises, unless the asset is carried at a revalued
amount, in which case the impairment loss is accounted for as a revaluation decrease to the extent that the impairment
loss does not exceed the amount held in the asset revaluation reserve for the same asset.
Impairment loss on goodwill is not reversed in a subsequent period. An impairment loss for an asset other than goodwill
is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since
the last impairment loss was recognised. The carrying amount of an asset other than goodwill is increased to its revised
recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined
(net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. A reversal of
impairment loss for an asset other than goodwill is recognised in income statement, unless the asset is carried at revalued
amount, in which case, such reversal is treated as a revaluation increase.
(h) inventories
Inventories are stated at lower of cost and net realisable value.
Cost is determined using the first-in-first-out method. The cost of inventories includes expenditure incurred in acquiring the
inventories and bringing them to their existing location and condition.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale.
(i) leases
(i) Classification
A lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewards incidental to
ownership. All other leases that do not transfer substantially all the risks and rewards are classified as operating leases.
(ii) Finance leases - the group as lessee
Assets acquired by way of hire purchase or finance leases are stated at an amount equal to the lower of their fair
values and the present value of the minimum lease payments at the inception of the leases, less accumulated
depreciation and impairment losses. The corresponding liability is included in the balance sheet as borrowings. In
calculating the present value of the minimum lease payments, the discount factor used is the interest rate implicit in
the lease, when it is practicable to determine; otherwise, the Company’s incremental borrowing rate is used. Any initial
direct costs are also added to the carrying amount of such assets.
Lease payments are apportioned between the finance costs and the reduction of the outstanding liability. Finance
costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired,
are recognised as an expense in the income statement over the term of the relevant lease so as to produce a constant
periodic rate of charge on the remaining balance of the obligations for each accounting period.