2010 Annual Report - Petron

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (i) Share capital Ordinary stock units with discretionary dividends are classified as equity. (j) Dividends Dividends on ordinary stock units are recognised as liabilities when the dividends are approved for payment. (k) Trade and other payables Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are recognised initially at fair value and subsequently at amortised cost using the effective interest method. (l) Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred, and are subsequently carried at amotised cost. All interest, profit elements on Islamic Commercial Papers (ICP) Programme and other costs incurred in connection with borrowings are expensed as incurred, except that up-front costs incurred in establishing long-term facilities are amortised over the facility period. With the adoption of FRS 123 Borrowing Costs, borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after January 1, 2010, should be capitalised. The change had no material impact on the financial position of the Company. (m) Taxation The taxation charge in the income statement comprises current and deferred taxes. Current taxes are calculated by applying current tax rates to the chargeable income for the year. Deferred taxes are calculated at the balance sheet date on all material temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on either the taxable entity, or different taxable entity where there is an intention to settle the balances on a net basis. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available to absorb the deductible temporary differences. Tax rates enacted or substantively enacted by the balance sheet date are used to calculate deferred taxes. (n) Revenue recognition Income from the sale of goods is recognised upon delivery of goods and acceptance by customers net of returns, discounts and allowances, in accordance with the terms of sale. Interest and other income are recognised on an accrual basis. (o) Research and development Expenditures on research and development are recognised as expense except when there is sufficient certainty that the development efforts will result in future economic benefits for the Company, in which case these costs are capitalised. (p) Foreign currencies The functional currency of the Company is Ringgit Malaysia. Transactions arising in foreign currencies are translated into Ringgit Malaysia at the approximate rates of exchange on the transaction dates. Transactions uncompleted at the balance sheet date are translated at the closing exchange rates. Foreign currency exchange gains and losses resulting from the translation and settlement of foreign currency transactions are included in the income statement. ANNUAL REPORT & ACCOUNTS 2010 41
ESSO MALAYSIA BERHAD 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (q) Segment reporting Segment reporting is consistent with the internal reporting to the Company’s chief operating decision maker, represented by a committee responsible for allocating resources and assessing performance of the operating segment. (r) Fair value estimation The carrying amount of current receivables and payables, carried at amortised cost, approximate their fair values. 3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The Company makes accounting estimates and assumptions concerning the future which may differ from actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are: (a) Estimated useful lives and residual values of property, plant and equipment Property, plant and equipment are depreciated on a straight line basis over the term of their useful service lives taking into account residual values where appropriate. The estimated useful lives of these assets should be reflective of factors such as service life experience on the facilities and their maintenance programmes. The useful lives and residual values of assets are reviewed, and adjusted if appropriate, at each balance sheet date. The significant accounting policy for property, plant and equipment is disclosed in Note 2. (b) Retirement Benefits Obligations The present value of the retirement benefits obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining net cost (income) for the retirement benefits include the discount rate used to determine the present value of estimated cash outflows expected to be required to settle the retirement benefits obligations, and salary growth rate. Any changes in these assumptions will impact the carrying amount of retirement benefits obligations. Refer to Note 18 for the sensitivity of the overall pension liability to changes in the discount rate and salary growth rate. 4. FINANCIAL RISK MANAGEMENT a) Market Risk Given the size and long-term nature of its business, the Company expects that exposure to market risk arising from changes in currency rate and interest rate will be moderated over time. As such, the Company discourages the use of financial derivative instruments to manage these risks. The Company believes that the administrative and financial costs to execute and control the use of derivatives typically outweigh the potential benefits. Any derivative transaction would require senior management approval and periodic review. Speculative derivative activity is strictly prohibited. (i) Currency risk The Company’s activities are exposed to currency risk primarily arising from US dollar denominated crude purchases. A strengthening of the Ringgit would result in a favorable impact to profitability due to credit terms for payments for crude purchases. The Company has no other significant short-term or long-term transactions denominated in foreign currencies as at December 31, 2010. A 10% depreciation / appreciation of the USD against the Ringgit would result in an approximate decrease / increase in pre-tax profit of RM39 million (2009: RM41 million) with all other variables held constant. 42 ANNUAL REPORT & ACCOUNTS 2010
Page 3: FINANCIAL HIGHLIGHTS 2010 2009 % RM
Page 11 and 12: CAPITAL EXPENDITURE RM MILLION TOTA
Page 13 and 14: ESSO MALAYSIA BERHAD Profile of Dir
Page 15 and 16: ESSO MALAYSIA BERHAD Corporate Citi
Page 17 and 18: ESSO MALAYSIA BERHAD Environmental
Page 20 and 21: CORPORATE GOVERNANCE The Board of D
Page 22 and 23: CORPORATE GOVERNANCE (Continued) An
Page 24 and 25: CORPORATE GOVERNANCE (Continued) In
Page 26 and 27: CORPORATE GOVERNANCE (Continued) Tr
Page 29 and 30: Meetings and Minutes (Continued) Th
Page 31 and 32: ESSO MALAYSIA BERHAD STATUTORY INFO
Page 33 and 34: ESSO MALAYSIA BERHAD STATEMENT OF C
Page 35 and 36: ESSO MALAYSIA BERHAD STATEMENT OF C
Page 37 and 38: ESSO MALAYSIA BERHAD NOTES TO THE F
Page 39 and 40: ESSO MALAYSIA BERHAD 1. BASIS OF PR
Page 41: ESSO MALAYSIA BERHAD 2. SUMMARY OF
Page 45 and 46: ESSO MALAYSIA BERHAD 5. REVENUES 20
Page 47 and 48: ESSO MALAYSIA BERHAD 12. PROPERTY,
Page 49 and 50: ESSO MALAYSIA BERHAD 16. RECEIVABLE
Page 51 and 52: ESSO MALAYSIA BERHAD 18. RETIREMENT
Page 53 and 54: ESSO MALAYSIA BERHAD 23. RESERVES 2
Page 55 and 56: ESSO MALAYSIA BERHAD 29. SUPPLEMENT
Page 57: ESSO MALAYSIA BERHAD INDEPENDENT AU

2010 Annual Report - Petron

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