Download 2004 Annual Report - Polymetal

JSC “ISPA “POLYMETAL”NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(In thousands of U.S. Dollars, except as indicated)NOTE 2Summary of Significant Ac−counting Policies (continued)Within Russia, the daily foreign ex−change market determines theRussian Ruble to U.S. Dollar ex−change rate, with some interven−tion from the Central Bank of theRussian Federation. Future move−ments in the exchange rate be−tween the Russian Ruble and theU.S Dollar will affect the carryingvalue of the Group’s Russian Rubledenominated monetary assetsand liabilities. Such movementsmay also affect the Group’s abilityto realize non−monetary assetsrepresented in U.S. Dollar in theseconsolidated financial statements.Accordingly, any translation ofRussian Ruble amounts to U.S. Dol−lar should not be construed as arepresentation that such RussianRuble amounts have been, couldbe, or will in the future be convert−ed into U.S. Dollar at the exchangerate shown or at any other ex−change rate.Principles of consolidation.The consolidated financial state−ments include the operations of allentities in which the Group directlyor indirectly controls more than50 percent of voting power and allvariable interest entities for whichthe Group is determined to be theprimary beneficiary.Long−term investments overwhich the Company does not ex−ercise significant influence are ac−counted for at cost and adjustedfor estimated impairment.All intercompany transactions andbalances between group compa−nies have been eliminated.Variable Interest Entities are con−solidated if the Group is the prima−ry beneficiary in accordance withFASB Interpretation No. 46(R)(“FIN 46 (R)”).Comparative figuresCertain comparative figures havebeen restated to be consistentwith the current year presenta−tion.Cash and cash equivalentsCash and cash equivalents includecash and highly liquid investmentsthat are readily convertible toknown amounts of cash and with anoriginal maturity of three monthsor less at the date of purchase.InventoriesRaw materials, spare parts, sup−plies, ore and dor are valued atlower of cost and net realizablevalue, using the weighted averagecost method..Property, plantand equipmentProperty, plant and equipment in−clude the cost of development ofthe mining properties, the costsof acquisition or construction ofplant and equipment and capital−ized interest. Expenditures formajor improvements and renew−als are capitalized. The cost ofmaintenance, repairs, and replace−ment of minor items of propertyis charged to income as incurred.Interest directly attributable tothe acquisition or construction ofproperty, plant and equipment iscapitalized as a cost of the assetup to the time the asset is put intouse. All other interest is expensedas incurred. Gains and losses onthe disposal of assets are includedin the statement of operations inthe period of disposal.Mineral exploration costs are ex−pensed as incurred. When it hasbeen determined that a mineralproperty can be economically de−veloped as a result of establishingproven and probable reserves,the costs incurred to developsuch property, including costs tofurther delineate the ore body andremove overburden to initially ex−pose the ore body, are capitalized.Depreciation and depletion arecomputed using the units−of−pro−duction method based on theactual production for the yearcompared with total estimatedproven and probable reserves (inthousands of tons of mineral bear−ing ore).Leased property, plant and equip−ment meeting the criteria of fi−nance lease is capitalized; valued atthe lower of asset purchase priceand net present value of lease pay−ments. The corresponding part oflease payments is recorded as aliability. Amortization of capitalizedleased assets is computed usingthe units−of−production method.Property, plant and equipment areassessed for possible impairmentin accordance with SFAS No. 144Accounting for the Impairmentor Disposal of Long−Lived Assets.SFAS No. 144 requires long−livedassets with recorded values thatare not expected to be recoveredthrough future cash flows to bewritten down to current fair value.Fair value is generally determinedfrom estimated discounted futurenet cash flows.56 Polymetal annual report 2004