board of directors - Petron

NOTES TO THE FINANCIAL STATEMENTS1. BASIS OF PREPARATIONThe financial statements of the Company are prepared under the historical cost convention asmodified by the revaluation of certain land and buildings, and the valuation of inventories at the lowerof cost or net realisable value. The financial statements comply with the applicable approvedAccounting Standards in Malaysia and the provisions of the Companies Act, 1965.The preparation of financial statements in conformity with the applicable approved accountingstandards in Malaysia and the provisions of the Companies Act, 1965 requires the Directors to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reported period. Actual results could differ from those estimates.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe following accounting policies adopted by the Company are consistent with those adopted inprevious years:(a)Property, plant and equipmentProperty, plant and equipment are stated at cost or valuation less accumulated depreciation.The Directors have applied the transitional provisions of Malaysian Accounting StandardsBoard (MASB) Standard Number 15 on Property, Plant and Equipment which allows freeholdand leasehold land and buildings to be stated at their prevailing valuations less depreciation.Such assets acquired in 1982 or earlier are stated at valuations determined by independentprofessional valuers in 1982 on the following bases:Land - Open market value based on existing useBuildings - Depreciated replacement costThese valuations have not been updated since 1982. Freehold and leasehold land and buildingsacquired after 1982 are stated at cost less accumulated depreciation.No depreciation is provided on freehold land and capital project-in-progress. Leasehold landis amortised in equal installments over the period of the respective leases. Buildings andimprovements, and plant and equipment are depreciated on a straight-line basis to write offthe cost or valuation of the assets over the term of their estimated service lives. The principalannual rates of depreciation used are as follows:Buildings and improvements 3% - 5%Plant and equipment 4% - 10%ANNUAL REPORT & ACCOUNTS 2001(b)Maintenance and repairs are charged to income as incurred. Major renewals andimprovements are capitalised.Included in the respective property, plant and equipment classifications, is the Company'sshare of its interest in the Multi-Product Pipeline System and related distribution terminalfacilities (see Note 21). The accounting policy adopted for these jointly controlled assets isconsistent with those adopted for the Company’s 100% owned property, plant and equipment.Intangible assets - softwareIntangible assets are stated at cost less accumulated amortisation. Computer software anddevelopment costs with economic benefit exceeding five years are capitalised where material.Computer software costs are amortised on a straight line basis over the estimated useful life of thesoftware, which normally falls within a range of 10-15 years.ESSO MALAYSIA BERHAD28