FY 2012 - Investor Relations - NIS

2.8. Intangible assets(1) Licenses and rightsSeparately acquired licenses are presented at historical cost. Licenses have a finite useful life and are carried at costless accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of licencesover their estimated useful lives.Licenses and rights include Oil and Gas exploration rights, which are amortised over the exploration period in accordancewith the terms and conditions of the licence.(2) Computer softwareThese include primarily the costs of implementation the (SAP) computer software program. Acquired computersoftware licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.These costs are amortised over their estimated useful lives (not exceed 8 years).2.9. Exploration for and evaluation of mineral resources(1) Exploration and evaluation expenditureDuring the exploration period, costs of exploration and evaluation of oil and natural gas are capitalized until it is proventhat oil and gas reserves will not suffice to justify exploration costs. Geological and geophysical costs as well as costsdirectly associated with exploration are capitalized as incurred. The costs of obtaining exploration rights are capitalisedeither as part of property, plant and equipment or intangible assets depending on the type of cost. When commercialreserves have been discovered, subsequent to exploration and development investment impairment testing, they aretransferred to development of assets either within property, plant and equipment or intangible assets. No depreciationand/or amortisation are charged during the exploration and evaluation phase.(2) Development costs of fixed and intangible assetsExpenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines andthe drilling of commercially proven development wells is capitalized within construction in progress according to itsnature. When development is completed, it is transferred to production assets. No depreciation and/or amortization arecharged during development.(3) Oil and gas production assetsOil and gas production assets comprise exploration and evaluation tangible assets as well as development costsassociated with the production of proved reserves.(4) Depreciation/amortizationOil and gas properties/intangible assets are depleted using the unit-of-production method. The unit-of production ratesare based on proved developed reserves, which are oil, gas and other mineral reserves estimated to be recovered fromexisting facilities using current operating methods. Oil and gas volumes are considered produced once they have beenmeasured through meters at custody transfer or sales transaction points at the outlet valve on the field storage tank.(5) Impairment – exploration and evaluation assetsExploration property leasehold acquisition costs are assessed for impairment when there are indications of impairment.For the purpose of impairment testing, exploration property leasehold acquisition costs subject to impairment testingare grouped with existing cash-generating units (CGUs) of related production fields located in the same geographicalregion.(6) Impairment – proved oil and gas properties and intangible assetsProven oil and gas properties and intangible assets are reviewed for impairment when events or changes incircumstances indicate that the carrying amount may not be recoverable.An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes ofassessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.2.10. Property, plant and equipmentAs of the date of establishment, the Group’s property, plant and equipment are stated at cost less accumulateddepreciation and provision for impairment, where required. Cost includes expenditure that is directly attributable to theacquisition of the items.Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, onlywhen it is probable that future economic benefits associated with the item will flow to the Group and the cost of theitem can be measured reliably. The carrying amount of the part that is replaced is derecognised. All other repairs andmaintenance are charged to the Consolidated Income Statement during the financial period in which they are incurred.Land and works of art are not depreciated. Depreciation of other assets is calculated using the straight-line method toallocate their cost to their residual values over their estimated useful lives, as follows:DescriptionUseful livesBuildings 10 - 50Machinery and Equipment:- Production equipment 7 - 25- Furniture 5 - 10- Vehicles 7 - 20- Computers 5 - 10Other PP&E: 3 - 10The asset’s residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount isgreater than its estimated recoverable amount (note 34).Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognised withinother income/expenses in the Consolidated Income Statement (notes 33 and 34).246 • FINANCIAL STATEMENTS Annual report for 2012Annual report for 2012FINANCIAL STATEMENTS • 247