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3. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
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3.6 |
Property, Plant and Equipment |
Property, plant and equipment is stated at cost, net of accumulated depreciation and any accumulated impairment losses. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met.
Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalized in the carrying amount of the asset as a replacement. When significant parts of property, plant and equipment are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciates them accordingly.
Spare parts and servicing equipment are usually carried as inventory and recognized in profit or loss as consumed. However, major spare parts and stand-by equipment qualify as property, plant and equipment when an entity expects to use them for more than one year.
The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. A provision shall be recognized when:
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(a) |
an entity has a present obligation (legal or constructive) as a result of a past event; |
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(b) |
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and |
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(c) |
a reliable estimate can be made of the amount of the obligation. |
If these conditions are not met, no provision shall be recognized.
Depreciation
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as follows:
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► Buildings |
20-30 years |
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► Building improvement |
5-20 years |
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► Machinery and equipment |
5-15 years |
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► Motor vehicles |
3-10 years |
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► Office equipment |
3-10 years |
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognized.
The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively, if appropriate.
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3. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
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3.6 |
Property, Plant and Equipment (continued) |
Impairment
If circumstances arise which indicate assets might be impaired, a review should be undertaken of their cash generating abilities through either use or sales. This review will produce an amount, which should be compared with the asset’s carrying value, and if the carrying value is higher, the difference must be written off as an impairment adjustment in the income statement. Further detailed methodology used for an impairment test is given in Note 3.11 - Impairment of non-financial assets.