REG - China Pet &Chem Corp - Half-year Report <Origin Href="QuoteRef">600028.SS</Origin> - Part 5
29/08/2017 07:08
- Part 5: For the preceding part double click ID:nRSc0740Pd
- - - (20,582) (20,582) (2,000) (22,582)
in shareholders' equity
6. Net increase in specific reserve for the period - - - 774 - - 774 96 870
(Note 36)
7. Others - 4 - - - - 4 2 6
Balance at 30 June 2017 121,071 119,529 (1,574) 1,539 196,640 281,673 718,878 126,948 845,826
27,092
26,450
8,557
35,007
Transactions with owners, recorded directly
in shareholders' equity:
3. Appropriations of profits:
- Distributions to shareholders (Note 50)
-
-
-
-
-
(20,582)
(20,582)
-
(20,582)
4. Transaction with minority interests
-
-
-
-
-
-
-
341
341
5. Distributions to minority interests
-
-
-
-
-
-
-
(2,341)
(2,341)
Total transactions with owners, recorded directly
in shareholders' equity
-
-
-
-
-
(20,582)
(20,582)
(2,000)
(22,582)
6. Net increase in specific reserve for the period
(Note 36)
-
-
-
774
-
-
774
96
870
7. Others
-
4
-
-
-
-
4
2
6
Balance at 30 June 2017
121,071
119,529
(1,574)
1,539
196,640
281,673
718,878
126,948
845,826
These financial statements have been approved by the board of directors on 25 August 2017.
Wang Yupu Dai Houliang Wang Dehua
Chairman Vice Chairman, President Chief Financial Officer
(Legal representative)
The accompanying notes form part of these financial statements.
STATEMENT OF CHANGES IN EQUITY
for the six-month period ended 30 June 2017
Other Total
Share capital Capitalreserve comprehensive income Specific reserve Surplus reserves Retained earnings shareholders' equity
RMB million RMB million RMB million RMB million RMB million RMB million RMB million
Balance at 1 January 2016 121,071 68,716 (145) 313 196,640 175,679 562,274
Change for the period
1. Net profit - - - - - 6,158 6,158
2. Other comprehensive income - - 292 - - - 292
Total comprehensive income - - 292 - - 6,158 6,450
Transactions with owners, recorded directly
in shareholders' equity:
3. Appropriations of profits:
- Distributions to shareholders (Note 50) - - - - - (7,264) (7,264)
Total transactions with owners, recorded directly - - - - - (7,264) (7,264)
in shareholders' equity
4. Net increase in specific reserve for the period - - - 278 - - 278
5. Others - (52) - - - - (52)
Balance at 30 June 2016 121,071 68,664 147 591 196,640 174,573 561,686
Balance at 1 January 2017 121,071 68,769 263 393 196,640 182,440 569,576
Change for the period
1. Net profit - - - - - 6,173 6,173
2. Other comprehensive income - - 11 - - - 11
Total comprehensive income - - 11 - - 6,173 6,184
Transactions with owners, recorded directly
in shareholders' equity:
3. Appropriations of profits:
- Distributions to shareholders (Note 50) - - - - - (20,582) (20,582)
Total transactions with owners, recorded directly - - - - - (20,582) (20,582)
in shareholders' equity
4. Net increase in specific reserve for the period - - - 439 - - 439
Balance at 30 June 2017 121,071 68,769 274 832 196,640 168,031 555,617
3. Appropriations of profits:
- Distributions to shareholders (Note 50)
-
-
-
-
-
(20,582)
(20,582)
Total transactions with owners, recorded directly
in shareholders' equity
-
-
-
-
-
(20,582)
(20,582)
4. Net increase in specific reserve for the period
-
-
-
439
-
-
439
Balance at 30 June 2017
121,071
68,769
274
832
196,640
168,031
555,617
These financial statements have been approved by the board of directors on 25 August 2017.
Wang Yupu Dai Houliang Wang Dehua
Chairman Vice Chairman, President Chief Financial Officer
(Legal representative)
The accompanying notes form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
for the six-month period ended 30 June 2017
1 STATUS OF THE COMPANY
China Petroleum & Chemical Corporation (the "Company") was established on 25 February 2000 as a joint stock limited
company. The company is registered in Beijing, the People's Republic of China, and the headquarter is located in Beijing,
the People's Republic of China. The approval date of the financial report is 25 August 2017.
According to the State Council's approval to the "Preliminary Plan for the Reorganisation of China Petrochemical
Corporation" (the "Reorganisation"), the Company was established by China Petrochemical Corporation ("Sinopec Group
Company"), which transferred its core businesses together with the related assets and liabilities at 30 September 1999 to
the Company. Such assets and liabilities had been valued jointly by China United Assets Appraisal Corporation, Beijing
Zhong Zheng Appraisal Company, CIECC Assets Appraisal Corporation and Zhong Fa International Properties Valuation
Corporation. The net asset value was determined at RMB 98,249,084,000. The valuation was reviewed and approved by the
Ministry of Finance (the "MOF") (Cai Ping Zi 2000 No. 20 "Comments on the Review of the Valuation Regarding the Formation
of a Joint Stock Limited Company by China Petrochemical Corporation").
In addition, pursuant to the notice Cai Guan Zi 2000 No. 34 "Reply to the Issue Regarding Management of State-Owned
Equity by China Petroleum and Chemical Corporation" issued by the MOF, 68.8 billion domestic state-owned shares with a par
value of RMB 1.00 each were issued to Sinopec Group Company, the amount of which is equivalent to 70% of the above net
asset value transferred from Sinopec Group Company to the Company in connection with the Reorganisation.
Pursuant to the notice Guo Jing Mao Qi Gai 2000 No. 154 "Reply on the Formation of China Petroleum and Chemical
Corporation", the Company obtained the approval from the State Economic and Trade Commission on 21 February 2000 for the
formation of a joint stock limited company.
The Company took over the exploration, development and production of crude oil and natural gas, refining, chemicals and
related sales and marketing business of Sinopec Group Company after the establishment of the Company.
The Company and its subsidiaries (the "Group") engage in the oil and gas and chemical operations and businesses,
including:
(1) the exploration, development and production of crude oil and natural gas;
(2) the refining, transportation, storage and marketing of crude oil and petroleum product; and
(3) the production and sale of chemical.
Pursuant to the resolution passed at the Directors' meeting on 29 October 2015, the Company entered into the JV Agreement
with Sinopec Assets Management Corporation ("SAMC") in relation to the formation of the Gaoqiao Petrochemical Co. Ltd.
According to the JV Agreement, the Company and SAMC jointly set up Gaoqiao Petrochemical Co. Ltd. for RMB 100 million in
cash in 2016. Subsequently, the Company subscribed capital contribution with the net assets of Gaoqiao Branch of the
Company and SAMC subscribed capital contribution with the net assets of Gaoqiao Branch of SAMC. The capital contribution
was completed on 1 June 2016, after which the Company held 55% of Gaoqiao Petrochemical Co. Ltd.'s voting rights and become
the parent company of Gaoqiao Petrochemical Co. Ltd..
As Sinopec Group Company controls both the Group and SAMC, the non-cash transaction described above between Sinopec and
SAMC has been accounted as business combination under common control. Accordingly, the assets and liabilities of Gaoqiao
Branch of SAMC have been accounted for at historical cost, and the consolidated financial statements of the Group prior to
these acquisitions have been restated to include the results of operation and the assets and liabilities of Gaoqiao Branch
of SAMC on a combined basis.
Details of the Company's principal subsidiaries are set out in Note 54, and there are no significant changes related to the
consolidation scope during current period.
2 BASIS OF PREPARATION
(1) Statement of compliance of China Accounting Standards for Business Enterprises ("ASBE")
The financial statements have been prepared in accordance with the requirements of Accounting Standards for Business
Enterprises - Basic Standards, specific standards and relevant regulations (hereafter referred as ASBE collectively) issued
by the MOF on or after 15 February 2006. These financial statements also comply with the disclosure requirements of
"Regulation on the Preparation of Information Disclosures of Companies Issuing Public Shares, No.15: General Requirements
for Financial Reports" issued by the China Securities Regulatory Commission ("CSRC"). These financial statements present
truly and completely the consolidated and company financial position as at 30 June 2017, and the consolidated and company
financial performance and the consolidated and company cash flows for the six-month period ended 30 June 2017.
These financial statements are prepared on a basis of going concern.
(2) Accounting period
The accounting year of the Group is from 1 January to 31 December.
(3) Measurement basis
The financial statements of the Group have been prepared under the historical cost convention, except for the assets and
liabilities set out below:
- Financial asset and financial liability with change in fair value recognised through profit or loss (see Note 3(10))
- Available-for-sale financial assets (see Note 3(10))
- Derivative financial instruments (see Note 3(10))
(4) Functional currency and presentation currency
The functional currency of the Company's and most of its subsidiaries are Renminbi. The Group's consolidated financial
statements are presented in Renminbi. The Company translates the financial statements of subsidiaries from their respective
functional currencies into Renminbi (see Note 3(2)) if the subsidiaries' functional currencies are not Renminbi.
3 SIGNIFICANT ACCOUNTING POLICIES
The Group determines specific accounting policies and accounting estimates based on the characteristics of production and
operational activities, mainly reflected in the accounting for allowance for accounts receivable (Note 3(11)), valuation of
inventories (Note 3(4)), depreciation of fixed assets and depletion of oil and gas properties (Note 3(6), (7)), measurement
of provisions (Note 3(15)), etc.
Principal accounting estimates and judgements of the Group are set out in Note 53.
(1) Accounting treatment of business combination involving entities under common control and not under common control
(a) Business combination involving entities under common control
A business combination involving entities or businesses under common control is a business combination in which all of the
combining entities or businesses are ultimately controlled by the same party or parties both before and after the business
combination, and that control is not transitory. The assets and liabilities that the acquirer receives in the acquisition
are accounted for at the acquiree's carrying amount on the acquisition date. The difference between the carrying amount of
the acquired net assets and the carrying amount of the consideration paid for the acquisition (or the total nominal value
of shares issued) is recognised in the share premium of capital reserve, or the retained earnings in case of any shortfall
in the share premium of capital reserve. Any costs directly attributable to the combination shall be recognised in profit
or loss for the current period when occurred. The expense incurred for equity securities and debt securities issued as the
consideration of the combination is recognised in the initial cost of the securities. The combination date is the date on
which the acquirer effectively obtains control of the acquiree.
(b) Business combination involving entities not under common control
A business combination involving entities or businesses not under common control is a business combination in which all of
the combining entities or businesses are not ultimately controlled by the same party or parties both before and after the
business combination. Difference between the consideration paid by the Group as the acquirer, comprises of the aggregate of
the fair value at the acquisition date of assets given, liabilities incurred or assumed, and equity securities issued by
the acquirer in exchange for control of the acquiree, and the Group's interest in the fair value of the identifiable net
assets of the acquiree, is recognised as goodwill (Note 3(9)) if it is an excess, otherwise in the profit or loss. The
expense incurred for equity securities and debt securities issued as the consideration of the combination is recognised in
the initial cost of the securities. Any other expense directly attributable to the business combination is recognised in
the profit or loss for the year. The difference between the fair value and the book value of the assets given is recognised
in profit or loss. The acquiree's identifiable assets, liabilities and contingent liabilities, if satisfying the
recognition criteria, are recognised by the Group at their fair value at the acquisition date. The acquisition date is the
date on which the acquirer effectively obtains control of the acquiree.
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(1) Accounting treatment of business combination involving entities under common control and not under common control
(Continued)
(c) Method for preparation of consolidated financial statements
The scope of consolidated financial statements is based on control and the consolidated financial statements comprise the
Company and its subsidiaries. Control means an entity is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. The financial
statements of subsidiaries are included in the consolidated financial statements from the date that control commences until
the date that control ceases.
Where the Company combines a subsidiary during the reporting period through a business combination involving entities under
common control, the financial statements of the subsidiary are included in the consolidated financial statements as if the
combination had occurred at the beginning of the earliest comparative year presented or, if later, at the date that common
control was established. Therefore the opening balances and the comparative figures of the consolidated financial
statements are restated. In the preparation of the consolidated financial statements, the subsidiary's assets, liabilities
and results of operations are included in the consolidated balance sheet and the consolidated income statement,
respectively, based on their carrying amounts in the subsidiary's financial statements, from the date that common control
was established.
Where the Company acquires a subsidiary during the reporting year through a business combination involving entities not
under common control, the identifiable assets, liabilities and results of operations of the subsidiaries are consolidated
into consolidated financial statements from the date that control commences, based on the fair value of those identifiable
assets and liabilities at the acquisition date.
Where the Company acquired a minority interest from a subsidiary's minority shareholders, the difference between the
investment cost and the newly acquired interest into the subsidiary's identifiable net assets at the acquisition date is
adjusted to the capital reserve (capital surplus) in the consolidated balance sheet. Where the Company partially disposed
an investment of a subsidiary that do not result in a loss of control, the difference between the proceeds and the
corresponding share of the interest into the subsidiary is adjusted to the capital reserve (capital surplus) in the
consolidated balance sheet. If the credit balance of capital reserve (capital surplus) is insufficient, any excess is
adjusted to retained profits.
In a business combination involving entities not under common control achieved in stages, the Group remeasures its
previously held equity interest in the acquiree on the acquisition date. The difference between the fair value and the net
book value is recognised as investment income for the period. If other comprehensive income was recognised regarding the
equity interest previously held in the acquiree before the acquisition date, the relevant other comprehensive income is
transferred to investment income in the period in which the acquisition occurs.
Where control of a subsidiary is lost due to partial disposal of the equity investment held in a subsidiary, or any other
reasons, the Group derecognises assets, liabilities, minority interests and other equity items related to the subsidiary.
The remaining equity investment is remeasured to fair value at the date in which control is lost. The sum of consideration
received from disposal of equity investment and the fair value of the remaining equity investment, net of the fair value of
the Group's previous share of the subsidiary's identifiable net assets recorded from the acquisition date, is recognised in
investment income in the period in which control is lost. Other comprehensive income related to the previous equity
investment in the subsidiary, is transferred to investment income when control is lost.
Minority interest is presented separately in the consolidated balance sheet within shareholders' equity. Net profit or loss
attributable to minority shareholders is presented separately in the consolidated income statement below the net profit
line item.
The excess of the loss attributable to the minority interests during the period over the minority interests' share of the
equity at the beginning of the reporting period is deducted from minority interests.
Where the accounting policies and accounting period adopted by the subsidiaries are different from those adopted by the
Company, adjustments are made to the subsidiaries' financial statements according to the Company's accounting policies and
accounting period. Intra-group balances and transactions, and any unrealised profit or loss arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses resulting from
intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no
evidence of impairment.
The unrealised profit or loss arising from the sale of assets by the Company to its subsidiaries is eliminated in full
against the net profit attributed to shareholders; the unrealised profit or loss from the sale of assets by subsidiaries to
the Company is eliminated according to the distribution ratio between shareholders of the parent company and minority
interests. For sale of assets that occurred between subsidiaries, the unrealised gains and losses is eliminated according
to the distribution ratio for its subsidiaries seller between net profit attributable to shareholders of the parent company
and minority interests.
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(2) Transactions in foreign currencies and translation of financial statements in foreign currencies
Foreign currency transactions are, on initial recognition, translated into Renminbi at the spot exchange rates quoted by
the People's Bank of China ("PBOC rates") at the transaction dates.
Foreign currency monetary items are translated at the PBOC rates at the balance sheet date. Exchange differences, except
for those directly related to the acquisition, construction or production of qualified assets, are recognised as income or
expenses in the income statement. Non-monetary items denominated in foreign currency measured at historical cost are not
translated. Non-monetary items denominated in foreign currency that are measured at fair value are translated using the
exchange rates at the date when the fair value was determined. The difference between the translated amount and the
original currency amount is recognised as other comprehensive income, if it is classified as available-for-sale financial
assets; or charged to the income statement if it is measured at fair value through profit or loss.
The assets and liabilities of foreign operation are translated into Renminbi at the spot exchange rates at the balance
sheet date. The equity items, excluding "Retained earnings", are translated into Renminbi at the spot exchange rates at the
transaction dates. The income and expenses of foreign operation are translated into Renminbi at the spot exchange rates or
an exchange rate that approximates the spot exchange rates on the transaction dates. The resulting exchange differences are
separately presented as other comprehensive income in the balance sheet within equity. Upon disposal of a foreign
operation, the cumulative amount of the exchange differences recognised in which relate to that foreign operation is
transferred to profit or loss in the year in which the disposal occurs.
(3) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, short-term and highly liquid investments which are
readily convertible into known amounts of cash and are subject to an insignificant risk of change in value.
(4) Inventories
Inventories are initially measured at cost. Cost includes the cost of purchase and processing, and other expenditures
incurred in bringing the inventories to their present location and condition. The cost of inventories is calculated using
the weighted average method. In addition to the cost of purchase of raw material, work in progress and finished goods
include direct labour and an appropriate allocation of manufacturing overhead costs.
At the balance sheet date, inventories are stated at the lower of cost and net realisable value.
Any excess of the cost over the net realisable value of each item of inventories is recognised as a provision for
diminution in the value of inventories. Net realisable value is the estimated selling price in the normal course of
business less the estimated costs of completion and the estimated costs necessary to make the sale and relevant taxes. The
net realisable value of materials held for use in the production is measured based on the net realisable value of the
finished goods in which they will be incorporated. The net realisable value of the quantity of inventory held to satisfy
sales or service contracts is measured based on the contract price. If the quantities held by the Group are more than the
quantities of inventories specified in sales contracts, the net realisable value of the excess portion of inventories is
measured based on general selling prices.
Inventories include raw materials, work in progress, semi-finished goods, finished goods and reusable materials. Reusable
materials include low-value consumables, packaging materials and other materials, which can be used repeatedly but do not
meet the definition of fixed assets. Reusable materials are amortised in full when received for use. The amounts of the
amortisation are included in the cost of the related assets or profit or loss.
Inventories are recorded by perpetual method.
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(5) Long-term equity investments
(a) Investment in subsidiaries
In the Company's separate financial statements, long-term equity investments in subsidiaries are accounted for using the
cost method. Except for cash dividends or profits distributions declared but not yet distributed that have been included in
the price or consideration paid in obtaining the investments, the Company recognises its share of the cash dividends or
profit distributions declared by the investee as investment income irrespective of whether these represent the net profit
realised by the investee before or after the investment. Investments in subsidiaries are stated at cost less impairment
losses (see Note 3(11)) in the balance sheet. At initial recognition, such investments are measured as follows:
The initial investment cost of a long-term equity investment obtained through a business combination involving entities
under common control is the Company's share of the carrying amount of the subsidiary's equity at the combination date. The
difference between the initial investment cost and the carrying amounts of the consideration given is adjusted to share
premium in capital reserve. If the balance of the share premium is insufficient, any excess is adjusted to retained
earnings.
For a long-term equity investment obtained through a business combination not involving enterprises under common control,
the initial investment cost comprises the aggregate of the fair values of assets transferred, liabilities incurred or
assumed, and equity securities issued by the Company, in exchange for control of the acquiree. For a long-term equity
investment obtained through a business combination not involving enterprises under common control, if it is achieved in
stages, the initial cost comprises the carrying value of previously-held equity investment in the acquiree immediately
before the acquisition date, and the additional investment cost at the acquisition date.
An investment in a subsidiary acquired otherwise than through a business combination is initially recognised at actual
purchase cost if the Group acquires the investment by cash, or at the fair value of the equity securities issued if an
investment is acquired by issuing equity securities, or at the value stipulated in the investment contract or agreement if
an investment is contributed by investors.
(b) Investment in joint ventures and associates
A joint venture is an incorporated entity over which the Group, based on legal form, contractual terms and other facts and
circumstances, has joint control with the other parties to the joint venture and rights to the net assets of the joint
venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions
about the relevant activities require the unanimous consent of the Group and the parties sharing control.
An associate is the investee that the Group has significant influence on their financial and operating policies.
Significant influence represents the right to participate in the financial and operating policy decisions of the investee
but is not control or joint control over the establishment of these policies. The Group generally considers the following
circumstances in determining whether it can exercise significant influence over the investee: whether there is
representative appointed to the board of directors or equivalent governing body of the investee; whether to participate in
the investee's policy-making process; whether there are significant transactions with the investees; whether there is
management personnel sent to the investee; whether to provide critical technical information to the investee.
An investment in a joint venture or an associate is accounted for using the equity method, unless the investment is
classified as held for sale.
The initial cost of investment in joint ventures and associates is stated at the consideration paid except for cash
dividends or profits distributions declared but unpaid at the time of acquisition and therefore included in the
consideration paid should be deducted if the investment is made in cash. Under the circumstances that the long-term
investment is obtained through non-monetary asset exchange, the initial cost of the investment is stated at the fair value
of the assets exchanged if the transaction has commercial substance, the difference between the fair value of the assets
exchanged and its carrying amount is charged to profit or loss; or stated at the carrying amount of the assets exchanged if
the transaction lacks commercial substance.
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(5) Long-term equity investments (Continued)
(b) Investment in joint ventures and associates (Continued)
The Group's accounting treatments when adopting the equity method include:
Where the initial investment cost of a long-term equity investment exceeds the Group's interest in the fair value of the
investee's identifiable net assets at the date of acquisition, the investment is initially recognised at the initial
investment cost. Where the initial investment cost is less than the Group's interest in the fair value of the investee's
identifiable net assets at the time of acquisition, the investment is initially recognised at the investor's share of the
fair value of the investee's identifiable net assets, and the difference is charged to profit or loss.
After the acquisition of the investment, the Group recognises its share of the investee's net profits or losses and other
comprehensive income as investment income or losses and other comprehensive income, and adjusts the carrying amount of the
investment accordingly. Once the investee declares any cash dividends or profits distributions, the carrying amount of the
investment is reduced by that attributable to the Group.
The Group recognises its share of the investee's net profits or losses after making appropriate adjustments to align the
accounting policies or accounting periods with those of the Group based on the fair values of the investee's net
identifiable assets at the time of acquisition. Under the equity accounting method, unrealised profits and losses resulting
from transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group's
interest in the associates or joint ventures. Unrealised losses resulting from transactions between the Group and its
associates or joint ventures are fully recognised in the event that there is an evidence of impairment.
The Group discontinues recognising its share of net losses of the investee after the carrying amount of the long-term
equity investment and any long-term interest that is in substance forms part of the Group's net investment in the associate
or the joint venture is reduced to zero, except to the extent that the Group has an obligation to assume additional losses.
However, if the Group has incurred obligations for additional losses and the conditions on recognition of provision are
satisfied in accordance with the accounting standard on contingencies, the Group continues recognising the investment
losses and the provision. Where net profits are subsequently made by the associate or joint venture, the Group resumes
recognising its share of those profits only after its share of the profits equals the share of losses not recognised.
The Group adjusts the carrying amount of the long-term equity investment for changes in owners' equity of the investee
other than those arising from net profits or losses and other comprehensive income, and recognises the corresponding
adjustment in capital reserve.
(c) The impairment assessment method and provision accrual on investment
The impairment assessment and provision accrual on investments in subsidiaries, associates and jointly ventures are stated
in Note 3(11).
(6) Fixed assets and construction in progress
Fixed assets represent the tangible assets held by the Group using in the production of goods, rendering of services and
for operation and administrative purposes with useful life over one year.
Fixed assets are stated in the balance sheet at cost less accumulated depreciation and impairment losses (see Note 3(11)).
Construction in progress is stated in the balance sheet at cost less impairment losses (see Note 3(11)).
The cost of a purchased fixed asset comprises the purchase price, related taxes, and any directly attributable expenditure
for bringing the asset to working condition for its intended use. The cost of self-constructed assets includes the cost of
materials, direct labour, capitalised borrowing costs (see Note 3(18)), and any other costs directly attributable to
bringing the asset to working condition for its intended use. According to legal or contractual obligations, costs of
dismantling and removing the items and restoring the site on which the related assets located are included in the initial
cost.
Construction in progress is transferred to fixed assets when the asset is ready for its intended use. No depreciation is
provided against construction in progress.
Where the individual component parts of an item of fixed asset have different useful lives or provide benefits to the Group
in different patterns thus necessitating use of different depreciation rates or methods, each part is recognised as a
separate fixed asset.
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(6) Fixed assets and construction in progress (Continued)
The subsequent costs including the cost of replacing part of an item of fixed assets are recognised in the carrying amount
of the item if the recognition criteria are satisfied, and the carrying amount of the replaced part is derecognised. The
costs of the day-to-day servicing of fixed assets are recognised in profit or loss as incurred.
The Group terminates the recognition of an item of fixed asset when it is in a state of disposal or it is estimated that it
is unable to generate any economic benefits through use or disposal. Gains or losses arising from the retirement or
disposal of an item of fixed asset are determined as the difference between the net disposal proceeds and the carrying
amount of the item and are recognised in profit or loss on the date of retirement or disposal.
Other than oil and gas properties, the cost of fixed assets less residual value and accumulated impairment losses is
depreciated using the straight-line method over their estimated useful lives, unless the fixed asset is classified as held
for sale. The estimated useful lives and the estimated rate of residual values adopted for respective classes of fixed
assets are as follows:
Estimated Estimated rate
useful life of residual value
Plants and buildings 12-50 years 3%
Equipment, machinery and others 4-30 years 3%
4-30 years
3%
Useful lives, residual values and depreciation methods are reviewed at least each year end.
(7) Oil and gas properties
Oil and gas properties include the mineral interests in properties, wells and related support equipment arising from oil
and gas exploration and production activities.
The acquisition cost of mineral interest is capitalised as oil and gas properties. Costs of development wells and related
support equipment are capitalised. The cost of exploratory wells is initially capitalised as construction in progress
pending determination of whether the well has found proved reserves. Exploratory well costs are charged to expenses upon
the determination that the well has not found proved reserves. However, in the absence of a determination of the discovery
of proved reserves, exploratory well costs are not carried as an asset for more than one year following completion of
drilling. If, after one year has passed, a determination of the discovery of proved reserves cannot be made, the
exploratory well costs are impaired and charged to expense. All other exploration costs, including geological and
geophysical costs, are charged to profit or loss in the year as incurred.
The Group estimates future dismantlement costs for oil and gas properties with reference to engineering estimates after
taking into consideration the anticipated method of dismantlement required in accordance with the industry practices. These
estimated future dismantlement costs are discounted at credit-adjusted risk-free rate and are capitalised as oil and gas
properties, which are subsequently amortised as part of the costs of the oil and gas properties.
Capitalised costs of proved oil and gas properties are amortised on a unit-of-production method based on volumes produced
and reserves.
(8) Intangible assets
Intangible assets, where the estimated useful life is finite, are stated in the balance sheet at cost less accumulated
amortisation and provision for impairment losses (see Note 3(11)). For an intangible asset with finite useful life, its
cost less estimated residual value and accumulated impairment losses is amortised on a straight-line basis over the
expected useful lives, unless the intangible assets are classified as held for sale.
An intangible asset is regarded as having an indefinite useful life and is not amortised when there is no foreseeable limit
to the year over which the asset is expected to generate economic benefits for the Group.
Useful lives and amortisation methods are reviewed at least each year end.
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(9) Goodwill
The initial cost of goodwill represents the excess of cost of acquisition over the acquirer's interest in the fair value of
the identifiable net assets of the acquiree under the business combination involving entities not under common control.
Goodwill is not amortised and is stated at cost less accumulated impairment losses (see Note 3(11)). On disposal of an
asset group or a set of asset groups, any attributable amount of purchased goodwill is written off and included in the
calculation of the profit or loss on disposal.
(10) Financial Instruments
Financial instruments of the Group include cash and cash equivalents, bond investments, equity securities other than
long-term equity investments, receivables, derivative financial instruments, payables, loans, bonds payable, and share
capital, etc.
(a) Classification, recognition and measurement of financial instruments
The Group recognises a financial asset or a financial liability on its balance sheet when the Group enters into and becomes
a party to the underlining contract of the financial instrument.
The Group classifies financial assets and liabilities into different categories at initial recognition based on the purpose
of acquiring assets and assuming liabilities: financial assets and financial liabilities at fair value through profit or
loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets and other financial
liabilities.
Financial assets and financial liabilities are initially recognised at fair value. For financial asset or financial
liability of which the change in its fair value is recognised in profit or loss, the relevant transaction cost is
recognised in profit or loss. The transaction costs for other financial assets or financial liabilities are included in the
initially recognised amount. Subsequent to initial recognition financial assets and liabilities are measured as follows:
- Financial asset or financial liability with change in fair value recognised through profit or loss
A financial asset or financial liability is classified as at fair value through profit or loss if it is acquired or
incurred principally for the purpose of selling or repurchasing in the near term or if it is a derivative, unless the
derivative is a designated and effective hedging instrument, or a financial guarantee contract, or a derivative that is
linked to and must be settled by delivery of an unquoted equity instrument (without a quoted price from an active market)
whose fair value cannot be reliably measured. These financial instruments are initially measured at fair value with
subsequently changes in fair value recognised in profit or loss. Subsequent to initial recognition, financial assets and
financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognised
in profit or loss.
- Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable recoverable amount and with no quoted
price in active market. After the initial recognition, loans and receivables are measured at amortised cost using the
effective interest rate method.
- Held-to-maturity investment
Held-to-maturity investment includes non-derivative financial assets with fixed or determinable recoverable amount and
fixed maturity that the Group has the positive intention and ability to hold to maturity. Subsequent to initial
recognition, held-to-maturity investments are measured at amortised cost using the effective interest method.
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(10) Financial Instruments (Continued)
(a) Classification, recognition and measurement of financial instruments (Continued)
- Available-for-sale financial assets
Available-for-sale financial assets include non-derivative financial assets that are designated as available for sales and
other financial assets which do not fall into any of the above categories.
Available-for-sale financial assets whose fair value cannot be measured reliably are measured at cost subsequent to initial
recognition. Other than the above equity instrument investments whose fair values cannot be measured reliably, other
available-for-sale financial assets are initially stated at fair values. The gains or losses arising from changes in the
fair value are directly recognised in equity, except for the impairment losses and exchange differences from monetary
financial assets denominated in foreign currencies, which are recognised in profit or loss. The cumulative gains and losses
previously recognised in equity are transferred to profit or loss when the available-for-sale financial assets are
derecognised. Dividend income from these equity instruments is recognised in profit or loss when the investee declares the
dividends. Interest on available-for-sale debt instrument investments calculated using the effective interest rate method
is recognised in profit or loss (see Note 3(16) (c)).
- Other financial liabilities
Financial liabilities other than the financial liabilities at fair value through profit or loss are classified as other
financial liabilities.
Other financial liabilities include the liabilities arising from financial guarantee contracts. Financial guarantees are
contracts that require the issuer (i.e. the guarantor) to make specified payments to reimburse the beneficiary of the
guarantee (the holder) for a loss the holder incurs because a specified debtor fails to make payment when due in accordance
with the terms of a debt instrument. Where the Group issues a financial guarantee, subsequent to initial recognition, the
guarantee is measured at the higher of the amount initially recognised less accumulated amortisation and the amount of a
provision determined in accordance with the principles of contingencies (see Note 3(15)).
Except for the other financial liabilities described above, subsequent to initial recognition, other financial liabilities
are measured at amortised cost using the effective interest method.
(b) Disclosure of financial assets and financial liabilities
In the balance sheet, financial assets and liabilities are not offset unless all the following conditions are met:
- the Group has a legally enforceable right to set off financial assets against financial liabilities; and
- the Group intends to settle the financial assets and liabilities on a net basis, or to realise the assets and settle the
liabilities simultaneously.
(c) Determination of fair value
If there is an active market for a financial asset or financial liability, the quoted price in the active market is used to
establish the fair value of the financial asset or financial liability.
If no active market exists for a financial instrument, a valuation technique is used to establish the fair value. Valuation
techniques include using arm's length market transactions between knowledge, and willing parties; reference to the current
fair value of other instrument that is substantially the same; discounted cash flows and option pricing model. The Group
calibrates the valuation technique and tests it for validity periodically.
(d) Hedge accounting
Hedge accounting is a method which recognises the offsetting effects on profit or loss of changes in the fair values of the
hedging instrument and the hedged item in the same accounting period(s).
Hedged items are the items that expose the Group to risks of changes in fair value or future cash flows and that are
designated as being hedged. The Group's hedged items include fixed-rate borrowings that expose the Group to risk of changes
in fair values, floating rate borrowings that expose the Group to risk of variability in cash flows, and a forecast
transaction that is settled with a fixed amount of foreign currency and expose the Group to foreign currency risk, and a
forecast transaction that is settled with an undetermined future market price and exposes the Group to risk of variability
in cash flows, etc.
A hedging instrument is a designated derivative whose changes in fair value or cash flows are expected to offset changes in
the fair value or cash flows of the hedged item.
The hedge is assessed by the Group for effectiveness on an ongoing basis and determined to have been highly effective
throughout the accounting periods for which the hedging relationship was designated. The Group uses a ratio analysis to
assess the subsequent effectiveness of a cash flow hedge, and uses a regression analysis to assess the subsequent
effectiveness of a fair value hedge.
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(10) Financial Instruments (Continued)
(d) Hedge accounting (Continued)
- Cash flow hedges
A cash flow hedge is a hedge of the exposure to variability in cash flows. The portion of the gain or loss on the hedging
instrument that is determined to be an effective hedge is recognised directly in shareholders' equity as a separate
component. That effective portion is adjusted to the lesser of the following (in absolute amounts):
- the cumulative gain or loss on the hedging instrument from inception of the hedge;
- the cumulative change in present value of the expected future cash flows on the hedged item from inception of the
hedge.
The portion of the gain or loss on the hedging instrument that is determined to be an ineffective hedge is recognised in
profit or loss.
If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset, the associated gain
or loss is removed from shareholders' equity, included in the initial cost of the non-financial asset, and recognised in
profit or loss in the same year during which the non-financial asset affects profit or loss. However, if the Group expects
that all or a portion of a net loss recognised directly in shareholders' equity will not be recovered in future accounting
periods, it reclassifies the amount that is not expected to be recovered into profit or loss.
If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability,
the associated gain or loss is removed from equity and recognised in profit or loss in the same period during which the
financial asset or financial liability affects profit or loss. However, if the Group expects that all or a portion of a net
loss recognised directly in shareholders' equity will not be recovered in future accounting periods, it reclassifies the
amount that is not expected to be recovered into profit or loss.
For cash flow hedges, other than those covered by the preceding two policy statements, the associated gain or loss is
removed from shareholders' equity and recognised in profit or loss in the same period or periods during which the hedged
forecast transaction affects profit or loss.
When a hedging instrument expires or is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge
accounting, the Group will discontinue the hedge accounting treatments prospectively. In this case, the gain or loss on the
hedging instrument that remains recognised directly in shareholders' equity from the period when the hedge was effective
shall not be reclassified into profit or loss and is recognised in accordance with the above policy when the forecast
transaction occurs. If the forecast transaction is no longer expected to occur, the gain or loss on the hedging instrument
that remains recognised directly in shareholders' equity from the period when the hedge was effective shall be reclassified
into profit or loss immediately.
- Fair value hedges
A fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or an
unrecognised firm commitment, or an identified portion of such an asset, liability or unrecognised firm commitment.
The gain or loss from remeasuring the hedging instrument at fair value is recognised in profit or loss. The gain or loss on
the hedged item attributable to the hedged risk adjusts the carrying amount of the hedged item and is recognised in profit
or loss.
When a hedging instrument expires or is sold, terminated or exercised, or no longer meets the criteria for hedge
accounting, the Group discontinues prospectively the hedge accounting treatments. If the hedged item is a financial
instrument measured at amortised cost, any adjustment to the carrying amount of the hedged item is amortised to profit or
loss from the adjustment date to the maturity date using the recalculated effective interest rate at the adjustment date.
- Hedge of net investment in foreign operation
A hedge of a net investment in a foreign operation is a hedge of the exposure to foreign exchange risk associated with a
net investment in a foreign operation. The portion of the gain or loss on a hedging instrument that is determined to be an
effective hedge is recognised directly in equity as a separate component until the disposal of the foreign operation, at
which time the cumulative gain or loss recognised directly in equity is recognised in profit or loss. The ineffective
portion is recognised immediately in profit or loss.
3 SIGNIFICANT ACCOUNTING POLICIES (Continued)
(10) Financial Instruments (Continued)
(e) Derecognition of financial assets and financial liabilities
The Group derecognises a financial asset when the contractual right to receive cash flows from the financial asset expires,
or where the Group transfers substantially all risks and rewards of ownership of the financial asset, or where the Group
neither transfers nor retains substantially all risks and rewards of ownership of the financial asset but the Group gives
up the control of a financial asset.
On derecognition of a financial asset, the difference between the following amounts is recognised in profit or loss:
- the carrying amounts; and
- the sum of the consideration received and any cumulative gain or loss that had been recognised directly in equity.
Where the obligations for financial liabilities are completely or partially discharged, the entire or parts of financial
liabilities are derecognised.
(11) Impairment of financial assets and non-financial long-term assets
(a) Impairment of financial assets
The carrying amount of financial assets (except those financial assets stated at fair value with changes in the fair values
charged to profit or loss) are reviewed at each balance sheet date to determine whether there is objective evidence of
impairment. If any such evidence exists, impairment loss is provided.
Objective evidences of impairment include but not limited to:
(i) significant financial difficulty of the debtor;
(ii) a breach of contract, such as a default or delinquency in interest or principal payments;
(iii) it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
(iv) due to the significant financial difficulty of the debtor, financial assets is unable to be traded in active market;
(v) significant changes in the technological, market, economic or legal environment that have an adverse effect on the
debtor; and the cost of investment may not be recoverable; and
(vi) a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
- Receivables and held-to-maturity investments
Receivables are assessed for impairment on the combination of an individual basis and the aging analysis.
Held-to-maturity investments are assessed for impairment on an individual basis.
Where impairment is assessed on an individual basis, an impairment loss in respect of a receivable or held-to-maturity
investment is calculated as the excess of its carrying amount over the present value of the estimated future cash flows
(exclusive of future credit losses that have not been incurred) discounted at the original effective interest rate. All
impairment losses are recognised in profit or loss.
Impairment loss on receivables and held-to-maturity investments is reversed in profit or loss if evidence suggests that the
financial assets' carrying amounts have increased and the reason for the increase is objectively as a result of an event
occurred after the recognition of the impairment loss. The reversed carrying amount shall not exceed the amortised cost if
the financial assets had no impairment recognised.
- Available-for-sale financial assets
Available-for-sale financial assets are assessed for impairment on an individual basis. Objective evidence of impairment
for equity instruments classified as available-for-sale
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