Page 66 - ar2012

31 December 2012
NOTESTO FINANCIAL STATEMENTS
62 GEO ENERGY RESOURCES LIMITED | Annual Report 2012
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
LEASES – Leases are classifed as fnance leases whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee. All other leases are classifed as operating leases.
The Group as lessor
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease
unless another systematic basis is more representative of the time pattern in which use beneft derived from the
leased asset is diminished. Initial direct costs incurred in negotiating and arranging an operating lease are added
to the carrying amount of the leased asset and recognised as an expense over the lease term on the same basis
as the lease income.
The Group as lessee
Assets held under fnance leases are recognised as assets of the Group at their fair value at the inception of the
lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor
is included in the consolidated statement of fnancial position as a fnance lease obligation. Lease payments are
apportioned between fnance charges and reduction of the lease obligation so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are charged directly to proft or loss, unless
they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s
general policy on borrowing costs (see below).
Rentals payable under operating leases are charged to proft or loss on a straight-line basis over the term of
the relevant lease unless another systematic basis is more representative of the time pattern in which economic
benefts from the leased asset are consumed.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a
liability. The aggregate beneft of incentives is recognised as a reduction of rental expense on a straight-line basis,
except where another systematic basis is more representative of the time pattern in which economic benefts from
the leased asset are consumed.
INVENTORIES – Inventories are stated at the lower of cost and net realisable value. The cost of coal inventories
is determined using the weighted average cost method. Costs include direct material, overburden removal, mining,
processing, labour incurred in the extraction process and an appropriate proportion of variable and fxed overhead
costs directly related to mining activities. Net realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and applicable variable selling expenses.
Inventories are classifed as follows:
 Coal : These are coals that are extracted from mining activities and available for sale.
 Consumables : These are goods or supplies to be either directly or indirectly consumed in the production
process.
PROPERTY, PLANT AND EQUIPMENT – Property, plant and equipment are stated at cost less accumulated
depreciation and any accumulated impairment losses.
Construction-in-progress for qualifying assets, includes borrowing costs capitalised in accordance with the Group’s
accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when
the assets are ready for their intended use.