Rex International Holding Limited 1 7 5 NOTES TO THE FINANCIAL STATEMENTS 1 GENERAL INFORMATION (CONTINUED) 1.3 Standards issued but not yet effective (continued) Management anticipates the initial application of the new SFRS(I) 18 will result in changes to the structure of the Group’s consolidated statement of comprehensive income, consolidated statement of cash flows and the additional disclosures required for management-defined performance measures. Management is assessing the possible impact of implementing SFRS(I) 18. It is currently impracticable to disclose any further information on the known or reasonably estimable impact to the Group’s financial statements in the initial application period. Management does not plan to early adopt the new SFRS(I) 18. 1.4 Critical accounting judgements and key sources of estimation uncertainty (i) Critical judgements made in applying the Group’s material accounting policies Information about critical judgements in applying the Group’s material accounting policies that have the most significant effect on the amounts recognised in the financial statements is discussed below. Business combinations Determining whether an acquisition meets the definition of a business combination requires judgement to be applied on a case-by-case basis. Acquisitions are assessed under the relevant SFRS(I) 3 Business Combinations criteria (whether the set of assets and activities acquired includes, at a minimum, an input and substantive process and whether the acquired set has the ability to produce output) to establish whether the transaction represents a business combination or an asset acquisition. Depending on the specific facts, acquisitions of exploration and evaluation licences for which a development decision has not yet been made, have largely been concluded to represent asset acquisition. Acquisition accounting is subject to significant judgement by the management. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability. The fair value of oil fields in production and development phase is normally based on discounted cash flow models, where the determination of inputs to the model may require significant judgement. The fair value of the assets or liabilities acquired at the date of acquisition are disclosed in Notes 4 and 31 to the financial statements. Exploration and evaluation expenditures The application of the Group’s accounting policy for exploration and evaluation expenditure requires judgement to determine whether it is likely that future economic benefits are likely from future exploitation or sale, or whether activities have not reached a stage which permits a reasonable assessment of the existence of reserves. The determination of reserves and resources is itself an estimation process that requires varying degrees of uncertainty depending on how the resources are classified. These estimates directly impact the point of deferral of exploration and evaluation expenditure. The Group’s accounting policy requires management to make certain estimates and assumptions as to future events and circumstances, in particular, whether an economically viable extraction operation can be established and executed successfully. Any such estimates and assumptions may change as new information becomes available. If, after expenditure is capitalised, information becomes available suggesting that the recovery of the expenditure is unlikely, the relevant capitalised amount is written off in profit or loss in the period when the new information becomes available.
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