Rex International Holding Limited 185 NOTES TO THE FINANCIAL STATEMENTS 2 MATERIAL ACCOUNTING POLICY INFORMATION (CONTINUED) 2.3 Exploration and evaluation assets (continued) Costs of site restoration are provided over the life of the facility from when exploration commences and are included in the cost of that stage. Site restoration costs include the dismantling and removal of drilling facilities, equipment and building structures, waste removal, and rehabilitation of the site in accordance with clauses of the concession permits. Such costs have been determined using estimates of future costs, current legal requirements and technology on a discounted basis. Any changes to the estimates for the costs are accounted on a prospective basis. In determining the costs of site restoration, there is uncertainty regarding the nature and extent of the restoration due to community expectations and future legislation. Accordingly, the costs have been determined on the basis that the restoration will be completed within one year of abandoning the concession site. 2.4 Oil and gas properties Oil and gas properties arise from the reclassification of E&E assets once commercial viability and technical feasibility are established and production commenced. Oil and gas properties are measured at cost less accumulated depletion and accumulated impairment losses. The accumulated costs for the relevant area of interest are depreciated using a unit-of-production method over proved and probable reserves. The unit-of-production rate for the accumulated costs takes into account expenditures incurred to date, together with estimated future capital expenditure expected to be incurred relating to as yet undeveloped and probable reserves expected to be processed through these common facilities. 2.5 Goodwill and intangible assets (i) Goodwill Goodwill that arises upon the acquisition of a business is included in intangible assets. For the measurement of goodwill at initial recognition, see Note 2.1(i). Goodwill is measured at cost less accumulated impairment losses. The value-in-use of certain Group’s licences, are based on cash flows after tax. This is because these licences are only sold in an after-tax market as stipulated in the Petroleum Taxation Act Section 10 in Norway. The purchaser is therefore not entitled to a tax deduction for the consideration paid over and above the seller’s tax values. In accordance with SFRS(I) 1-12 paragraphs 15 and 24, a provision is made for deferred tax corresponding to the difference between the acquisition cost and the transferred tax depreciation basis. The offsetting entry is goodwill. Hence, goodwill arises mainly as a technical effect of deferred tax. (ii) Intangible assets Intangible assets that are acquired by the Group and have finite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred.
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