Annual Report 200454
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2004
1. Statement of Accounting Policies
(continued)
(g) Revenue
Product sales, equipment rentals and
pipeline tariffs, overriding royalties and
other income are recognised when the
goods and services are provided and the
Santos Group has a legally enforceable
entitlement to the proceeds. Interest
revenue is recognised as it accrues.
Dividend income from controlled entities
is recognised as revenue as dividends are
declared and from other parties as
dividends are received.
The gross proceeds of non-current asset
sales are included as revenue at the date
control of the asset passes to the buyer,
usually when an unconditional contract of
sale is signed. The gain or loss on disposal
is calculated as the difference between the
carrying amount of the asset at the time of
disposal and the net proceeds on disposal.
(h) Goods and services tax
Revenues, expenses and assets are
recognised net of the amount of goods
and services tax (“GST”), except where the
amount of GST incurred is not recoverable
from the Australian Tax Office (“ATO”). In
these circumstances the GST is recognised
as part of the cost of acquisition of the
asset or as part of the expense.
Receivables and payables are stated with
the amount of GST included.
The net amount of GST recoverable from,
or payable to, the ATO is included as a
current asset or liability in the statements
of financial position.
Cash flows are included in the statements
of cash flows on a gross basis. The GST
components of cash flows arising from
investing and financing activities which
are recoverable from, or payable to, the
ATO are classified as operating cash flows.
(i) Cash
For the purposes of the statements of cash
flows, cash includes cash on hand, cash at
bank and short-term deposits at call.
(j) Receivables
Trade debtors and other receivables are
recorded at amounts due. A provision is
made for any doubtful debts based on a
review of collectability of outstanding
amounts at balance date. Bad debts are
written off in the period they are identified.
(k) Inventories
Inventories are valued at the lower of cost
and net realisable value after provision is
made for obsolescence. Cost is determined
as follows:
(i) drilling and maintenance stocks,
which include plant spares,
maintenance and drilling tools used
for ongoing operations, are valued at
average cost; and
(ii) petroleum products, which comprise
extracted crude oil, liquefied petroleum
gas, condensate and naphtha stored in
tanks and pipeline systems and
processed sales gas and ethane stored
in subsurface reservoirs, are valued
using the absorption cost method.
(l) Exploration and development
expenditure
Exploration and development expenditures
in respect of each area of interest are
accumulated and carried forward if either:
(i) such expenditure is expected to be
recouped through successful
development and commercial
exploitation of the area of interest; or
(ii) the exploration activities in the area of
interest have not yet reached a stage
which permits reasonable assessment
of the existence of economically
recoverable reserves and active and
significant operations in, or in relation
to, the area of interest are continuing.
When either an area of interest is
abandoned or the Directors consider the
expenditure to be of reduced or no further
value, accumulated exploration
expenditure is written down or off in the
period in which such a decision is made.
(m)Borrowings
Borrowings are carried on the statements
of financial position at their principal
amount. Interest is accrued at the
contracted rate.
(n) Leases
Operating lease payments, where the
lessor effectively retains substantially all
the risks and benefits of ownership of the
leased items, are expensed on a straight
line basis over the term of the lease.
(o) Capitalisation of borrowing costs
Borrowing costs, including interest, finance
charges and foreign currency exchange