Property, plant and equipment shall be measured initially at acquisition or production cost and shall be presented in the statement of financial position in its net carrying amount, including grants. Property, plant and equipment are presented in the statement of financial position at the net book value which is the amount at which an asset is initially recognised (cost) less accumulated depreciation and any accumulated impairment losses, as well as received grants for assets.
The costs of significant repairs and regular maintenance programs are recognised as property, plant and equipment.
Fixed assets are depreciated with straight-line method and in justified cases units of production method of depreciation (catalysts, assets arising from development and extraction of mineral resources).
Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately over the period reflecting its useful lives.
The following standard useful lives are used for property, plant and equipment:
Buildings and constructions 10-40 years
Machinery and equipment 4-35 years
Vehicles and other 2-20 years
The method of depreciation, residual value and useful life of an asset are reviewed at least at the end of each year. When it is necessary adjustments of depreciation are carried out in subsequent periods (prospectively).
Grants are recognised if there is reasonable assurance that the grants will be received and the entity will comply with the conditions attaching to them.
Grants related to assets are recognised as a decrease of a carrying amount of an asset and as a result a decrease of depreciation and amortisation charges over its useful life.
Within the framework of exploration and extraction of mineral resources, the following classification of stage was made:
The Group shall review annually expenditures incurred in the stage of exploration and recognition of mineral resources in order to confirm the intention of further work. The analyzes are carried out at the level of projects, including works with a defined exploratory and/or prospective purpose, which are conducted in the assigned area. If the work is unsuccessful, resulting in a lack of intention to continue the work, the cost previously recognised as an asset are recognised as cost of a current period.
Expenditures incurred in the exploration and recognition of resources are recognised as assets related to development and extraction of mineral resources within property, plant and equipment at the moment of the conclusion of their technical feasibility and economic viability of mining which are tested for impairment.
Expenditure incurred for mineral resource sites planning and extraction of resources are capitalized and amortised by unit of production method calculated proportionally to the amount of extraction of hydrocarbons based on unit of installation. The Group calculates the depreciation of all assets related to sites planning and extraction of mineral resources based on so called 2P proved plus probable reserves. In case of significant change in estimated mineral resources, at the reporting date potential impairment allowances are recognised or reversed. In case of performance of exploratory drillings on already extracted resource, the Group analyses, if costs incurred enable rising new boreholes. If not, the expenditures are recognised in costs of the current period.
Application of the Group’s accounting policy for expenditures for exploration and evaluation of mineral resources requires an assessment, whether future economic benefits resulting from future extraction or sale are probable or if indications allowing to estimate the resources does not yet exist. When estimating the resources, the Group assesses future events and circumstances, including the assessment whether the extraction will be economically feasible.
The Group verifies useful lives of property, plant and equipment once at year end. The impact of verification of useful lives in 2019 resulted in a decrease of depreciation costs by PLN 81 million compared to depreciation costs that were recognised based on useful lives applied in 2018.
The Group estimates resources based on interpretation of available geological data and verifies then on the current basis, based on effects of further drills, trial exploitation, actual extraction and economic factors such as: hydrocarbons’ prices, contractual terms or investment plans. At the end of each reporting period the Group analyses cost of removal of wells and supporting infrastructure.
The Group estimates the level of provisions related to non-current assets, which to a significant probability are needed for land – water environment remediation of the territory of petrol stations, fuel depots and areas of production plants. Detailed information in note 12.9.1
| Land | Buildings and constructions | Machinery and equipment | Vehicles and other | Construction in progress | Exploration and evaluation of mineral resource assets | Assets related to development and extraction of mineral resources | Total | |
| Net carrying amount at 01/01/2019 |
||||||||
| Gross carrying amount | 1,193 | 23,634 | 40,384 | 2,376 | 3,476 | 1,281 | 6,045 | 78,389 |
| Accumulated depreciation | (11) | (10,505) | (21,601) | (1,420) | – | (31) | (1,696) | (35,263) |
| Impairment allowances | (34) | (1,702) | (8,227) | (95) | (145) | (608) | (736) | (11,547) |
| Grants | – | (48) | (138) | (3) | – | – | – | (189) |
| 1,148 | 11,379 | 10,418 | 858 | 3,331 | 642 | 3,614 | 31,390 | |
| increases/(decreases), net | ||||||||
| Investment expenditures | 4 | 49 | 103 | 98 | 3,227 | 143 | 473 | 4,097 |
| Depreciation | (1) | (752) | (1,548) | (231) | – | (7) | (323) | (2,862) |
| Borrowing costs | – | 5 | 10 | 2 | 5 | 13 | – | 35 |
| Net impairment allowances, incl.: * | 5 | 50 | 2 | 1 | 15 | (199) | 72 | (54) |
| Recognition | – | (54) | (30) | (1) | (36) | (206) | (36) | (363) |
| Reversal | – | 89 | 13 | 2 | – | – | 110 | 214 |
| Reclassifications | (14) | 603 | 1,617 | 246 | (2,675) | (56) | 26 | (253) |
| Grants | – | 3 | (14) | 1 | (1) | – | – | (11) |
| Foreign exchange differences, incl.: | (3) | (1) | 7 | 2 | 7 | 3 | 163 | 178 |
| foreign exchange differences of impairment allowances | 1 | (7) | (73) | – | (1) | – | (35) | (115) |
| Other | 2 | (17) | (59) | (10) | (50) | (5) | (18) | (157) |
| 1,141 | 11,319 | 10,536 | 967 | 3,859 | 534 | 4,007 | 32,363 | |
| Net carrying amount at 31/12/2019 |
||||||||
| Gross carrying amount | 1,182 | 24,208 | 41,732 | 2,599 | 3,991 | 1,379 | 6,757 | 81,848 |
| Accumulated depreciation | (13) | (11,185) | (22,746) | (1,536) | – | (38) | (2,051) | (37,569) |
| Impairment allowances | (28) | (1,659) | (8,298) | (94) | (131) | (807) | (699) | (11,716) |
| Grants | – | (45) | (152) | (2) | (1) | – | – | (200) |
| 1,141 | 1,1319 | 10,536 | 967 | 3,859 | 534 | 4,007 | 32,363 | |
| Net carrying amount at 01/01/2018 |
||||||||
| Gross carrying amount | 1,166 | 21,838 | 37,489 | 2,152 | 4,267 | 1,049 | 5,666 | 73,627 |
| Accumulated depreciation | (11) | (9,521) | (19,741) | (1,315) | – | (24) | (1,392) | (32,004) |
| Impairment allowances | (38) | (2,239) | (8,559) | (107) | (110) | (538) | (792) | (12,383) |
| Grants | – | (51) | (113) | (4) | (1) | – | – | (169) |
| 1,117 | 10,027 | 9,076 | 726 | 4,156 | 487 | 3,482 | 29,071 | |
| increases/(decreases), net | ||||||||
| Investment expenditures | – | 142 | 79 | 58 | 3,156 | 237 | 503 | 4,175 |
| Depreciation | (1) | (687) | ( 1,369) | (206) | – | (9) | (312) | (2,584) |
| Borrowing costs | – | 22 | 26 | (2) | (23) | – | – | 23 |
| Net impairment allowances, incl.: * | 5 | 605 | 885 | 17 | (31) | (69) | 53 | 1,465 |
| Recognition | (1) | (102) | (68) | (5) | (69) | (114) | (158) | (517) |
| Reversal | 6 | 505 | 410 | 7 | 14 | 44 | 210 | 1,196 |
| Reclassifications | 12 | 1,236 | 1,685 | 287 | (3,973) | – | (99) | (852) |
| Grants | – | 3 | (25) | 1 | 1 | – | – | (20) |
| Foreign exchange differences, incl.: | 19 | 56 | 107 | 13 | 55 | (3) | (12) | 235 |
| foreign exchange differences of impairment allowances | (1) | (68) | (553) | (5) | (4) | (1) | 3 | (629) |
| Other | (4) | (25) | (46) | (36) | (10) | (1) | (1) | (123) |
| Net carrying amount at 31/12/2018 |
1,148 | 11,379 | 10,418 | 858 | 3,331 | 642 | 3,614 | 31,390 |
In 2019 and 2018 investments expenditures were reduced by PLN 30 million and PLN 219 million received/due to penalties for delayed execution of the investment contracts.
In 2019 and 2018 the capitalization rate used to calculate capitalized borrowing costs amounted to 0.92% and 0.76%, respectively.
The gross carrying amount of all fully depreciated property, plant and equipment still in use as at 31 December 2019 and as at 31 December 2018 amounted to PLN 4,418 million and PLN 4,844 million, respectively.