14.1. PROPERTY, PLANT AND EQUIPMENT

SELECTEDACCOUNTING PRINCIPLES

Property, plant and equipment
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
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.

Exploration and extraction of mineral resources
Within the framework of exploration and extraction of mineral resources, the following classification of stage was made:

Stage of exploration and assessment of mineral resources include:
- acquisition of rights to explore and extract, exploration and recognition of resources,
- expenditures for exploratory,
- other expenditures which are directly attributable to the phase of exploration and recognition - The Group capitalizes most of the costs incurred as part of this stage.
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 analyses 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.

Stage of site planning and of extraction of mineral resources
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.

PROFESSIONALJUDGEMENT

Expenditures for exploration and evaluation of mineral resources
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.

ESTIMATES

Useful lives of property, plant and equipment
The Group verifies useful lives of property, plant and equipment once at year end. The impact of verification of useful lives in 2020 resulted in a decrease of depreciation costs by PLN 49 million compared to depreciation costs that were recognised based on useful lives applied in 2019.

Exploration and evaluation of mineral resources
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.

Remediation of land – water environment
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 areas of production plants, generating installations, power stations and ash landfills. Detailed information in note 14.11.1

 

 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
 01/01/2020

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

 11,319

 10,536

 967

 3,859

 534

 4,007

 32,363

increases/(decreases), net

Investment expenditures

 4

 158

 162

 37

 6,865

 146

 255

 7,627

Depreciation

 (1)

 (1,141)

 (1,976)

 (280)

 -

 (8)

 (353)

 (3,759)

Borrowing costs

 -

 2

 17

 -

 24

 -

 -

 43

Acquisition of subsidiaries

 108

 8,957

 4,050

 499

 704

 -

 -

 14,318

Net impairment allowances, incl.: *

 (15)

 (1,783)

 1,641

 (3)

 56

 (119)

 (1,295)

 (1,518)

Recognition

 (15)

 (106)

 (89)

 (11)

 (22)

 (331)

 (1,356)

 (1,930)

Reversal

 -

 60

 21

 7

 1

 203

 61

 353

Reclassifications

 12

 3,393

 1,850

 527

 (5,814)

 (2)

 61

 27

Grants

 -

 (12)

 3

 -

 -

 -

 -

 (9)

Foreign exchange differences, incl.:

 43

 139

 215

 10

 52

 -

 10

 469

foreign exchange differences of impairment allowances

 (2)

 (46)

 88

 -

 (1)

 (1)

 (36)

 2

Other

 (1)

 (21)

 (57)

 (59)

 (26)

 (9)

 (1)

 (174)

 

 1,291

 21,011

 16,441

 1,698

 5,720

 542

 2,684

 49,387

 Net carrying amount at
 31/12/2020

Gross carrying amount

 1,350

 37,200

 47,123

 3,477

 5,798

 1,514

 7,140

 103,602

Accumulated depreciation

 (14)

 (12,644)

 (23,964)

 (1,680)

 (1)

 (45)

 (2,426)

 (40,774)

Impairment allowances

 (45)

 (3,488)

 (6,569)

 (97)

 (76)

 (927)

 (2,030)

 (13,232)

Grants

 -

 (57)

 (149)

 (2)

 (1)

 -

 -

 (209)

 

 1,291

 21,011

 16,441

 1,698

 5,720

 542

 2,684

 49,387

 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)

 (1,695)

 (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)

 Net carrying amount at
 31/12/2019

 1,141

 11,319

 10,536

 967

 3,859

 534

 4,007

 32,363


* Net impairment allowances include recognition, reversal, usage and reclassifications.

Description of the reasons for changes in major impairment allowances is presented in the note 14.4.

In 2020 and 2019 investments expenditures were reduced by PLN 106 million and PLN 30 million received/due to penalties for delayed execution of the investment contracts.

In 2020 and in 2019 the capitalization rate used to calculate capitalized borrowing costs amounted to 0.95% and 0.92%, respectively.

The gross carrying amount of all fully depreciated property, plant and equipment still in use as at 31 December 2020 and as at 31 December 2019 amounted to PLN 5,387 million and PLN 4,790 million*, respectively.

* restated data

Download
ORLEN Group Integrated Report

Download PDF