ANNUAL REPORT 2011 - DONG Energy

do not satisfy the criteria for hedge accounting are recognised
as revenue. Likewise, value adjustments of financial contracts
offered to customers with a view to price hedging are recognised
as revenue.
fuel and energy
Fuel and energy comprise the Group’s purchases of fuel in the
form of gas, coal, biomass and oil, and energy purchases, as
well as transportation costs in connection with the above and
costs related to CO2 emissions. The costs are recognised in
profit for the year as incurred.
property, plant and equipment
Property, plant and equipment comprise land and buildings,
production assets, exploration assets, other assets, tools and
equipment, etc. Property, plant and equipment are measured at
cost less accumulated depreciation and impairment losses.
Cost comprises purchase price and any costs directly attributable
to the acquisition until the date the asset is available for
use. The cost of self-constructed assets comprises direct and
indirect costs of materials, components, subsuppliers and
labour. Borrowing costs relating to both specific and general
borrowing directly attributable to assets under construction
with a lengthy construction period are recognised in cost during
the construction period. Cost is increased by the present
value of the estimated obligations for dismantling and removing
the assets and restoring the site to the extent that they
are recognised as a provision. In the case of assets held under
finance leases, cost is determined at inception of the lease
as the lower of the fair value of the assets and the present
value of future minimum lease payments. The present value is
determined using the interest rate implicit in the lease as the
discount rate or an approximated value.
Subsequent costs, for example in connection with replacement
of parts of an item of property, plant and equipment, are recognised
in the carrying amount of the asset in question when it
is probable that future economic benefits will flow to the Group
from the expenses incurred. Replaced parts are derecognised
from the balance sheet, and their carrying amount is taken to
profit for the year. All other repair and maintenance expenses
are recognised in profit for the year as incurred.
Exploration assets comprise acquired licences and reserves
as well as exploration expenses that relate to successful wells.
Costs are recognised using the successful efforts method.
Under the successful efforts method, exploration expenses for
drilling specific exploration wells are recognised in the balance
sheet if the well is successful. Recognition in the balance sheet
is maintained pending determination of commercial viability.
Recognised exploration expenses for commercial discoveries
are transferred to property, plant and equipment under construction
on commencement of the construction of a field.
All exploration expenses determined as unsuccessful are recognised
in profit for the year as other external expenses. General
exploration expenses are also recognised as other external
expenses as incurred. Borrowing costs relating to exploration
assets are recognised in profit for the year as incurred.
Site development and construction costs relating to property,
plant and equipment that it has been decided to invest in are
recognised in the balance sheet within property, plant and
equipment under construction until the date of entry into service.
Following entry into service, these assets are transferred
to the relevant items under property, plant and equipment.
In the case of oil and gas production assets, cost is depreciated
using the unit-of-production method based on the ratio of current
production to estimated reserves by individual field.
In the case of wind turbines, cost is depreciated taking into
account the expected earnings profile, so that the depreciation
pattern reflects the expected earnings patterns.
In the case of other property, plant and equipment, cost is basically
depreciated on a straight-line basis over the estimated future
useful lives. Exploration assets and assets under construction
are not depreciated, as depreciation of such assets does
not commence until the assets are available for use, on which
date they are transferred to the relevant item within property,
plant and equipment, usually production assets.
DONG ENERGY ANNUAL REPORT 2011 – COnsOliDatED finanCial statEmEnts
131
notes