ANNUAL REPORT 2011 - DONG Energy

notes
40 Description of accounting policies
Depreciation periods for property, plant and equipment
Buildings used for own purposes1 20 - 50 years
Production assets, natural gas and oil2 20 - 40 years
Production assets (thermal), electricity 20 - 35 years
Production assets, district heat 25 - 35 years
Wind turbines3 20 - 24 years
Geothermal plants 20 years
Distribution networks, natural gas3 20 - 40 years
Distribution networks, electricity 10 - 40 years
Distribution networks, heat 10 - 50 years
Natural gas storage facilities3 Gas transportation system (marine
20 - 40 years
pipelines) 3 20 - 40 years
Oil transportation system (marine
pipeline) 15 years
Exploration assets 4 -
IT hardware 3 - 5 years
Fixtures and fittings, tools and equipment 3 - 10 years
Assets under construction4 -
1 Land is not depreciated.
2 Depreciation is charged applying the unit-of-production method.
3 The depreciation profile takes account of the fact that the earnings
profile changes substantially over the life of the asset as a result of the
statutory revenue caps.
Where individual components of an asset have different useful
lives, they are accounted for as separate items, which are depreciated
separately.
The basis of depreciation is determined on the basis of the asset’s
residual value less any impairment losses. The residual
value is determined at the acquisition date and reassessed
annually. Depreciation ceases if the residual value exceeds the
carrying amount of the individual components.
If the depreciation period or the residual value changes, the effect
on depreciation is recognised prospectively as a change in
accounting estimates.
Prepayments for property, plant and equipment are classified
together with property, plant and equipment under
construction.
impairment of assets
Goodwill and intangible assets with an indefinite useful life are
tested for impairment annually, initially before the end of the
year of acquisition. In-process development projects are also
tested annually for impairment.
132 COnsOliDatED finanCial statEmEnts – DONG ENERGY ANNUAL REPORT 2011
The carrying amount of goodwill is tested for impairment, along
with the carrying amounts of the other non-current assets of the
cash-generating unit to which the goodwill has been allocated,
and written down to the recoverable amount via profit for the
year if the carrying amount exceeds the recoverable amount.
Exploration assets are tested for impairment if there is any
indication of impairment. In carrying out the test, emphasis
is placed on the special indicators that are relevant to the
exploration industry, including the duration of the period for
which DONG Energy holds the rights for exploration wells, the
timing and costs in connection with the exploration wells in the
individual fields, the results of existing exploration wells and
the expectations concerning future exploration wells, including
the level of future exploration wells, and the probability that the
exploration wells will result in commercial finds. The recoverable
amount of exploration assets is reviewed if any indication
of impairment exists. The recoverable amount is the higher of
an asset’s fair value less expected disposal costs and its value
in use. Value in use is determined as the present value of the
expected future cash flows from the asset or cash-generating
unit to which the asset belongs.
Deferred tax assets are reviewed annually and recognised to
the extent that it is probable that they will be utilised.
The carrying amounts of other non-current assets are tested
annually to determine if any indication of impairment exists. If
any such indication exists, the asset’s recoverable amount is
determined. The recoverable amount is the higher of an asset’s
fair value less expected disposal costs and its value in use.
An impairment loss is recognised whenever the carrying
amount of an asset or its cash-generating unit exceeds its
recoverable amount. Impairment losses are recognised in profit
for the year as depreciation, amortisation and impairment
losses on intangible assets and property, plant and equipment.
Impairment losses relating to goodwill are not reversed.
Impairment losses relating to other assets are reversed to the
extent that the assumptions or estimates that led to the impairment
have changed. Impairment losses are only reversed
to the extent that the asset’s new carrying amount does not
exceed the value of the asset after depreciation had no impairment
losses been charged.
Equity
Hedging reserve
The hedging reserve comprises the accumulated net change
in the fair value of hedging transactions that qualify for designation
as hedges of future cash flows, and where the hedged
transaction has yet to be realised, less the related tax.