Annual Report 2011 - PGS

Notes to the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies
Adoption of new and revised policies and standards and interpretations
The new standards, amendments and interpretations effective for the year ended 31 December 2011 have not been applied in
preparing these consolidated financial statements as they did not have any significant impact.
Significant changes to accounting policies
From January 1, 2011 the Company changed the policy for recognition of costs incurred in connection with major overhaul of
vessels. Under the new policy the directly attributable costs incurred in connection with major overhaul are capitalized and
depreciated over the estimated period till the next similar overhaul. The former policy was to expense such costs when incurred.
The change is made to better reflect the economic reality, reduce volatility and align the accounting to industry practice and
practice among other vessel owning companies. The change in policy is applied for all reported periods, including periods prior
to January 1, 2011. See note 36 for presentation of adjustments made in the restated periods.
Consolidation
Subsidiaries and business combinations
Subsidiaries are all entities (including special purpose entities) over which the Company has the power to govern the financial
and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and
effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the
Company controls another entity.
Subsidiaries are consolidated in the financial statements from the point in time when the Company gains control. The acquisition
of subsidiaries is accounted for using the acquisition method of accounting. Acquisition cost is assigned to the assets and
liabilities of the subsidiaries, including previously unrecognized intangible assets and contingent liabilities, using their fair value
at the date of acquisition. Any excess of purchase cost over fair value of assets and liabilities is recorded as goodwill. Following
initial recognition, goodwill is not amortized, but measured at cost less any accumulated impairment losses. All inter-company
transactions and balances have been eliminated in the consolidation. In those cases where the subsidiaries are not wholly
owned, the non-controlling interests are presented separately in the consolidated statements of operations and consolidated
statements of financial position.
Investments in joint ventures
A joint venture is a contractual arrangement whereby the Company undertakes an economic activity that is subject to joint
control under which strategic financial and operating policy decisions relating to the activities require the unanimous consent of
the parties sharing control.
The Company reports its interests in jointly controlled entities using the equity method of accounting. Under the equity method,
investments in joint ventures are carried in the consolidated statements of financial position at cost as adjusted for postacquisition
changes in the Company’s share of the net assets of the joint venture (i.e. profit or loss and equity adjustments), less
any impairment in the value of individual investments. Losses of a joint venture in excess of the Company’s interest in that joint
venture (which includes any long-term interests that, in substance, form part of the Company’s net investment in the joint
venture) are not recognized, unless the Company has incurred legal or constructive obligations or made payments on behalf of
the joint venture. Profits and losses resulting from transactions between the Company and the joint venture are eliminated to the
extent of the interest in the joint venture.
When the Company contributes or sells assets to the joint venture, any portion of gain or loss from the transaction is recognised
based on the substance of the transaction and any gain or loss of such transactions are eliminated to the extent of the
Company’s interest in the joint venture. When the Company purchases assets from the joint venture, the Company does not
recognise its share of the profits of the joint venture from the transaction until it resells the assets to an independent party.
The Company periodically reviews its net investments in joint ventures to determine whether there is any indication of
impairment loss. If any such indication exists, the recoverable amount of the joint venture is estimated in order to determine the
extent of the impairment loss (if any).
Investments in associated companies
An associated company is an entity over which the Company has significant influence and that is neither a subsidiary nor an
interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the
investee but is not control or joint control over those policies, generally accompanying a shareholding of between 20% and 50%
of the voting rights.
The net results and assets and liabilities of associated companies are incorporated in these financial statements using the
equity method of accounting, except when the investment is classified as held-for-sale (see below).
The Company periodically reviews its investments in associated companies to determine whether there is any indication of an
impairment loss. If such indication exists, the recoverable amount of the associate is estimated in order to determine the extent
of the impairment loss (if any).
Held-for-sale and discontinued operations
Results of subsidiaries or operations disposed of during the financial year are included in the Company’s profit up to the
effective date of disposal. When the Company intends to dispose of, or classify as held-for-sale, a business component that
3 PGS ANNUAL REPORT 2011
74 PGS Annual Report 2011