Download - Siemens Pakistan

130 Notes to the Financial Statements
3.1.1 Defined Benefit Plan
The Company operates a funded gratuity scheme for its regular permanent employees except expatriates. Provisions are made in the financial
statements to cover obligations on the basis of actuarial valuation carried out annually under the Projected Unit Credit method. Actuarial gains /
losses are amortised over the expected future service of the employees.
3.1.2 Defined Contribution Plan
The Company also operates a provident fund scheme for all its regular permanent employees except expatriates. Equal monthly contributions are
made to the fund, both by the Company and the employees at the rate of 10 percent of basic salary and cost of living allowance wherever applicable.
3.2 Provisions
A provision is recognised in the balance sheet when the Company has legal or constructive obligation as a result of past event and it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the
amount of obligation.
The Company accounts for its obligations towards long service bonus payable to its employees who are expected to complete twenty five / forty
years of service when the employees render service.
The Company accounts for its warranty obligations when the underlying products or services are sold. The provision is based on historical warranty
data and a weighting of all possible outcomes against their associated probabilities.
Various contracts entered into by the Company include provisions whereby liquidated damages may be imposed in case of delay in completion of
the project. These damages are generally levied in case the delay is considered to be on account of factors under Company’s control. The Company
makes provision for these liquidated damages based on an analysis of various factors resulting in delays / estimated delays. The imposition of
actual liquidated damages is subject to negotiations and, in certain cases, based on fresh analysis of the factors affecting the delay, these damages
may not be imposed or may be higher than the amount provided. The provisions which are no longer required are released to the profit and loss
account when the factors resulting in the delays / estimated delays cease to exist.
3.3 Borrowing costs
Borrowing costs are recognised as an expense in the period in which they are incurred.
3.4 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Cost in relation to self
manufactured assets includes direct cost of materials, labour and applicable manufacturing overheads. If the cost of certain components of an
item of property, plant and equipment are significant in relation to the total cost of the item, they are accounted for and depreciated separately.
Capital work-in-progress is stated at cost.
Depreciation is charged to profit and loss account applying the straight line method whereby the cost of an asset is written off over its estimated
useful life. Depreciation on additions is charged from the month in which asset is available to use and on disposals upto the month of deletion.
Leased assets are depreciated over the shorter of lease term and their useful lives. Freehold land is not depreciated. The residual value,
depreciation method and the useful lives of each part of property, plant and equipment that is significant in relation to the total cost of the asset
are reviewed, and adjusted if appropriate, at each reporting date.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the
future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The cost of the day-to-day
servicing of property, plant and equipment are recognised in profit and loss account as incurred. Gains or losses on sale or retirement of property,
plant and equipment are included in the profit and loss account.
3.5 Intangible assets
3.5.1 Software
Software is stated at cost less accumulated amortisation and accumulated impairment losses, if any. These are amortised using the straight line
method over the estimated useful lives of software.
3.5.2 Goodwill
Goodwill represents the excess of the cost of business combination over the acquirer's interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities of the acquiree. This is stated at cost less any accumulated impairment losses, if any.
3.6 Impairment
3.6.1 Financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is
considered to be impaired if objective evidence indicates that one or more events have had a negative effect of the estimated future cash flows
of that asset.