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As at the initial recording date, property, plant and equipment is measured at the purchase price or manufacturing cost. On the balance sheet date, property, plant and equipment items are measured at initial value less accumulated depreciation and accumulated impairment charges.
The initial value of property, plant and equipment includes the discounted liquidation cost of property, plant and equipment used in underground mining activity which, according to the applicable Geological and Mining Law Act, must be liquidated after the operations are discontinued.
The mine liquidation costs included in the initial value of property, plant and equipment are depreciated with the depreciation method used for depreciation of the property, plant and equipment to which they are related, starting from the moment the given property, plant and equipment item is commissioned for use, throughout the period set in the liquidation plan of facility groups being part of the anticipated mine liquidation schedule.
The subsequent expenditures are recognized in the carrying amount of the property, plant and equipment item or captured as a separate property, plant and equipment item (where applicable) only when it is probable that the Group will obtain economic benefits from this item and the cost of this item may be measured reliably. All other expenditures towards repairs and upkeep are posted in the financial result of the financial period in which they are incurred.
The subject matter of a finance lease is recognized in assets on the lease commencement date, at the lower of the two amounts: the fair value of the leased item or the present value of the minimum leasing fees. All of the lessee’s initial direct costs are added to the amount recognized as an asset component.
Depreciation of property, plant and equipment is calculated using the linear method to distribute their initial values, minus their final values, over their useful life periods, which are as follows for respective groups of property, plant and equipment:
These periods may not be longer than the useful life of the respective mines, if they are to be used in other plants (sections) of JSW.
Depreciable assets acquired under finance leases are depreciated over the useful lives of the assets if the agreement envisages transfer of the ownership title to the leased item to the lessee. If the agreement does not envisage ultimate transfer of the leased item to the lessee the asset is amortized over the term of the lease.
Profits and losses on the sale of property, plant and equipment are determined by comparing proceeds on the sale with their carrying amount and recognized in the financial result as other net profits/losses item.
The property, plant and equipment that is being built or installed is measured at purchase price or manufacturing cost minus any impairment losses and are not depreciated until the building process is completed.
Upon initial recognition, mine workings that are used to access operational mining pits, i.e. expensable mining pits, are measured at the accumulated cost incurred to build them, minus the value of coal mined during their construction measured at the normative production cost of the mined coal. Capitalized cost of expensable mining pits (which are classified as prepaid expenses) are presented in the financial statements as a separate item of property, plant and equipment. The expenditures for expensable mining pits are settled pro rata to the production of coal in respective wall areas. This is presented as depreciation in the financial result.
In the second half of each year, the Parent Company analyzes the amounts of capitalized costs of expensable mining pits in terms of their connection with revenues to be earned in subsequent financial periods.
The Group sets the estimated useful lives and consequently the depreciation rates for particular property, plant and equipment. This estimate is based on the anticipated period of economic usefulness of those assets. The correct application of depreciation periods and rates and the final value of property, plant and equipment are subject to annual reviews in the fourth quarter of the year in order to make appropriate adjustments to depreciation charges starting from the next financial year. The review of depreciation rates for property, plant and equipment resulted in a PLN 10.7 million decrease in depreciation in 2018 vs. the previous year.
Expensable mining pits are settled pro rata to the coal volume production in individual wall areas. The length of the settlement period of an expensable mining pit depends on the estimated quantity of coal in a given stratum, which has gained access through the mining pit.
| Note | Land | Buildings and structures | Expensable mining pits * | Technical equipment and machinery | Other property, plant and equipment | Property, plant and equipment under construction ** | Total | |
|---|---|---|---|---|---|---|---|---|
| AS AT 1 JANUARY 2018 | ||||||||
| Gross value | 41.3 | 7,375.9 | 688.2 | 6,918.9 | 460.7 | 921.2 | 16,406.2 | |
| Accumulated depreciation *** | – | (3,964.8) | – | (5,094.9) | (359.3) | (151.3) | (9,570.3) | |
| NET CARRYING AMOUNT | 41.3 | 3,411.1 | 688.2 | 1 824.0 | 101.4 | 769.9 | 6,835.9 | |
| Increases | – | 50.3 | 541.4 | 2.1 | 0.1 | 1,079.1 | 1,673.0 | |
| Change in the provision for mine closure costs | 7.12 | – | 87.9 | – | – | – | – | 87.9 |
| Transfers from property, plant and equipment under construction | 1.9 | 140.5 | – | 390.8 | 54.8 | (588.0) | – | |
| Transfer of KWK Krupiński to SRK | 4.5 | – | – | – | (2.1) | – | – | (2.1) |
| Decreases | (0.2) | (18.8) | (26.9) | (9.3) | (0.7) | (1.8) | (57.7) | |
| Depreciation | – | (162.5) | (264.9) | (294.5) | (33.7) | – | (755.6) | |
| Impairment loss – recognition | 7.3 | (595.8) | (166.9) | (246.9) | (14.2) | (189.3) | (1,213.1) | |
| Impairment loss – reversal | 7.3 | – | 480.5 | 97.1 | 120.0 | 2.4 | 34.7 | 734.7 |
| NET CARRYING AMOUNT | 43.0 | 3,393.2 | 868.0 | 1,784.1 | 110.1 | 1,104.6 | 7,303.0 | |
| BALANCE AS AT 31 DECEMBER 2018 | ||||||||
| Gross value | 43.0 | 7,603.2 | 868.0 | 7,160.6 | 494.0 | 1,352.7 | 17,521.5 | |
| Accumulated depreciation *** | – | (4,210.0) | – | (5,376.5) | (383.9) | (248.1) | (10,218.5) | |
| NET CARRYING AMOUNT | 43.0 | 3,393.2 | 868.0 | 1,784.1 | 110.1 | 1,104.6 | 7,303.0 |
*Capitalized costs of expensable mining pits are recognized in accordance with the coal production volumes from respective wall areas. Upon settlement, an expensable mining pit is actually liquidated; therefore, the table does not contain any accumulated depreciation numbers
**The capital expenditures incurred by the Group (except for expenditures for expensable mining pits) are accumulated in the „Property, plant and equipment under construction” item and in the month they are commissioned for use they are transferred to the appropriate type group of property, plant and equipment.
***This item includes accumulated depreciation and impairment losses on property, plant and equipment
| Note | Land | Buildings and structures | Expensable mining pits * | Technical equipment and machinery | Other property, plant and equipment | Property, plant and equipment under construction ** | Total | |
|---|---|---|---|---|---|---|---|---|
| BALANCE AS AT 1 JANUARY 2017 | ||||||||
| Gross value | 57.1 | 7,735.7 | 746.6 | 7,021.0 | 461.7 | 970.8 | 16,992.9 | |
| Accumulated depreciation *** | (9.1) | (3,900.6) | – | (5,044.8) | (359.2) | (196.0) | (9,509.7) | |
| NET CARRYING AMOUNT | 48.0 | 3,835.1 | 746.6 | 1,976.2 | 102.5 | 774.8 | 7,483.2 | |
| Increases | – | 50.2 | 459.1 | 0.2 | – | 549.9 | 1,059.4 | |
| Change in the provision for mine closure costs | 7.12 | – | (71.5) | – | – | – | – | (71.5) |
| Transfers from property, plant and equipment under construction | 0.6 | 199.5 | – | 230.9 | 28.9 | (459.9) | – | |
| Transfer of KWK Krupiński to SRK | 4.5 | (7.3) | (14.1) | (16.8) | (6.9) | (0.4) | (9.3) | (54.8) |
| Decreases | – | (41.3) | (3.1) | (9.5) | (0.2) | (8.2) | (62.3) | |
| Depreciation | – | (171.8) | (311.8) | (304.6) | (24.2) | – | (812.4) | |
| Impairment loss – recognition | 7.3 | – | (376.7) | (185.8) | (113.3) | (6.0) | (77.4) | (759.2) |
| Impairment loss – reversal | 7.3 | – | 1.7 | – | 51.0 | 0.8 | – | 53.5 |
| NET CARRYING AMOUNT | 41.3 | 3,411.1 | 688.2 | 1,824.0 | 101.4 | 769.9 | 6,835.9 | |
| BALANCE AS AT 31 DECEMBER 2017 | ||||||||
| Gross value | 41.3 | 7,375.9 | 688.2 | 6,918.9 | 460.7 | 921.2 | 16,406.2 | |
| Accumulated depreciation *** | – | (3,964.8) | – | (5,094.9) | (359.3) | (151.3) | (9,570.3) | |
| NET CARRYING AMOUNT | 41.3 | 3,411.1 | 688.2 | 1,824.0 | 101.4 | 769.9 | 6,835.9 |
* Capitalized costs of expensable mining pits are recognized in accordance with the coal production volumes from respective wall areas. Upon settlement, an expensable mining pit is actually liquidated; therefore, the table does not contain any accumulated depreciation numbers
** The capital expenditures incurred by the Group (except for expenditures for expensable mining pits) are accumulated in the „Property, plant and equipment under construction” item and in the month they are commissioned for use they are transferred to the appropriate type group of property, plant and equipment.
*** This item includes accumulated depreciation and impairment losses on property, plant and equipment
The items, which include depreciation of property, plant and equipment and the settlement of expensable mining pits, are listed below:
| 31.12.2018 | 31.12.2017 | |
|---|---|---|
| Cost of products, materials and goods sold | 709.0 | 772.9 |
| Selling and distribution expenses | 34.2 | 25.9 |
| Administrative expenses | 11.6 | 12.9 |
| Cost of performances and property, plant and equipment produced for own use | 0.6 | 0.5 |
| Other costs | 0.2 | 0.2 |
| Total depreciation of property, plant and equipment and the settlement of expensable mining pits | 755.6 | 812.4 |
As at 31 December 2018, the net value of property, plant and equipment items securing the repayment of liabilities is PLN 2,389.9 million (as at 31 December 2017: PLN 4,317.4 million) and this is mainly security for the repayment of liabilities under the Bond Issue Program of 30 July 2014 as amended. The security interest for these bonds is described in Note 6.2. The property, plant and equipment securing the loan and borrowing liabilities is presented in Note 6.1.
In 2018, there were no capitalized costs of external financing of property, plant and equipment in the Group. In 2017, the capitalized costs of external financing of property, plant and equipment were PLN 0.6 million.