PT KARYA PUTRA BORNEO AND ITS SUBSIDIARY

Transcription

1 PT KARYA PUTRA BORNEO AND ITS SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2017 AND INDEPENDENT AUDITORS REPORT

2 TABLE OF CONTENTS Page DIRECTORS STATEMENT LETTER INDEPENDENT AUDITORS REPORT CONSOLIDATED FINANCIAL STATEMENTS - For the year ended March 31, 2017 Consolidated Statement of Financial Position 1 Consolidated Statement of Profit or Loss and Other Comprehensive Income 3 Consolidated Statement of Changes in Equity 4 Consolidated Statement of Cash Flows 5 Notes to Consolidated Financial Statements 6

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6 CONSOLIDATED STATEMENT OF FINANCIAL POSITION MARCH 31, 2017 March 31, March 31, Notes ASSETS CURRENT ASSETS Cash and cash equivalents 5 4,226, ,105 Trade accounts receivable 6 Related party ,515 Third parties 3,057, ,940 Other accounts receivable from third parties 64,671 2,078 Inventories 7 1,187,281 1,575,132 Prepaid taxes 8 3,812 81,707 Prepayments and advances 9 233, ,437 Total Current Assets 8,774,119 3,026,914 NONCURRENT ASSETS Deferred tax assets ,549 84,477 Property, plant and equipment - net of accumulated depreciation and impairment loss of 5,973,458 in 2017 and 3,742,395 in ,586,252 24,007,694 Mining properties 11 13,546,030 16,209,428 Advance for purchase of property, plant and equipment 406, ,449 Goodwill 12 2,556,456 2,556,456 Reclamation deposits , ,374 Other noncurrent assets 255, ,893 Total Noncurrent Assets 39,193,119 44,202,771 TOTAL ASSETS 47,967,238 47,229,685 See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements

7 CONSOLIDATED STATEMENT OF FINANCIAL POSITION MARCH 31, 2017 (Continued) March 31, March 31, Notes LIABILITIES AND EQUITY CURRENT LIABILITIES Trade accounts payable 14 Related parties ,226 Third parties 2,253,053 2,085,913 Other accounts payable to third parties 4,002 22,714 Accrued expenses 15 2,325, ,577 Taxes payable 16 1,347, ,468 Advance from customers 17,30 1,123,767 23,353 Due to a related party 18,30 26,442,685 40,565,240 Total Current Liabilities 33,496,128 44,108,491 NONCURRENT LIABILITIES Provision for reclamation , ,847 Employee benefits obligations , ,103 Total Noncurrent Liabilities 1,112, ,950 EQUITY Capital stock - Rp 1,000,000 par value per share Authorized - 200,000 shares in 2017 and 20,000 shares in 2016 Subscribed and paid-up - 78,000 shares in 2017 and 5,000 shares in ,011, ,390 Additional paid-in capital 21 34,972 - Retained earnings (deficit) 2,636,860 (1,325,071) Equity (capital deficiency) attributable to the owners of the Company 8,683,207 (773,681) Non-controlling interests 22 4,674,937 3,075,925 Total Equity 13,358,144 2,302,244 TOTAL LIABILITIES AND EQUITY 47,967,238 47,229,685 See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements

8 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED MARCH 31, 2017 Notes SALES 23,30 52,573,993 26,552,242 COST OF GOODS SOLD 24 34,017,579 18,441,052 GROSS PROFIT 18,556,414 8,111,190 Selling expenses 25 (6,719,203) (3,389,257) General and administrative expenses 26 (1,537,983) (1,009,878) Financial charges 27 (2,087,858) (3,087,141) Loss on foreign exchange - net (118,664) (84,411) Others - net (222,279) 818,572 PROFIT BEFORE TAX 7,870,427 1,359,075 TAX EXPENSE - NET 28 (2,305,970) (381,650) NET PROFIT FOR THE YEAR 5,564, ,425 OTHER COMPREHENSIVE INCOME Item that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit obligation - net of tax (6,518) 13,577 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 5,557, ,002 PROFIT ATTRIBUTABLE TO: Owners of the Company 3,964, ,829 Non-controlling Interest 22 1,600, ,596 Net profit for the period 5,564, ,425 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company 3,961, ,208 Non-controlling Interest 22 1,596, ,794 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 5,557, ,002 See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements

9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED MARCH 31, 2017 Equity (capital deficiency) Additional Retained attributable Capital paid-in earnings to owners of Non-controlling Total Notes stock capital (deficit) the Company interests equity Balance as of April 1, ,390 - (2,107,279) (1,555,889) 2,867,131 1,311,242 Net profit for the year , , , ,425 Other comprehensive income for the year ,379 18,379 (4,802) 13,577 Balance as of March 31, ,390 - (1,325,071) (773,681) 3,075,925 2,302,244 Issuance of new shares 20 5,459, ,459,985-5,459,985 Additional paid-in capital 21-34,972-34,972-34,972 Tax amnesty ,004 3,004 Net profit for the year - - 3,964,089 3,964,089 1,600,368 5,564,457 Other comprehensive income for the year - - (2,158) (2,158) (4,360) (6,518) Balance as of March 31, ,011,375 34,972 2,636,860 8,683,207 4,674,937 13,358,144 See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements

10 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 2017 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 7,870,427 1,359,075 Adjustments: Depreciation expenses 2,397,781 1,041,581 Amortization expenses 4,119,944 1,221,686 Employee benefits obligations 148,785 87,210 Financial charges 2,087,858 3,087,141 Foreign exchange 2,349 7,503 Loss on disposal of property, plant and equipment 614,736 4,762 Interest income (17,470) (20,227) Operating cash flows before changes in working capital 17,224,410 6,788,731 Changes in working capital: Trade accounts receivable (2,193,187) (682,271) Other accounts receivable from third parties (62,593) 1,152,744 Inventories 387,851 (728,585) Prepaid taxes 23, ,964 Prepayments and advances (13,286) 1,525,966 Reclamation deposits (11,723) (184,046) Other noncurrent assets (12,550) (4,473) Trade accounts payable (379,086) 661,375 Other accounts payable to third parties (18,712) (19,163) Advance from customers 1,100,414 - Advance from a related party - (3,094,865) Accrued expenses 1,560,658 (391,285) Taxes payable 189,392 (66,643) Provision for reclamation 136, ,987 Cash generated from operations 17,931,700 5,320,436 Payments of employee benefits - (13,367) Cash received from tax refund 54,323 - Payment of income tax (1,299,343) (399,562) Net Cash Provided by Operating Activities 16,686,680 4,907,507 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (590,716) (1,135,296) Acquisition of mining properties (1,456,546) (3,125,405) Advance for purchase of property, plant and equipment (192) (5,331) Interest income received 17,470 20,227 Proceeds from sale of property, plant and equipment 9,602 2,299 Proceeds from issuance of capital 5,488,000 - Net Cash Provided by (Used in) Investing Activities 3,467,618 (4,243,506) CASH FLOWS FROM FINANCING ACTIVITIES Payment of due to related party (15,768,626) (1,735,000) Proceed from due to related party - 680,000 Payment of financial charges (441,787) (37,207) Net Cash Used in Financing Activities (16,210,413) (1,092,207) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,943,885 (428,206) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 283, ,311 CASH AND CASH EQUIVALENTS AT END OF PERIOD 4,226, ,105 See accompanying notes to consolidated financial statements which are an integral part of the consolidated financial statements

11 MARCH 31, 2017 AND FOR THE YEAR THEN ENDED 1. GENERAL a. Establishment and General Information PT Karya Putra Borneo ( the Company ) was established in Balikpapan based on deed No. 05 dated September 10, 2007 of Hamid Gunawan, S.H., notary in Balikpapan. The deed of establishment was approved by the Ministry of Justice and Human Rights of the Republic of Indonesia in its Decision Letter No. C HT TH.2007 dated November 15, The Company s articles of association have been amended several times, most recently by deed No. 02 of Suparman Hasyim, S.H., notary in Jakarta, dated January 5, 2017 concerning the changes in authorized, subscribed and paid-up capital of the Company. This deed was approved by the Ministry of Justice and Human Rights of the Republic of Indonesia in his decision letter No. AHU-AH dated January 17, The Company s head office is located at Menara Prima Tower 1, Jalan DR. Ide Anak Agung Gde Agung Blok 6.2, Kawasan Mega Kuningan, Jakarta, with its mining site located in Samarinda, East Kalimantan. In accordance with article 3 of the Company s articles of association, the scope of its activities is mainly to engage in coal mining activities. The Company started its commercial operations in July The Company and its subsidiary (the Group) had total number of employees of 189 and 186 at March 31, 2017 and 2016, respectively. The Company belongs to a group of companies owned by Mercator Limited a group listed on the National Stock Exchange and Bombay Stock Exchange in India. The Company s management at March 31, 2017: Board of Commissioner President Commissioner : Atul Agarwal Board of Director Director : Kirtipal Singh Raheja b. Consolidated Subsidiary Details of the Group s subsidiary at the end of the reporting period are as follows: Subsidiary Total Start of Assets Before Elimination Nature of Percentage of Commercial March 31, March 31, Domicile Business Ownership Operations PT Indo Perkasa (IPK) Jakarta Mining services 51% ,746,572 24,600,936 c. Mining and Other Rights 1. Based on decision of the Regents of Kutai Kartanegara regarding Approval of Production Operation Mining Permit (IUP OP) No. 540/136/IUP-OP/MB-PBAT/VIII/2011 dated August 12, 2011, the Government issued IUP Exploration to the Company for the 914- hectare land in Loa Janan, Batuah Village, Kutai Kartanegara, East Kalimantan. The IUP OP granted for 12 years includes the construction for 1 year, production for 10 years, and post-mining for 1 year. The permit expires on August 12, Based on letter No. 503/194/IUJP/BPPMD-PTSP/II/2015 dated February 15, 2015, IPK is granted mining service permit (Izin Usaha Jasa Pertambangan) by the Local Government of East Borneo for 5 years and can be extended

12 3. Based on Dock Permit Letter No /952/Dishub/VII/2011 dated July 1, 2011, the Government granted permit to IPK to operate a special dock located at the shipping line of Mahakam River as a mooring facility/ dock ship/ barge to its own interest to support the loading/unloading of coal of production. 4. Based on decision of Indonesia Investment Coordination Board (BKPM) regarding Approval of Production Operating Permit (IUP OP) for foreign investment in coal commodity No.39/1/IUP/PMA/2016 dated November 15, 2016, the Government issued IUP to the Company for the 914-hectare land in Loa Janan, Batuah Village, Kutai Kartanegara, East Kalimantan valid until August 12, d. Proven Reserve Based on the assessment of PT GMT Indonesia dated September 20, 2011, the proven reserve of Company s coal is at 34,073,100 tonnes. As of March 31, 2017 and 2016, the management estimates that the proven reserve is at 28,277,089 and 29,929,048 tonnes (unaudited), respectively. 2. ADOPTION OF NEW AND REVISED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS ( PSAK ) AND INTERPRETATIONS OF PSAK ( ISAK ) a. Standards and amendments effective in the current year In the current year, the Group has applied a new standard, a number of amendments, and an interpretation to PSAK issued by the Financial Accounting Standard Board of the Indonesian Institute of Accountants that are relevant to its operations and effective for accounting period beginning on January 1, PSAK 70, Accounting for Tax Amnesty Asset and Liability The new standard specifically prescribes the accounting for tax amnesty asset and liability in relation to the application of Tax Amnesty Law. PSAK 70 provides two (2) accounting policy choices for an entity who recognizes assets and liabilities in relation to the provision of the Tax Amnesty Law based on Declaration Letter for Tax Amnesty as whether: 1. use the existing PSAK, or 2. use the specific provisions in paragraph of PSAK 70. The major differences between the two choices are related to the measurement, presentation and disclosures of the assets and liabilities and whichever is chosen by an entity, it has to be consistently applied to all Tax Amnesty assets and liabilities. The standard is effective on July 1, 2016 consistent with the enactment of the Tax Amnesty Law. The application of the following amendments, and interpretation to standards have not resulted to material impact to disclosures or on the amounts recognized in the current and prior period consolidated financial statements: Amendments to PSAK 4, Separate Financial Statements Amendments to PSAK 7, Related Party Disclosures Amendments to PSAK 16, Property, Plant and Equipment Amendments to PSAK 19, Intangible Assets Amendments to PSAK 22, Business Combination Amendments to PSAK 24, Employee Benefits Amendments PSAK 25, Accounting Policies, Changes in Accounting Estimates and Errors - 7 -

13 Amendments to PSAK 65, Consolidated Financial Statements Amendments to PSAK 68, Fair Value Measurement b. Standard and interpretations issued not yet adopted New standards, amendments and interpretation effective for periods beginning on or after January 1, 2017, with early application permitted are the following: PSAK 1: Presentation of Financial Statements about Disclosure Initiative Standard and amendment to standard effective for periods beginning on or after January 1, 2018, with early application permitted are: Amendments to PSAK 16: Property, Plant and Equipment As of the issuance date of the consolidated financial statements, the effect of adoption of these standards, amendments and interpretations on the consolidated financial statements is not known nor reasonably estimable by management. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Statement of Compliance The consolidated financial statements of the group have been prepared in accordance with Indonesian Financial Accounting Standards. b. Basis of Preparation The consolidated financial statements have been prepared on the historical cost basis except for certain properties and financial instruments that are measured at revalued amounts or fair values at the end of each reporting period, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The consolidated statement of cash flows is prepared using the indirect method with classifications of cash flows into operating, investing and financing activities. c. Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiary. Control is achieved where the Company has the power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above

14 When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company s voting rights in an investee are sufficient to give it power, including (i) the size of the Company s holding of voting rights relative to the size and dispersion of holding of the other vote holders; (ii) potential voting rights held by the Company, other vote holders or other parties; (iii) rights arising from other contractual arrangements; and (iv) any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders meetings. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expense of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interest. Total comprehensive income of subsidiaries is attributed to the owners of the Company and the non-controlling interest even if this results in the non-controlling interest having a deficit balance. Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used in line with those used by the Group. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. Changes in the Group s ownership interest in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group s interest and the non-controlling interest are adjusted to reflect the changes in their relative interest in the subsidiaries. Any difference between the amount by which the non-controlling interest are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interest. All amounts previously recognized in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable accounting standards). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under PSAK 55, Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity. d. Business Combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree, and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognized in profit or loss as incurred

15 At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value except for certain assets and liabilities that are measured in accordance with the relevant standards. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer s previously held equity interest in the acquire (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after the reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer s previously held interest in the acquiree (if any), the excess is recognized immediately in profit or loss as a bargain purchase option. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests proportionate share of the acquiree s identifiable net assets. The choice of measurement basis is made on a transactionby-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another accounting standard. When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured subsequent to reporting dates in accordance with the relevant accounting standards, as appropriate, with the corresponding gain or loss being recognized in profit or loss or in other comprehensive income. When a business combination is achieved in stages, the Group s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date and the resulting gain or loss, if any, is recognized in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interests were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amount recognized as of that date

16 e. Foreign Currency Transactions and Translation The consolidated financial statements are measured and presented in U.S Dollar (), which is the functional currency for the financial statements. In preparing the consolidated financial statements of the Group, transactions in currencies other than the Group s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Nonmonetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences on monetary items are recognized in profit or loss in the period in which they arise. f. Transaction with Related Parties A related party is person or entity that is related to the Group (the reporting entity): a. A person or a close member of that person s family is related to the reporting entity if that person: i. has control or joint control over the reporting entity; ii. has significant influence over the reporting entity; or iii. is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. b. An entity is related to the reporting entity if any of the following conditions applies: i. The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). ii. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). iii. Both entities are joint ventures of the same third party. iv. One entity is a joint venture of a third entity and the other entity is an associate of the third entity. v. The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity, or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. vi. The entity is controlled or jointly controlled by a person identified in (a). vii. A person identified in (a) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or a parent of the entity). viii. The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity. g. Financial Assets All financial assets are recognised and derecognised on trade date where the purchase or sale of a financial asset is under a contract which terms require delivery of the financial assets within the time frame established by the market concerned, and are initially measured at fair value plus transaction costs. The Group s financial assets are classified as loans and receivables

17 Loans and receivables Cash in and cash equivalent, except cash on hand and trade accounts receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method less impairment. Interest is recognised by applying the effective interest method, except for short-term receivables when the recognition of interest would be immaterial. Effective interest method The effective interest method is a method of calculating the amortized cost of a financial instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or, where appropriate, a shorter period to the net carrying amount on initial recognition. Impairment of financial assets Loans and receivables are assessed for indicators of impairment at each reporting date. Loans and receivables are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the loans and receivables, the estimated future cash flows of the loans and receivables have been affected. Objective evidence of impairment could include: significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it is becoming probable that the borrower will enter bankruptcy or financial reorganisation. Loans and receivables that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group s past experiences of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. The amount of the impairment on loans and receivables is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. The carrying amount of the receivables is reduced by the impairment loss through the use of an allowance account. When a receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised

18 Derecognition of financial assets The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. On derecognition of financial asset in its entirety, the difference between the asset s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss. On derecognition of financial asset other than its entirety (e.g., when the Group retains an option to repurchase part of a transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts. h. Financial Liabilities and Equity Instruments Classification as debt or equity Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Financial liabilities at amortized cost Trade and other payables and other borrowings are initially measured at fair value, net of transaction costs, and are subsequently measured at amortized cost, using the effective interest method, with interest expense recognized on an effective yield basis. Derecognition of financial liabilities The Group derecognizes financial liabilities when, and only when, the Group s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss

19 i. Netting of Financial Asset and Financial Liabilities The Group only offsets financial assets and liabilities and presents the net amount in the statement of financial position where it: currently has a legal enforceable right to set off the recognized amount; and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. j. Inventories Inventories are stated at cost or net realizable value, whichever is lower. Cost is determined using the weighted average method. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale. k. Prepaid Expenses Prepaid expenses are amortized over their beneficial periods using the straight-line method. l. Property, Plant and Equipment Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated at cost, less accumulated depreciation and any accumulated impairment losses. Depreciation is recognized so as to write-off the cost of assets less residual values using the following method: Unit of measure Depreciation Prior to method Year 2017 April 1, 2016 Coal Crusher Plant Unit production 30,000,000 MT 60,000,000 MT Land improvements Straight-line years 20 years Building Straight-line 20 years 20 years Weight bridge Double declining 4 years 4 years Vehicle Double declining/ 4 years 4 years Straight-line Heavy equipment Double declining/ 4 years 4 years Straight-line Furniture, fixture and office equipment Double declining 4 years 4 years Starting April 1, 2016, the Company changed the estimated useful lives of Coal Crusher Plant and Land Improvement, based on the Company s assessment on the remaining estimated useful life of the assets. This change was applied prospectively. The estimated useful lives, unit of production, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Land is stated at cost and is not depreciated. The cost of maintenance and repairs is charged to operations as incurred. Other costs incurred subsequently to add to, replace part of, or service an item of property, plant and equipment, are recognised as asset if, and only if it is probable that future economic benefits associated with the item will flow to the entity and the cost of the item can be measured reliably

20 When assets are retired or otherwise disposed of, their carrying values are removed from the accounts and any resulting gain or loss is reflected in the profit or loss. Construction in progress is stated at cost. Construction in progress is transferred to the respective property, plant and equipment account when completed and ready for use. m. Exploration and Evaluation Assets Exploration and evaluation activity involves the search for mineral resources, determination of the technical feasibility and assessment of the commercial viability of the mineral resource. Exploration and evaluation expenditures comprise of costs that are directly attributable to: acquisition of rights to explore; topographical, geological, geochemical and geophysical studies; exploratory drilling; trenching and sampling; and activities involved in evaluating the technical feasibility and commercial viability of extracting mineral resources. Exploration and evaluation assets related to an area of interest is written-off as incurred, unless they are capitalised and carried forward, on an area of interest basis, provided one of the following conditions is met: (i) (ii) the costs are expected to be recovered through successful development and exploitation of the area of interest or, alternatively, by its sale; or exploration activities in the area of interest have not yet reached the stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves and active and significant operations in or in relation to the area of interest are continuing. Capitalised costs include costs directly related to exploration and evaluation activities in the relevant area of interest. General and administrative costs are allocated to an exploration or evaluation asset only to the extent that those costs can be related directly to operational activities in the relevant area of interest. Exploration and evaluation assets are recorded at cost less impairment charges. As the asset is not available for use, it is not depreciated. Exploration and evaluation assets are assessed for impairment if facts and circumstances indicate that impairment may exist. Exploration and evaluation assets are also tested for impairment once commercial reserves are found, before the assets are transferred to mining properties. n. Mining Properties When mines are capable of operating in the manner intended by the management, exploration and evaluation assets are transferred to mining properties. Amortization is charged using the units of production method. Mining properties are tested for impairment in accordance with the policy described in Note 3p

21 o. Goodwill Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer s previously held equity interest (if any) in the entity over net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. For the purpose of impairment testing, goodwill is allocated to each of the Group s cashgenerating units expected to benefit from the synergies of the combination. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in subsequent period. On disposal of the subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. p. Impairment of Non-Financial Assets At the end of each reporting period, the Group reviews the carrying amount of non-financial assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. Estimated recoverable amount is the higher of fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of the non-financial asset (cash generating unit) is less than its carrying amount, the carrying amount of the asset (cash generating unit) is reduced to its recoverable amount and an impairment loss is recognized immediately against earnings. Accounting policy for impairment of financial asset is explained in Note 3g and for impairment of goodwill in Note 3o. q. Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. As lessee Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed

22 r. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. s. Revenue and Expense Recognition Sale of Coal Revenue from sale of coal is recognised when all of the following conditions are satisfied: the Group has transferred to the buyer the significant risks and rewards of ownership of the coal; the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the coal sold; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the Group; and the cost incurred or to be incurred in respect of the transaction can be measured reliably. Rendering of services Revenue from contracts to provide services is recognised when the services are rendered. Interest income Interest income is accrued on time basis, by reference to the principal outstanding and at the applicable interest rate. Expenses Expenses are recognised when incurred. t. Employee Benefits Obligations The Group provides defined employee benefits to its employees in accordance with Labor Law No. 13/2003. No funding has been made to the defined benefit plans. The cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each annual reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the statement of financial position with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurement recognised in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are categorised as follows:

23 Service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements). Net interest expense or income Remeasurement The Group presents the first two components of defined benefit costs in profit or loss. Curtailment gains and losses are accounted for as past service costs. u. Income Tax The tax currently payable is based on taxable profit to the year. Taxable profit differs from profit before tax as reported in the consolidated statement of profit or loss and other comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. Current tax expense is determined based on the taxable income for the year computed using prevailing tax rates. Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent that is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary differences arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognized if the temporary differences arises from the initial recognition of goodwill. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on the tax rates (and tax laws) that have been enacted, or substantively enacted, by the end of the reporting period. The measurement of deferred tax assets and liabilities reflects the consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. The carrying amount of deferred tax asset is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Current and deferred tax are recognized as an expense or income in profit or loss, except when they relate to items that are recognized outside of profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognized outside of profit or loss. 4. CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES In the application of the Group s accounting policies, which are described in Note 3, the directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates

24 The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Critical Judgments in Applying Accounting Policies In the process of applying the accounting policies described in Note 3, management has not made any critical judgment that has significant impact on the amounts recognised in the consolidated financial statements, apart from those involving estimates, which are dealt with below. Key Sources of Estimation Uncertainty The key assumptions concerning future and other key sources of estimation at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Impairment Loss on Loans and Receivables The Group assesses its loans and receivables for impairment at each reporting date. In determining whether an impairment loss should be recorded in profit or loss, management makes judgment as to whether there is objective evidence that loss event has occurred. Management also makes judgment as to the methodology and assumptions for estimating the amount and timing of future cash flows which are reviewed regularly to reduce any difference between loss estimate and actual loss. The carrying amounts of loans and receivables are disclosed in Notes 5 and 6. Estimated Useful Lives of Property, Plant and Equipment The useful live of each item of the Group s property, plant and equipment are estimated based on the period over which the asset is expected to be available for use. Such estimation is based on internal technical evaluation and experience with similar assets. The estimated useful lives of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A change in the estimated useful lives of any item of property, plant and equipment would affect the recorded depreciation expense and decrease in the carrying values of property, plant and equipment. The carrying amounts of property, plant and equipment are disclosed in Note 10. Estimated Coal Reserves Proven reserves are estimates of the output that can be economically and legally exploited from the Group s mining properties. The Group determines and report its mineral reserves under the principles incorporated in the Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code ) of the Australasian Joint Ore Reserves Committee ( JORC ). In order to estimate mineral reserves, assumptions are required about a range of geological, technical and economic factors, including quantities, production techniques, stripping ratio, production costs, transport costs, commodity demand, commodity prices and exchange rates. Because the economic assumptions used to estimate reserves change from period to period, and because additional geological data are generated during the course of operations, estimates of reserves may change from period to period