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The related cost (including revaluation increment), accumulated depreciation, accumulated impairment
losses and any unrealized revaluation increment of an item of properties are derecognized from the
balance sheet upon its disposal. Any gain or loss on disposal of the asset is included in nonoperating
gains or losses in the year of disposal.
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Leased Properties and Idle Assets
Idle assets are transferred to other assets at net book value. Leased properties and idle assets are
stated at cost plus revaluation increment less accumulated depreciation and accumulated impairment.
Depreciation on leased properties and idle assets is computed using the fixed-percentage-on-declining-
balance method over service lives prescribed by the Executive Yuan. When leased properties and idle
assets are disposed of, the difference between their net book value and the selling price is credited or
charged to nonoperating gains or losses.
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Mineral Resources
Mineral resources previously recorded referred to the estimated value of the mineral reserves in areas
for which the Government of the ROC had gratuitously granted the Corporation in 1990 the right to
extract minerals. The estimated market value of these mineral reserves less costs to extract the
minerals and normal gross profit up to June 2009 was capitalized as mineral resources and credited
to capital surplus arising from donations. The capitalized costs were amortized using the unit-of-
production method.
Under the Mining Law, which took effect on December 31, 2003, the Corporation has to make a
payment for ownership of a mine based on the type of the mine, mining area and the right to explore
or extract mineral deposits. When mining begins, the Corporation also has to pay for mining rights at
2% to 50% of the value of the minerals extracted. Therefore, the Corporation wrote off the net book
value of mineral resources and reduced capital surplus arising from donations by the same amount on
December 31, 2003.
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Exploration Expenses
All geological and geophysical exploration costs are charged to current income.
The costs of drilling exploratory wells (“exploration well expenses”) in sites that have not yet proven
to contain reserves of commercial quantities (“unproven sites”) are initially charged to current income.
Exploration well expenses are subsequently capitalized as part of “oil and gas interests” accounts when
(i) sites are proven to contain mineral reserves of commercial quantities and (ii) the construction of
the wellhead equipment or offshore production platforms and flow lines is complete. The exploration
expenses incurred in the current year are reclassified from “exploration expenses” to assets. Costs
already charged to income in prior years are recognized as assets and as “nonoperating income.”
The costs of drilling commercial wells, which are constructed after the sites are proven to contain
mineral reserves of commercial quantities, are capitalized as assets. However, if the commercial wells
turn out to be dry, such costs are charged to current income.
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Oil and Gas Interests
For oil site acquisitions, the Corporation’s payments for this purchase or investments in foreign
joint ventures involving interest in oil sites - including the Corporation’s share in the costs of drilling
commercial wells, production, transport and storage equipment but excluding the Corporation’s share
in the costs of drilling exploratory wells and other exploration expenses - are capitalized as oil and
gas interests. The Corporation’s share in joint ventures’ net earnings (or net losses) is recognized as
other operating revenues (or other operating costs). The Corporation recognizes earnings remitted
by joint ventures as a reduction of oil and gas interests. These costs are amortized at the ratio of
the actual quantity of minerals extracted from the wells for the year to the estimated mineral reserve.
The amortized costs and operating expenses paid to joint ventures are regarded as the cost of the
Corporation’s share of the oil and gas extracted. The accompanying financial statements included the
related sales and cost of goods sold attributable to the Corporation’s share of the oil and gas sold by the
joint ventures.
