Page 198 - Annual Report 2020

11 Property, plant and equipment continued
Depreciation
Depreciation of assets, other than land, assets under construction and capitalised exploration and evaluation that are not depreciated,
is calculated using either the straight-line (SL) method or units of production (UoP) method, net of residual values, over the estimated
useful lives of specific assets. The depreciation method and rates applied to specific assets reflect the pattern in which the asset’s benefits
are expected to be used by the Group. The Group’s reported reserves are used to determine UoP depreciation unless doing so results in
depreciation charges that do not reflect the asset’s useful life. Where this occurs, alternative approaches to determining reserves are applied,
such as using management’s expectations of future oil and gas prices rather than yearly average prices, to provide a phasing of periodic
depreciation charges that better reflects the asset’s expected useful life.
Where assets are dedicated to a mine or petroleum lease, the below useful lives are subject to the lesser of the asset category’s useful life
and the life of the mine or petroleum lease, unless those assets are readily transferable to another productive mine or lease.

Key estimates
The determination of useful lives, residual values and depreciation methods involves estimates and assumptions and is reviewed
annually. Any changes to useful lives or any other estimates or assumptions may affect prospective depreciation rates and asset
carrying values. The table below summarises the principal depreciation methods and rates applied to major asset categories
by the Group.
Mineral rights and Capitalised exploration, evaluation
Category Buildings Plant and equipment petroleum interests and development expenditure
Typical depreciation methodology SL SL UoP UoP
Depreciation rate 25–50 years 3–30 years Based on the rate of Based on the rate of depletion
depletion of reserves of reserves

Commitments
The Group’s commitments for capital expenditure were US$2,585 million as at 30 June 2020 (2019: US$3,308 million). The Group’s
commitments related to leases are included in note 20 ‘Leases’.

Impairment of non-current assets
Recognition and measurement Valuation methods
Impairment tests for all assets are performed when there is an Fair value less cost of disposal
indication of impairment, although goodwill is tested at least FVLCD is an estimate of the amount that a market participant would
annually. If the carrying amount of the asset exceeds its recoverable pay for an asset or CGU, less the cost of disposal. FVLCD for mineral
amount, the asset is impaired and an impairment loss is charged and petroleum assets is generally determined using independent
to the income statement so as to reduce the carrying amount market assumptions to calculate the present value of the estimated
in the balance sheet to its recoverable amount. future post-tax cash flows expected to arise from the continued use
Previously impaired assets (excluding goodwill) are reviewed for of the asset, including the anticipated cash flow effects of any capital
possible reversal of previous impairment at each reporting date. expenditure to enhance production or reduce cost, and its eventual
Impairment reversal cannot exceed the carrying amount that would disposal where a market participant may take a consistent view. Cash
have been determined (net of depreciation) had no impairment flows are discounted using an appropriate post-tax market discount
loss been recognised for the asset or cash generating units (CGUs). rate to arrive at a net present value of the asset, which is compared
There were no reversals of impairment in the current or prior year. against the asset’s carrying value. FVLCD may also take into
consideration other market-based indicators of fair value.
How recoverable amount is calculated
The recoverable amount is the higher of an asset’s fair value less Value in use
cost of disposal (FVLCD) and its value in use (VIU). For the purposes VIU is determined as the present value of the estimated future cash
of assessing impairment, assets are grouped at the lowest levels flows expected to arise from the continued use of the asset in its
for which there are separately identifiable cash flows. present form and its eventual disposal. VIU is determined by applying
assumptions specific to the Group’s continued use and cannot take
into account future development. These assumptions are different to
those used in calculating FVLCD and consequently the VIU calculation
is likely to give a different result (usually lower) to a FVLCD calculation.

196 BHP Annual Report 2020