KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2012
F-91
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of tangible assets (continued)
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount,
the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is
increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not
exceed the carrying amount that would have been determined had no impairment loss been recognised for the
asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income
immediately.
Operating leases
Operating lease payments are recognised 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 recognised 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 recognised as
a liability. The aggregate benefit of incentives is recognised 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.
Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and
oil price fluctuations, including interest rate caps and oil price put options.
Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are
subsequently re-measured to their fair value at the end of each reporting period. The resulting gain or loss is
recognised in the consolidated statement of income immediately unless the derivative is designated and
effective as a hedging instrument, in which event the timing of the recognition in the consolidated statement
of income depends on the nature of the hedge relationship (see below). A derivative with a positive fair value
is recognised as a financial asset while a derivative with a negative fair value is recognised as a financial
liability.
Hedge accounting
The Group designates certain hedging instruments which include oil put options as cash flow hedges in order
to mitigate the risk arising from fluctuations in oil prices.
At the inception of the hedge relationship, the Group documents the relationship between the hedging
instrument and the hedged item, along with its risk management objectives and its strategy for undertaking
various hedge transactions. Furthermore, at the inception of the hedge and on an on-going basis, the Group
documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash
flows of the hedged item attributable to the hedged risk.
Note 24 sets out details of the fair values of the derivative instrument used for hedging purposes.
