KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2012
F-92
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is
recognised immediately in the consolidated statement of income.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to
finance income or costs in the consolidated statement of income in the periods when the hedged item is
recognised in the consolidated statement of income. However, when the forecast transaction that is hedged
results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously
recognised in other comprehensive income and accumulated in equity are transferred from equity and
included in the initial cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging
instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting.
When a forecast transaction is expected to occur, any gain or loss accumulated in equity at that time remains
separately in equity and is recognised in the consolidated statement of income when the forecast transaction is
ultimately recognised in the consolidated statement of income. When a forecast transaction is no longer
expected to occur, the gain or loss accumulated in equity is recognised immediately in the consolidated
statement of income.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and
revenue can be reliably measured.
Revenue represents the value of sales exclusive of related sales taxes of oil and gas arising from upstream
operations when the oil has been lifted and the title has passed.
Interest income is recognised on an accrual basis in accordance with the substance of the relevant agreement.
Royalties
Royalties are accounted for in the consolidated statement of income in the same period as the income to
which they relate and are included within operating expenses. Royalty arrangements that are based on
production, sales and other measures are recognised by reference to the underlying arrangement.
Inventories
Crude oil is valued at fair value less costs to sell. Any changes arising on the revaluation of inventories are
recognised in the consolidated statement of income. Other inventories comprising mainly of spare parts,
materials and supplies are valued at cost, determined on a weighted average cost basis, less allowance for any
obsolete or slow moving items. Purchase cost includes the purchase price, import duties, transportation,
handling and other direct costs.
