KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2012
F-94
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 consolidated statement of financial position date, 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, the 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.
A decommissioning provision is calculated as the net present value of the Group’s share of the expenditure which
may be incurred at the end of the producing life of each field in the removal and decommissioning of the
production, storage and transportation facilities currently in place. The cost of recognising the
decommissioning provision is included as part of the cost of the relevant property, plant and equipment and is
thus charged to the consolidated statement of income on a unit of production basis in accordance with the
Group’s policy for depletion and depreciation of tangible non-current assets. Period charges for changes in the
net present value of the decommissioning provision arising from discounting are included in finance costs.
Taxation
Certain of the Company’s subsidiaries are subject to taxes on income in various foreign jurisdictions. Income
tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported
in the consolidated statement of income because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are never taxable or deductible. The Group’s
liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the
consolidated statement of financial position date.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in
the financial statements of the relevant subsidiaries and the corresponding tax bases used in the computation
of taxable profit, and are accounted for using the liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all
deductible temporary differences to the extent that it is probable that taxable profits will be available against
which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the
accounting profit.
The carrying amount of deferred tax assets is reviewed at each consolidated statement of financial position
date 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.
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 realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the consolidated statement of financial position date. The measurement of deferred
tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group
expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority
and the Group intends to settle its current tax assets and liabilities on a net basis.
