KUWAIT ENERGY plc GROUP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
F-137
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Foreign currencies
The individual financial statements of each Group entity are presented in the currency of the primary
economic environment in which the entity operates (its functional currency). For the purpose of the
consolidated financial statements, the results and financial position of each entity are expressed in USD,
which is the functional and presentation currency of the Company.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the
transactions. At each consolidated statement of financial position date, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at the consolidated statement of financial position date. Non-
monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates
prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of
historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in the consolidated statement of income in the period in which they arise
except for exchange differences on monetary items receivable from or payable to a foreign operation for
which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign
operation, and which are recognised in the foreign currency translation reserve and recognised in consolidated
statement of income on disposal of the net investment.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s
foreign operations are expressed in USD using exchange rates prevailing at the consolidated statement of
financial position date. Income and expense items are translated at the average exchange rates for the period,
unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates
of the transactions are used. Exchange differences arising, if any, are classified as equity and transferred to the
Group’s foreign currency translation reserve. Such exchange differences are recognised in the consolidated
statement of income in the period in which the foreign operation is disposed of.
