66
67
KUWAIT ENERGY plc AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
19
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, transactio
ns 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.
KUWAIT ENERGY plc AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
20
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Contingencies
A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of
economic benefits is probable.
Contingent liabilities are not recognised in the consolidated financial statements unless the outflow of resources
embodying economic benefits is probable and the amount of the obligation can be measured reliably. They are
disclosed as contingent liabilities unless the possibility of an outflow of resources embodying economic benefits
is remote.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which
are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added
to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Other borrowing costs are calculated on the accrual basis and are recognised in the consolidated statement of
income in the period in which they are incurred.
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.
Share-based payments
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the
grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set
out in note 24.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-
line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest.
Kuwait Energy Plc And Subsidiaries
Notes To The Consolidated Financial tatements
For The Year Ended 31 December 2011
Kuwait Energy Plc And Subsidiaries
Notes To The Consolidated Financial Statements
For The Year Ended 31 December 2011
