68
69
KUWAIT ENERGY plc AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
21
3.
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment of tangible assets
At each consolidated statement of financial position date, the Group reviews the carrying amounts of its
tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of
the impairment loss (if any). Where the asset does not generate cash flows that are independent from other
assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell or value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future cash
flows have not been adjusted.
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.
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 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.
KUWAIT ENERGY plc AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
22
4.
.
JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 3, management is required to
make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision affects only that period, or in the
period of the revision and future periods if the revision affects both current and future periods.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at
the consolidated statement of financial position date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year.
Recoverability of exploration and evaluation costs
Under the modified full cost method of accounting f
or exploration and evaluation (“E&E”
) costs, such costs are
capitalised as intangible assets by reference to appropriate cost pools, and are assessed for impairment when
circumstances suggest that the carrying amount may exceed its recoverable value. This assessment involves
judgement as to (i) the likely future commerciality of the asset and when such commerciality should be
determined, and (ii) future revenues and costs pertaining to any wider cost pool with which the asset in question
is associated, and the discount rate to be applied to such revenues and costs for the purpose of deriving a
recoverable value. Note 13 discloses
the carrying amounts of the Group’s E&E assets
.
Impairment of oil and gas properties
Determining whether oil and gas properties are impaired requires management to estimate the future net
revenue from oil and gas reserves attributable to the Group’s interest in that field.
This requires estimates to be
made of, in particular, future oil and gas prices, production volumes, capital/operating expenditures and an
appropriate discount rate. A net impairment loss of USD 8,520 (2010: USD Nil) was recognised during the
year, as described further in note 8.
Commercial reserves
Both impairment and depletion of the cost of oil and gas properties requires estimates to be made of quantities
of commercial oil and gas reserves, which are based on estimates determined by qualified petroleum engineers.
Management believes these reserves to be commercially productive and will provide revenues to the Group
adequate to recover remaining net un-depreciated and un-depleted capitalised oil and gas properties as at
31 December 2011.
Decommissioning
The provision for decommissioning obligations depends on the cost and timing of decommissioning works,
legal requirements and the discount rate to be applied to such costs. Management have conducted an internal
review of these factors, based on information currently available, in the calculation of this provision.
The carrying amount of the decommissioning provision at 31 December 2011 is shown in note 21 to these
consolidated financial statements.
Business combination
In a business combination, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the
conditions for recognition under IFRS 3
Business Combinations
are recognised at their fair values at the
acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in
accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued Operations
, which are recognised
and measured at fair value less costs to sell. The Group’s management determ
ines the fair values of the
acquiree’s identifiable assets, liabilities, contingent liabilities and non
-current assets classified as held for sale.
Kuwait Energy Plc And Subsidiaries
Notes To The Consolidated Financial Statements
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
