BP 2005 Annual Report Download - page 85

38 Fair values of financial assets and liabilities (UK GAAP)
The following information for 2004 and 2003 shows certain of the disclosures required by UK GAAP (FRS 13 ‘Derivatives and other Financial
Instruments: Disclosures’).
The estimated fair value of the group’s financial instruments is shown in the table below. The table also shows the ‘net carrying amount’ of
the financial asset or liability. This amount represents the net book value, i.e. market value when acquired or later marked-to-market. Interest rate
contracts include futures contracts, swap agreements and options. Foreign exchange contracts include forward and futures contracts, swap
agreements and options. Oil, natural gas and power price contracts include futures contracts, swap agreements and options and cash-settled
commodity contracts such as forward contracts.
Short-term trade and other receivables and trade and other payables that arise directly from the group’s operations have been excluded from the
disclosures contained in this note, as permitted by FRS 13.
The fair value and carrying amounts of finance debt shown below exclude the effects of currency swaps, interest rate swaps and forward
contracts (which are included for presentation in the balance sheet). Long-term borrowings in the table below include debt that matures in the year
from 31 December 2004, whereas in the balance sheet long-term debt of current maturity is reported under amounts falling due within one year.
Long-term borrowings also include US Industrial Revenue/Municipal Bonds classified on the balance sheet as repayable within one year.
$ million
2004 2003
Net fair Net carrying Net fair Net carrying
value amount value amount
asset asset asset asset
(liability) (liability) (liability) (liability)
Non-current assets
Other investments 738 394 3,380 1,452
Loans 811 811 852 852
Other receivables 429 429 495 495
Derivative financial instruments 898 898 534 534
Current assets
Loans 193 193 182 182
Derivative financial instruments 5,317 5,317 1,891 1,891
Cash and cash equivalents 1,359 1,359 2,056 2,056
Finance debt
Short-term borrowings (5,003) (5,003) (5,059) (5,059)
Long-term borrowings (16,800) (16,344) (16,190) (15,559)
Net obligations under finance leases (2,608) (2,579) (2,479) (2,452)
Derivative financial instruments 1,084 835 941 745
Non-current liabilities
Other payables (3,581) (3,581) (4,630) (4,630)
Provisions (1,314) (1,314) (1,217) (1,217)
Derivative financial instruments (158) (158) (344) (344)
Current liabilities
Derivative financial instruments (5,074) (5,074) (4,145) (4,145)
Provisions (78) (78) (214) (214)
The following methods and assumptions were used by the group in estimating its fair value disclosures for its financial instruments:
Non-current assets – Other investments The fair value of listed fixed asset investments has been determined by reference to market prices.
The carrying amount reported in the balance sheet for unlisted fixed asset investments approximates their fair value.
Non-current assets – Loans The loans generally bear interest at floating rates, so the fair value of loans is estimated not to be materially different
from its carrying value.
Non-current assets – Other receivables The fair value of other receivables is estimated not to be materially different from its carrying value.
Current assets – Loans The loans generally bear interest at floating rates, so the fair value of loans is estimated not to be materially different from
its carrying value.
Current assets – Cash and cash equivalents As a result of their short maturities, the carrying value of cash equivalents approximates their fair value.
Finance debt The carrying amount of the group’s short-term borrowings, which mainly comprise commercial paper, bank loans and overdrafts,
approximates their fair value. The fair value of the group’s long-term borrowings and finance lease obligations is estimated using quoted prices or,
where these are not available, discounted cash flow analyses, based on the group’s current incremental borrowing rates for similar types and
maturities of borrowing. Swaps and forward contracts used to hedge finance debt is offset against the carrying value of the debt.
Non-current liabilities – Other payables Deferred consideration for the acquisition of our interest in TNK-BP is discounted to the present value of the
future payments. The carrying value thus approximates the fair value. The remaining liabilities are predominantly interest-free. In view of their short
maturities, the reported carrying amount is estimated to approximate the fair value.
Non-current liabilities – Provisions Where the liability will not be settled for a number of years, the amount recognized is the present value of the
estimated future expenditure. The carrying amount of provisions thus approximates the fair value.
Current liabilities – Provisions Where the liability will not be settled for a number of years, the amount recognized is the present value of the
estimated future expenditure. The carrying amount of provisions thus approximates the fair value.
Derivative financial instruments (including cash-settled commodity contracts) The fair values of the group’s interest rate and foreign exchange
contracts are based on pricing models that take into account relevant market data. The fair value of the group’s oil, natural gas and power price
contracts (future contracts, swap agreements, options and forward contracts) is based on market prices.
BP Annual Report and Accounts 2005 83