BP 2006 Annual Report Download - page 185

BP Annual Report and Accounts 2006 183
53 US GAAP reconciliation continued
(d) Goodwill and intangible assets
For the purposes of US GAAP, the group accounts for goodwill according to SFAS No. 141 ‘Business Combinations’, and SFAS No. 142 ‘Goodwill and
Other Intangible Assets’. For the purposes of IFRS, the group accounts for goodwill under the provisions of IFRS 3 ‘Business Combinations’ and IAS 38
‘Intangible Assets’. As a result of the transition rules available under IFRS 1, the group did not restate its past business combinations in accordancewith
IFRS 3 and assumed its UK GAAP carrying amount for goodwill as its IFRS carrying amount upon transition to IFRS, at 1 January 2003.
Under US GAAP, goodwill and other indefinite lived intangible assets have not been amortized since 31 December 2001. Such assets are subject to
periodic impairment testing. The group has goodwill, but does not have any other intangible assets with indefinite lives. Under IFRS, goodwill
amortization ceased from 1 January 2003.
The movement in the goodwill difference during 2006 is the result of movements in foreign exchange rates and a difference in the amount of
goodwill allocated to the Gulf of Mexico Shelf assets sold.
During the fourth quarter of 2006 the group completed a goodwill impairment review using the two-step process prescribed in US GAAP. The first
step includes a comparison of the fair value of a reporting unit to its carrying value, including goodwill. When the carrying value exceeds the fair value,
the goodwill of the reporting unit is potentially impaired and the second step is then completed in order to measure the impairment loss, if any. No
impairment charge resulted from this review.
The adjustments to profit for the year and to BP shareholders’ equity to accord with US GAAP are summarized below.
Increase (decrease) in caption heading $ million
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2006 2005 2004
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Gain on sale of businesses and fixed assets 13 ––
Depreciation, depletion and amortization ––61
Profit for the year 13 –(61)
$ million
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2006 2005
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Goodwill 248 171
BP shareholders’ equity 248 171
In accordance with group accounting practice, exploration licence acquisition costs are capitalized initially as an intangible asset and are amortized over
the estimated period of exploration. Where proved reserves of oil or natural gas are determined and development is sanctioned, the unamortized cost is
transferred to property, plant and equipment. Where exploration is unsuccessful, the unamortized cost is charged against income. At 31 December
2006 and 31 December 2005, exploration licence acquisition costs included in the group’s property, plant and equipment and intangible assets, net of
accumulated amortization were as follows.
$ million
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2006 2005
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Exploration licence acquisition cost included in non-current assets (net of accumulated amortization)
Property, plant and equipment 1,076 1,201
Intangible assets 639 597
Changes to the net book amount of exploration expenditure, goodwill and other intangible assets, as adjusted to accord with US GAAP, during the years
ended 31 December 2006 and 2005 are shown below.
$ million
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Exploration
expenditure Goodwill
Additional
minimum
pension
liability (h)
Other
intangibles Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net book amount
At 1 January 2005 3,761 11,535 39 443 15,778
Amortization expense (305) – – (161) (466)
Other movements 552 (862) (12) 482 160
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At 1 January 2006 4,008 10,673 27 764 15,472
Amortization expense (732) – – (217) (949)
Other movements 834 476 (27) 589 1,872
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At 31 December 2006 4,110 11,149 – 1,136 16,395
Amortization expense relating to other intangibles is expected to be in the range of $200-250 million in each of the succeeding five years.