BP 2010 Annual Report Download - page 156
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Please find page 156 of the 2010 BP annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Notesonnancialstatements
1.Signicantaccountingpoliciescontinued
Leases
Financeleases,whichtransfertothegroupsubstantiallyalltherisksand
benetsincidentaltoownershipoftheleaseditem,arecapitalizedatthe
commencementoftheleasetermatthefairvalueoftheleasedproperty
or,iflower,atthepresentvalueoftheminimumleasepayments.Finance
chargesareallocatedtoeachperiodsoastoachieveaconstantrateof
interestontheremainingbalanceoftheliabilityandarechargeddirectly
againstincome.
Capitalizedleasedassetsaredepreciatedovertheshorterofthe
estimatedusefullifeoftheassetortheleaseterm.
Operatingleasepaymentsarerecognizedasanexpenseinthe
incomestatementonastraight-linebasisovertheleaseterm.
Forbothnanceandoperatingleases,contingentrents
arerecognizedintheincomestatementintheperiodinwhichthey
areincurred.
Derivative nancial instruments and hedging activities
Thegroupusesderivativenancialinstrumentstomanagecertain
exposurestouctuationsinforeigncurrencyexchangerates,interestrates
andcommoditypricesaswellasfortradingpurposes.Suchderivative
nancialinstrumentsareinitiallyrecognizedatfairvalueonthedateon
whichaderivativecontractisenteredintoandaresubsequently
remeasuredatfairvalue.Derivativesarecarriedasassetswhenthefair
valueispositiveandasliabilitieswhenthefairvalueisnegative.
Contractstobuyorsellanon-nancialitemthatcanbesettlednet
incashoranothernancialinstrument,orbyexchangingnancial
instrumentsasifthecontractswerenancialinstruments,withthe
exceptionofcontractsthatwereenteredintoandcontinuetobeheldfor
thepurposeofthereceiptordeliveryofanon-nancialiteminaccordance
withthegroup’sexpectedpurchase,saleorusagerequirements,are
accountedforasnancialinstruments.
Gainsorlossesarisingfromchangesinthefairvalueofderivatives
thatarenotdesignatedaseffectivehedginginstrumentsarerecognizedin
theincomestatement.
Forthepurposeofhedgeaccounting,hedgesareclassiedas:
• Fairvaluehedgeswhenhedgingexposuretochangesinthefairvalue
ofarecognizedassetorliability.
• Cashowhedgeswhenhedgingexposuretovariabilityincashows
thatiseitherattributabletoaparticularriskassociatedwitha
recognizedassetorliabilityorahighlyprobableforecasttransaction.
• Hedgesofanetinvestmentinaforeignoperation.
Attheinceptionofahedgerelationshipthegroupformallydesignatesand
documentsthehedgerelationshipforwhichthegroupwishestoclaim
hedgeaccounting,togetherwiththeriskmanagementobjectiveand
strategyforundertakingthehedge.Thedocumentationincludes
identicationofthehedginginstrument,thehedgeditemortransaction,
thenatureoftheriskbeinghedged,andhowtheentitywillassessthe
hedginginstrumenteffectivenessinoffsettingtheexposuretochangesin
thehedgeditem’sfairvalueorcashowsattributabletothehedgeditem.
Suchhedgesareexpectedatinceptiontobehighlyeffectiveinachieving
offsettingchangesinfairvalueorcashows.Hedgesmeetingthecriteria
forhedgeaccountingareaccountedforasfollows:
Fair value hedges
Thechangeinfairvalueofahedgingderivativeisrecognizedinprotor
loss.Thechangeinthefairvalueofthehedgeditemattributabletotherisk
beinghedgedisrecordedaspartofthecarryingvalueofthehedgeditem
andisalsorecognizedinprotorloss.
Thegroupappliesfairvaluehedgeaccountingforhedgingxed
interestrateriskonborrowings.Thegainorlossrelatingtotheeffective
portionoftheinterestrateswapisrecognizedintheincomestatement
withinnancecosts,offsettingtheamortizationoftheinterestonthe
underlyingborrowings.
Ifthecriteriaforhedgeaccountingarenolongermet,orifthegroup
revokesthedesignation,theadjustmenttothecarryingamountofa
hedgeditemforwhichtheeffectiveinterestratemethodisusedis
amortizedtoprotorlossovertheperiodtomaturity.
Cash ow hedges
Forcashowhedges,theeffectiveportionofthegainorlossonthe
hedginginstrumentisrecognizedwithinothercomprehensiveincome,
whiletheineffectiveportionisrecognizedinprotorloss.Amountstaken
toequityaretransferredtotheincomestatementwhenthehedged
transactionaffectsprotorloss.Thegainorlossrelatingtotheeffective
portionofinterestrateswapshedgingvariablerateborrowingsis
recognizedintheincomestatementwithinnancecosts.
Wherethehedgeditemisthecostofanon-nancialassetor
liability,suchasaforecasttransactionforthepurchaseofproperty,plant
andequipment,theamountsrecognizedwithinothercomprehensive
incomearetransferredtotheinitialcarryingamountofthenon-nancial
assetorliability.
Ifthehedginginstrumentexpiresorissold,terminatedorexercised
withoutreplacementorrollover,orifitsdesignationasahedgeisrevoked,
amountspreviouslyrecognizedwithinothercomprehensiveincomeremain
inequityuntiltheforecasttransactionoccursandaretransferredtothe
incomestatementortotheinitialcarryingamountofanon-nancial
assetorliabilityasabove.Ifaforecasttransactionisnolongerexpectedto
occur,amountspreviouslyrecognizedinequityarereclassiedtothe
incomestatement.
Hedges of a net investment in a foreign operation
Forhedgesofanetinvestmentinaforeignoperation,theeffectiveportion
ofthegainorlossonthehedginginstrumentisrecognizedwithinother
comprehensiveincome,whiletheineffectiveportionisrecognizedinprot
orloss.Amountstakentoequityaretransferredtotheincomestatement
whentheforeignoperationissoldorpartiallydisposedof.
Embedded derivatives
Derivativesembeddedinothernancialinstrumentsorotherhostcontracts
aretreatedasseparatederivativeswhentheirrisksandcharacteristicsare
notcloselyrelatedtothoseofthehostcontract.Contractsareassessedfor
embeddedderivativeswhenthegroupbecomesapartytothem,including
atthedateofabusinesscombination.Embeddedderivativesaremeasured
atfairvalueateachbalancesheetdate.Anygainsorlossesarisingfrom
changesinfairvaluearetakendirectlytotheincomestatement.
154BPAnnualReportandForm20-F2010