BP 2012 Annual Report Download - page 194

1. Significant accounting policies continued
• Where the deferred tax liability arises on the initial recognition of an
asset or liability in a transaction that is not a business combination and,
at the time of the transaction, affects neither accounting profit nor
taxable profit or loss; or
• In respect of taxable temporary differences associated with
investments in subsidiaries, jointly controlled entities and associates,
where the group is able to control the timing of the reversal of the
temporary differences and it is probable that the temporary differences
will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary
differences, carry-forward of unused tax credits and unused tax losses, to
the extent that it is probable that taxable profit will be available against
which the deductible temporary differences and the carry-forward of
unused tax credits and unused tax losses can be utilized:
• Except where the deferred tax asset relating to the deductible
temporary difference arises from the initial recognition of an asset or
liability in a transaction that is not a business combination and, at the
time of the transaction, affects neither accounting profit nor taxable
profit or loss.
• In respect of deductible temporary differences associated with
investments in subsidiaries, jointly controlled entities and associates,
deferred tax assets are recognized only to the extent that it is probable
that the temporary differences will reverse in the foreseeable future and
taxable profit will be available against which the temporary differences
can be utilized.
The carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the deferred
tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the period when the asset is realized or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date. Deferred tax assets and
liabilities are not discounted.
Deferred tax assets and liabilities are offset only when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when the deferred tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the same taxable entity or
different taxable entities where there is an intention to settle the current
tax assets and liabilities on a net basis or to realize the assets and settle
the liabilities simultaneously.
Customs duties and sales taxes
Customs duties and sales taxes which are passed on to customers are
excluded from revenues and expenses. Assets and liabilities are
recognized net of the amount of customs duties or sales tax except:
• Where the customs duty or sales tax incurred on a purchase of goods
and services is not recoverable from the taxation authority, in which
case the customs duty or sales tax is recognized as part of the cost of
acquisition of the asset.
• Receivables and payables are stated with the amount of customs duty
or sales tax included.
The net amount of sales tax recoverable from, or payable to, the taxation
authority is included within receivables or payables in the balance sheet.
Own equity instruments
The group’s holdings in its own equity instruments, including ordinary
shares held by Employee Share Ownership Plans (ESOPs), are classified
as ‘treasury shares’, or ‘own shares’ for the ESOPs, and are shown as
deductions from shareholders’ equity at cost. Consideration received for
the sale of such shares is also recognized in equity, with any difference
between the proceeds from sale and the original cost being taken to the
profit and loss account reserve. No gain or loss is recognized in the
income statement on the purchase, sale, issue or cancellation of equity
shares.
Revenue
Revenue arising from the sale of goods is recognized when the significant
risks and rewards of ownership have passed to the buyer, which is
typically at the point that title passes, and the revenue can be reliably
measured.
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for goods provided in the
normal course of business, net of discounts, customs duties and sales
taxes.
Physical exchanges are reported net, as are sales and purchases made
with a common counterparty, as part of an arrangement similar to a
physical exchange. Similarly, where the group acts as agent on behalf of a
third party to procure or market energy commodities, any associated fee
income is recognized but no purchase or sale is recorded. Additionally,
where forward sale and purchase contracts for oil, natural gas or power
have been determined to be for trading purposes, the associated sales
and purchases are reported net within sales and other operating revenues
whether or not physical delivery has occurred.
Generally, revenues from the production of oil and natural gas properties
in which the group has an interest with joint venture partners are
recognized on the basis of the group’s working interest in those properties
(the entitlement method). Differences between the production sold and
the group’s share of production are not significant.
Interest income is recognized as the interest accrues (using the effective
interest rate that is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial instrument to the net
carrying amount of the financial asset).
Dividend income from investments is recognized when the shareholders’
right to receive the payment is established.
Research
Research costs are expensed as incurred.
Finance costs
Finance 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, are added to
the cost of those assets, until such time as the assets are substantially
ready for their intended use. All other finance costs are recognized in the
income statement in the period in which they are incurred.
Use of estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as well as the disclosure of contingent assets and liabilities
at the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Actual outcomes could differ from
those estimates.
Impact of new International Financial Reporting Standards
Adopted for 2012
There are no new or amended standards or interpretations adopted with
effect from 1 January 2012 that have a significant impact on the financial
statements.
Not yet adopted
The following pronouncements from the IASB will become effective for
future financial reporting periods and have not yet been adopted by the
group.
Interests in other entities and related disclosures
In May 2011, the IASB issued three new standards relating to interests in
other entities and related disclosures. The new standards are IFRS 10
‘Consolidated Financial Statements’, IFRS 11 ‘Joint Arrangements’ and
IFRS 12 ‘Disclosure of Interests in Other Entities’. In addition, the IASB
issued amendments to IAS 27 ‘Consolidated and Separate Financial
Statements’ (renamed IAS 27 ‘Separate Financial Statements’) and IAS 28
‘Investments in Associates’ (renamed IAS 28 ‘Investments in Associates
and Joint Ventures’).
IFRS 10 introduces a single consolidation model that identifies control as
the basis for consolidation. The new model applies to all types of entities,
including structured entities. Under the new model, an investor controls
an investee when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns
through its power over the investee.
192 Financial statements
BP Annual Report and Form 20-F 2012