BP 2012 Annual Report Download - page 212

10. Impairment review of goodwill continued
Downstream
$ million
2012 2011
Rhine FVC Lubricants Other Total Rhine FVC Lubricants Other Total
Goodwill 627 3,441 100 4,168 618 3,284 112 4,014
Excess of recoverable amount over carrying amount 2,178 n/a n/a n/a 2,264 n/a n/a n/a
Cash flows for each cash-generating unit are derived from the business segment plans, which cover a period of two to five years. To determine the
value in use for each of the cash-generating units, cash flows for a period of 10 years are discounted and aggregated with a terminal value.
Rhine FVC
The key assumptions to which the calculation of value in use for the Rhine FVC is most sensitive are refinery gross margins, throughput volumes and
discount rate. Gross margin assumptions used in the Rhine FVC plan are consistent with those used to develop the regional Refining Marker Margin
(RMM). The average values assigned to the regional RMM and refinery throughput volume over the plan period are $12.30 per barrel and 246mmbbl per
year (2011 $11.35 per barrel and 257mmbbl per year). These values reflect past experience and are consistent with external sources. Cash flows
beyond the five-year plan period are extrapolated using a nominal 4% growth rate (2011 cash flows beyond the five-year plan period were extrapolated
using a nominal 4% growth rate).
2012
Sensitivity analysis
Sensitivity of value in use to a change in refinery margins of $1 per barrel ($ billion) 1.5
Adverse change in refinery margins to reduce recoverable amount to carrying amount ($ per barrel) 1.4
Sensitivity of value in use to a 5% change in production volume ($ billion) 0.9
Adverse change in throughput volume to reduce recoverable amount to carrying amount (million barrels per year) 30
Sensitivity of value in use to a change in the discount rate of 1% ($ billion) 0.6
Discount rate to reduce recoverable amount to carrying amount 16%
Lubricants
As permitted by IAS 36, the detailed calculations of the Lubricants unit’s recoverable amount performed in the most recent detailed calculation in 2009
were used for the 2012 impairment test as the criteria in that standard were considered satisfied: the headroom was substantial in 2009; there have
been no significant changes in the assets and liabilities; and the likelihood that the recoverable amount would be less than the carrying amount at the
time was remote.
The key assumptions to which the calculation of value in use for the Lubricants unit is most sensitive are operating unit margins, sales volumes and
discount rate. The values assigned to these key assumptions reflect past experience. No reasonably possible changes in any of these key assumptions
would cause the unit’s carrying amount to exceed its recoverable amount. Cash flows beyond the two-year plan period were extrapolated using a
nominal 3% growth rate.
11. Distribution and administration expenses
$ million
2012 2011 2010
Distribution 11,561 12,416 11,393
Administration 1,796 1,542 1,162
13,357 13,958 12,555
12. Currency exchange gains and losses
$ million
2012 2011 2010
Currency exchange losses (gains) charged (credited) to the income statementa113 (70) 218
aExcludes exchange gains and losses arising on financial instruments measured at fair value through profit or loss.
13. Research and development
$ million
2012 2011 2010
Expenditure on research and development 674 636 780
210 Financial statements
BP Annual Report and Form 20-F 2012