BP 2008 Annual Report Download - page 116

BP Annual Report and Accounts 2008
Notes on financial statements
1. Significant accounting policies continued
significant risks and rewards of ownership have passed to the buyer and
it 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.
Revenues associated with the sale of oil, natural gas, natural gas
liquids, liquefied natural gas, petroleum and chemicals products and all
other items are recognized when the title passes to the customer.
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 2008
Standards and interpretations adopted in the year had no 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.
IFRS 8 ‘Operating Segments’ was issued in October 2006 and
defines operating segments as components of an entity about which
separate financial information is available and is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and
in assessing performance. The new standard sets out the required
disclosures for operating segments and is effective for annual periods
beginning on or after 1 January 2009. BP will adopt the new standard
with effect from 1 January 2009 and expects no change to its segments
that are separately reported but anticipates that its segmental analysis
will be based on non-GAAP measures as used by the chief operating
decision maker. There will be no effect on the group’s reported income or
net assets. IFRS 8 has been adopted by the EU.
In September 2007, the IASB issued Amendments to IAS 1
‘Presentation of Financial Statements’ – A Revised Presentation, which
requires separate presentation of owner and non-owner changes in equity
by introducing the statement of comprehensive income. The statement of
recognized income and expense will no longer be presented. Whenever
there is a restatement or reclassification, an additional balance sheet, as at
the beginning of the earliest period presented, will be required to be
published. The revised standard is effective for annual periods beginning
on or after 1 January 2009 and BP will adopt it from that date. There will
be no effect on the group’s reported income or net assets. IAS 1 Revised
has been adopted by the EU.
In January 2008, the IASB issued a revised version of IFRS 3
‘Business Combinations’. The revised standard still requires the purchase
method of accounting to be applied to business combinations but will
introduce some changes to existing accounting treatment. For example,
contingent consideration is measured at fair value at the date of acquisition
and subsequently remeasured to fair value with changes recognized in
profit or loss. Goodwill may be calculated based on the parent’s share of
net assets or it may include goodwill related to the minority interest. All
transaction costs are expensed. The standard is applicable to business
combinations occurring in accounting periods beginning on or after 1 July
2009 and BP plans to adopt it with effect from 1 January 2010. Assets and
liabilities arising from business combinations occurring before the date of
adoption by the group will not be restated and thus there will be no effect
on the group’s reported income or net assets on adoption. The revised
standard has not yet been adopted by the EU.
Also in January 2008, the IASB issued an amended version of IAS
27 ‘Consolidated and Separate Financial Statements’. This requires the
effects of all transactions with non-controlling interests to be recorded in
equity if there is no change in control. Such transactions will no longer
result in goodwill or gains or losses. When control is lost, any remaining
interest in the entity is remeasured to fair value and a gain or loss
recognized in profit or loss. The amendment is effective for annual
periods beginning on or after 1 July 2009 and is to be applied
retrospectively, with certain exceptions. BP plans to adopt the
amendment with effect from 1 January 2010 and has not yet completed
its evaluation of the effect of adoption. The revised standard has not yet
been adopted by the EU.
In addition, IFRIC 18 ‘Transfers of Assets from Customers’ was
issued in January 2009 and is effective prospectively from 1 July 2009.
BP has not yet completed its evaluation of the effect of adopting this
interpretation.
There are no other standards and interpretations in issue but not
yet adopted that the directors anticipate will have a material effect on the
reported income or net assets of the group.
Financial statements
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