BP 2005 Annual Report Download - page 120
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118 Making energy more
Notes on financial statements continued
50 First-time adoption of International Financial Reporting Standards continued
DIFFERENCES BETWEEN UK GAAP AND IFRS THAT AFFECT BP’S REPORTED INCOME OR TOTAL EQUITY
Goodwill amortization Under UK GAAP, BP capitalized goodwill and amortized it over its estimated useful economic life, which was usually
10 years. Under IFRS, however, goodwill is not amortized but is subject to an annual impairment review. In accordance with IFRS 1, an impairment
test was carried out at the date of transition (DoT). No impairment was identified and no other adjustments to the value of goodwill were made.
This adjustment reverses the amortization of goodwill charged under UK GAAP after the DoT to IFRS.
Increase (decrease) in caption heading $ million
Years ended
31 December
2004 2003
Depreciation, depletion and amortization (1,428) (1,376)
Impairment and losses on sale of businesses and fixed assets (61) –
Profit for the year 1,489 1,376
$ million
At 31 December 1 January
2004 2003 2003
Goodwill 2,985 1,421 –
Total equity 2,985 1,421 –
Deferred tax adjustments Under UK GAAP, deferred tax is provided on timing differences, whereas IFRS requires provision to be made for
temporary differences between carrying values and the related tax base. As a result, deferred tax needs to be recognized under IFRS in respect of
a number of differences for which no deferred tax was recognized under UK GAAP. The major areas affected by this are described below.
In accordance with the requirements of IFRS, additional deferred tax has been provided on the temporary difference created by the allocation of
fair values to the non-current assets acquired in a business combination. The consequent increase in the difference between the carrying value of
non-current assets and the tax base is not considered to be a timing difference under UK GAAP, but is regarded as a temporary difference for
IFRS. An adjustment is therefore required to reflect the increase in the deferred tax liability at the DoT. The resulting deferred tax liability changes
due to the depreciation or impairment of the underlying fixed asset.
Increase (decrease) in caption heading $ million
Years ended
31 December
2004 2003
Impairment and losses on sale of businesses and fixed assets 25 –
Taxation (418) (873)
Profit for the year 393 873
$ million
At 31 December 1 January
2004 2003 2003
Property, plant and equipment 159 – –
Deferred tax liabilities 2,591 2,764 3,608
Total equity (2,432) (2,764) (3,608)