BP 2005 Annual Report Download - page 39

BP Annual Report and Accounts 2005 37
••• Except where the deferred income 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
the accounting profit nor taxable profit or loss; and
••• In respect of deductible temporary differences associated with
investments in subsidiaries, jointly controlled entities and
associates, deferred tax assets are only recognized 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 income 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 income tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates
that are expected to apply to the year 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.
Tax relating to items recognized directly in equity is recognized
in equity and not in the income statement.
CUSTOMS DUTIES AND SALES TAXES
Revenues, expenses and assets 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 or as part of the expense
item as applicable; and
••• 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 as part of receivables or payables in the
balance sheet.
OWN EQUITY INSTRUMENTS
The group’s holding in its own equity instruments, including shares
held by Employee Share Ownership Plans (ESOPs), are classified as
‘treasury shares’, and 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 revenue reserves. No gain or
loss is recognized in the performance statements 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
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 liquids,
liquefied natural gas, petroleum and chemicals products and all other
items are recognized when the title passes to the customer. Supply
buy/sell arrangements with common counterparties are reported net
as are physical exchanges. Similarly, oil and natural gas forward
sales/purchase contracts and sales/purchases of trading inventory
are included on a net basis in sales and other operating revenues.
Generally, revenues from the production of oil and natural gas
properties in which the group has an interest with other producers
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 method 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.