BP 2011 Annual Report Download - page 187

BP Annual Report and Form 20-F 2011 185
Financial statements
Notes on financial statements
impairment loss been recognized for the asset in prior years. Such reversal
is recognized in profit or loss. After such a reversal, the depreciation charge
is adjusted in future periods to allocate the asset’s revised carrying amount,
less any residual value, on a systematic basis over its remaining useful life.
Financial assets
Financial assets are classified as loans and receivables; available-for-sale
financial assets; financial assets at fair value through profit or loss; or as
derivatives designated as hedging instruments in an effective hedge, as
appropriate. Financial assets include cash and cash equivalents, trade
receivables, other receivables, loans, other investments, and derivative
financial instruments. The group determines the classification of its financial
assets at initial recognition. Financial assets are recognized initially at fair
value, normally being the transaction price plus, in the case of financial assets
not at fair value through profit or loss, directly attributable transaction costs.
The subsequent measurement of financial assets depends on their
classification, as follows:
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Such
assets are carried at amortized cost using the effective interest method if
the time value of money is significant. Gains and losses are recognized in
income when the loans and receivables are derecognized or impaired, as
well as through the amortization process. This category of financial assets
includes trade and other receivables.
Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets
that are not classified as loans and receivables. After initial recognition,
available-for-sale financial assets are measured at fair value, with gains
or losses recognized within other comprehensive income. Accumulated
changes in fair value are recorded as a separate component of equity until
the investment is derecognized or impaired.
The fair value of quoted investments is determined by reference to
bid prices at the close of business on the balance sheet date. Where there
is no active market, fair value is determined using valuation techniques.
Where fair value cannot be reliably measured, assets are carried at cost.
Financial assets at fair value through profit or loss
Derivatives, other than those designated as effective hedging instruments,
are classified as held for trading and are included in this category. These
assets are carried on the balance sheet at fair value with gains or losses
recognized in the income statement.
Derivatives designated as hedging instruments in an effective hedge
Such derivatives are carried on the balance sheet at fair value. The
treatment of gains and losses arising from revaluation is described below
in the accounting policy for derivative financial instruments and hedging
activities.
Impairment of financial assets
The group assesses at each balance sheet date whether a financial asset or
group of financial assets is impaired.
Loans and receivables
If there is objective evidence that an impairment loss on loans and
receivables carried at amortized cost has been incurred, the amount of the
loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted at the
financial asset’s original effective interest rate. The carrying amount of the
asset is reduced, with the amount of the loss recognized in the income
statement.
Available-for-sale financial assets
If an available-for-sale financial asset is impaired, the cumulative loss
previously recognized in equity is transferred to the income statement. Any
subsequent recovery in the fair value of the asset is recognized within other
comprehensive income.
If there is objective evidence that an impairment loss on an
unquoted equity instrument that is carried at cost has been incurred, the
amount of the loss is measured as the difference between the asset’s
carrying amount and the present value of estimated future cash flows
discounted at the current market rate of return for a similar financial asset.
Inventories
Inventories, other than inventory held for trading purposes, are stated at
the lower of cost and net realizable value. Cost is determined by the first-in
first-out method and comprises direct purchase costs, cost of production,
transportation and manufacturing expenses. Net realizable value is
determined by reference to prices existing at the balance sheet date.
Inventories held for trading purposes are stated at fair value less
costs to sell and any changes in net realizable value are recognized in the
income statement.
Supplies are valued at cost to the group mainly using the average
method or net realizable value, whichever is the lower.
Financial liabilities
Financial liabilities are classified as financial liabilities at fair value through
profit or loss; derivatives designated as hedging instruments in an effective
hedge; or as financial liabilities measured at amortized cost, as appropriate.
Financial liabilities include trade and other payables, accruals, most items of
finance debt and derivative financial instruments. The group determines the
classification of its financial liabilities at initial recognition. The measurement
of financial liabilities depends on their classification, as follows:
Financial liabilities at fair value through profit or loss
Derivatives, other than those designated as effective hedging instruments,
are classified as held for trading and are included in this category. These
liabilities are carried on the balance sheet at fair value with gains or losses
recognized in the income statement.
Derivatives designated as hedging instruments in an effective hedge
Such derivatives are carried on the balance sheet at fair value. The treatment
of gains and losses arising from revaluation is described below in the
accounting policy for derivative financial instruments and hedging activities.
Financial liabilities measured at amortized cost
All other financial liabilities are initially recognized at fair value. For interest-
bearing loans and borrowings this is the fair value of the proceeds received
net of issue costs associated with the borrowing.
After initial recognition, other financial liabilities are subsequently
measured at amortized cost using the effective interest method. Amortized
cost is calculated by taking into account any issue costs, and any discount
or premium on settlement. Gains and losses arising on the repurchase,
settlement or cancellation of liabilities are recognized respectively in interest
and other income and finance costs.
This category of financial liabilities includes trade and other payables
and finance debt.
1. Significant accounting policies continued