BP 2013 Annual Report Download - page 140

1. Significant accounting policies, judgements, estimates and assumptions – continued
Deferred tax liabilities are recognized for all taxable temporary differences except:
• Where the deferred tax liability arises on the initial recognition of goodwill; or
• Where the deferred tax liability arises on 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 accounting profit nor taxable profit or loss; or
• In respect of taxable temporary differences associated with investments in subsidiaries, joint ventures and associates, where the group is able to
control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable
future.
Deferred tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent
that it is probable that taxable profit will be available against which the deductible temporary differences and the carry-forward of unused tax credits
and unused tax losses can be utilized:
• Except where the deferred 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 accounting profit nor taxable profit or loss.
• In respect of deductible temporary differences associated with investments in subsidiaries, joint ventures and associates, deferred tax assets are
recognized only 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 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 tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period 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. Deferred tax assets and liabilities
are not discounted.
Deferred tax assets and liabilities are offset only when there is a legally enforceable right to set off current tax assets against current tax liabilities and
when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different
taxable entities where there is an intention to settle the current tax assets and liabilities on a net basis or to realize the assets and settle the liabilities
simultaneously.
Significant estimate or judgement
The computation of the group’s income tax expense and liability involves the interpretation of applicable tax laws and regulations in many
jurisdictions throughout the world. The resolution of tax positions taken by the group, through negotiations with relevant tax authorities or through
litigation, can take several years to complete and in some cases it is difficult to predict the ultimate outcome. Therefore, judgement is required to
determine provisions for income taxes.
In addition, the group has carry-forward tax losses and tax credits in certain taxing jurisdictions that are available to offset against future taxable
profit. However, deferred tax assets are recognized only to the extent that it is probable that taxable profit will be available against which the unused
tax losses or tax credits can be utilized. Management judgement is exercised in assessing whether this is the case.
To the extent that actual outcomes differ from management’s estimates, income tax charges or credits, and changes in current and deferred tax
assets or liabilities, may arise in future periods. For more information see Note 35.
Judgement is also required when determining whether a particular tax is an income tax or another type of tax (for example a production tax).
Accounting for deferred tax is applied to income taxes as described above, but is not applied to other types of taxes; rather such taxes are
recognized in the income statement on an appropriate basis.
Customs duties and sales taxes
Customs duties and sales taxes which are passed on to customers are excluded from revenues and expenses. Assets and liabilities 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.
• 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 within receivables or payables in the balance sheet.
Own equity instruments
The group’s holdings in its own equity instruments, including ordinary shares held by Employee Share Ownership Plans (ESOPs), are classified as
‘treasury shares’, or ‘own shares’ for the ESOPs, and are 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 the profit and loss
account reserve. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of equity shares. Shares
repurchased under the share buy-back programme which are immediately cancelled are not shown as treasury shares or own shares, but are shown as
a deduction from the profit and loss reserve in the group statement of changes in equity.
Revenue
Revenue arising from the sale of goods is recognized when the significant risks and rewards of ownership have passed to the buyer, which is typically
at the point that title passes, and the revenue 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.
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.
136 BP Annual Report and Form 20-F 2013