BP 2013 Annual Report Download - page 141

1. Significant accounting policies, judgements, estimates and assumptions – continued
Generally, revenues from the production of oil and natural gas properties in which the group has an interest with joint operation 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.
Impact of new International Financial Reporting Standards
Adopted for 2013
BP adopted several new and amended standards issued by the IASB with effect from 1 January 2013. Of these the following two standards have a
significant effect on the group’s consolidated financial statements:
IFRS 11 ‘Joint Arrangements’
In May 2011, the IASB issued IFRS 11 ‘Joint Arrangements’, one of a suite of standards relating to interests in other entities and related disclosures.
IFRS 11 establishes a principle that applies to the accounting for all joint arrangements, whereby parties to the arrangement account for their
underlying contractual rights and obligations relating to the joint arrangement. IFRS 11 identifies two types of joint arrangements. A ‘joint venture’ is a
joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A ‘joint operation’ is
a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to
the arrangement. Investments in joint ventures are accounted for using the equity method. Investments in joint operations are accounted for by
recognizing the group’s assets, liabilities, revenue and expenses relating to the joint operation.
The main impact of IFRS 11 is that certain of the group’s former jointly controlled entities, which were equity accounted, now fall under the definition
of a joint operation under IFRS 11. Whilst the effect of the new requirements on the group’s reported income and net assets is not material, the
change does impact certain of the component lines of the group’s financial statements, as shown in the table below. We have derecognized
approximately $7 billion of investments and we now recognize the group’s assets, liabilities, revenue and expenses relating to these arrangements.
BP’s share of oil and natural gas reserves associated with former jointly controlled entities that were previously equity-accounted, and are now
classified as joint operations, have been reclassified from ‘equity-accounted entities’ to ‘subsidiaries’ in the Supplementary information on oiland
natural gas.
Amendments to IAS 19 ‘Employee Benefits’
In June 2011, the IASB issued an amended version of IAS 19 ‘Employee Benefits’, which brings in various changes relating to the recognition and
measurement of post-retirement defined benefit expense and termination benefits, and to the disclosures for all employee benefits. The main impact
for BP is that the expense for defined benefit pension and other post-retirement benefit plans now includes a net interest income or expense, which is
calculated by taking the discount rate used for measuring the obligation and applying that to the net defined benefit asset or liability. This means that
the expected return on assets credited to profit or loss (previously calculated based on the expected long-term return on pension assets) is now based
on a lower corporate bond rate, the same rate that is used to discount the pension liability. The impact was to decrease profit before tax by $1,001
million for the year ended 31 December 2013 (2012 $763 million, 2011 $659 million) with other comprehensive income being increased by the same
amount. There was no impact on the balance sheet at 31 December or on cash flows.
Adjustments made to certain selected financial statement line items
The following table sets out the adjustments made to certain selected financial statement line items of the previously reported comparative amounts
as a result of the adoption of the amended IAS 19 ‘Employee Benefits’ and the new standard IFRS 11 ‘Joint Arrangements’.
$ million (except per share amounts)
Selected lines only As reported IFRS 11 IAS 19
2012
As restated As reported IFRS 11 IAS 19
2011
As restateda
Income statement
Earnings from joint ventures – after interest and tax 744 (484) – 260 1,304 (537) – 767
Net finance income (expense) relating to pensions and
other post-retirement benefits 201 (4) (763) (566) 263 (4) (659) (400)
Profit for the year 11,816 22 (587) 11,251 26,097 2 (490) 25,609
Earnings per share – cents
Profit for the year attributable to BP shareholders
Basic 60.86 0.12 (3.09) 57.89 135.93 0.01 (2.59) 133.35
Diluted 60.45 0.11 (3.06) 57.50 134.29 0.01 (2.56) 131.74
Balance sheet
Property, plant and equipment 120,448 4,883 – 125,331 119,214 4,217 – 123,431
Intangible assets 24,041 591 – 24,632 21,102 551 – 21,653
Investments in joint ventures 15,724 (7,110) – 8,614 15,518 (7,215) – 8,303
Net assets 119,620 132 – 119,752 112,482 103 – 112,585
Cash flow statement
Profit (loss) before taxation 18,809 85 (763) 18,131 38,834 53 (659) 38,228
Net cash provided by operating activities 20,397 82 – 20,479 22,154 64 – 22,218
Net cash used in investing activities (12,962) (113) – (13,075) (26,633) (120) – (26,753)
Increase (decrease) in cash and cash equivalents 5,481 (23) – 5,458 (4,489) (62) – (4,551)
aBalance sheet amounts presented are as at 1 January 2012.
Financial statements
BP Annual Report and Form 20-F 2013 137