psc - Kufpec

KUWAIT FOREIGN PETROLEUM EXPLORATION COMPANY K.S.C. (CLOSED)
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2010
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Operating leases
Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except
where another systematic basis is more representative of the time pattern in which economic benefits from the
leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in
the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as
a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line
basis, except where another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and
revenue can be reliably measured.
Revenue represents invoiced amounts from the sale of the Group’s share of oil and gas production and is
recognized on the basis of the Group’s net working interest (entitlement method).
Interest income is recognised on an accrual basis in accordance with the substance of the relevant agreement.
Royalties
Royalties are accounted for in the consolidated statement of income in the same period as the income to which
they relate and are included within operating expenses. Royalty arrangements that are based on production,
sales and other measures are recognised by reference to the underlying arrangement.
Inventories
During the year, the Group has changed its accounting policy for valuation of crude oil inventories from using
the lower of cost or net realizable value to net realizable value. The impact of the change in accounting policy
on the consolidated financial statements of the previous year and the current year is immaterial. Other
inventories comprising mainly of spare parts, materials and supplies are valued at cost, determined principally
on a weighted average cost basis, less allowance for any obsolete or slow moving items. Purchase cost
includes the purchase price, import duties, transportation, handling and other direct costs.
Employees’ end of service benefits
Provision is made for amounts payable to employees under the Kuwaiti Labor Law, the Kuwait Social
Security Law and the Group’s terms of employment. The provision, which is unfunded, is determined as the
liability that would arise as a result of the involuntary termination of staff at the consolidated statement of
financial position date, on the basis that this computation is a reliable approximation of the present value of
this obligation.
Foreign currencies
The individual financial statements of each group entity are presented in the currency of the primary
economic environment in which the entity operates (its functional currency). For the purpose of these
consolidated financial statements, the results and financial position of each entity are expressed in US
Dollars, which is the functional currency of the Company. The presentation currency for these consolidated
financial statements is the Kuwaiti Dinar (“KD”).
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