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)
Taxation (Continued)
Deferred tax (Continued)
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax for the period
Current and deferred tax are recognised as an expense or income in the consolidated statement of income,
except when they relate to items credited or debited directly to equity, in which case the tax is also
recognised directly in equity, or where they arise from the initial accounting for a business combination. In
the case of a business combination, the tax effect is taken into account in calculating goodwill or in
determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets,
liabilities, and contingent liabilities over cost.
Derivatives
In accordance with IAS 39 “Financial Instruments: Recognition and Measurement”, derivative financial
instruments, unless designated as hedges, are carried in the consolidated statement of financial position at
fair value, with changes in the fair value included in the consolidated statement of income.
The Group operates internationally, giving rise to significant exposure to market risks from changes in
commodity prices, interest and foreign exchange rates. In the ordinary course of business, the Group has
entered into certain long-term sales contracts, which, under IAS 39, include embedded derivatives.
An embedded derivative is a component of a contract, which has the effect that the cash flows arising under
the contract vary, in part, in a similar way to a standalone derivative. IAS 39 requires that such embedded
derivatives are separated from the host contracts and accounted for as derivatives, classified as held for
trading and carried at fair value, with changes in fair value being included in the consolidated statement of
income.
Contingencies
A contingent asset is not recognized in the consolidated financial statements but disclosed when an inflow of
economic benefits is probable.
Contingent liabilities are not recognized in the consolidated financial statements unless the outflow of
resources embodying economic benefits is probable and the amount of the obligation can be measured
reliably. They are disclosed as contingent liabilities unless the possibility of an outflow of resources
embodying economic benefits is remote.
Borrowing costs
Borrowing costs are calculated on the accrual basis and are recognised in the consolidated statement of
income in the period in which they are incurred.
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