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
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (CONTINUED)
Critical judgements in applying accounting policies (Continued)
Allowance for doubtful debts
The allowance for doubtful debts is determined based on a combination of factors to ensure that the trade
receivables are not overstated due to uncollectibility. The allowance for doubtful debts for all customers is
based on a variety of factors, including the overall quality and aging of receivables, continuing credit
evaluation of the customer’s financial conditions and collateral requirements from customers in certain
circumstances. Also, specific provisions for individual accounts are recorded when the Group becomes
aware of a customer’s inability to meet its financial obligations such as in the case of deterioration in the
customer’s operating results and financial position.
Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation
uncertainty at the consolidated statement of financial position date, that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Depletion of oil and gas properties
Depletion of the cost of oil and gas properties and information reported on estimated quantities of proved oil
and gas reserves are based on estimated oil and gas reserves which have been determined by competent and
qualified petroleum engineers. Management believes these reserves to be commercially productive and will
provide revenues to the Group adequate to recover remaining net un-depreciated and un-depleted capitalized
oil and gas properties as at 31 December 2010.
Decommissioning liability
The Group has made provision for decommissioning costs relating to the future abandonment of fields based
on the present value of expected expenditures required to settle the obligation. The estimates used to
determine decommissioning liability have been reviewed and revised, as appropriate, during the year ended
31 December 2010, by competent and qualified petroleum engineers.
Impairment of oil and gas properties
Determining whether oil and gas properties are impaired requires management to estimate the future net
revenue from oil and gas reserves attributable to the Group’s interest in that field. An impairment loss of KD
34,475 thousand (2009: KD 16,609 thousand) was recognised during 2010.
Impairment of other fixed assets and useful lives
The Group’s management tests annually whether tangible assets have suffered impairment in accordance
with accounting policies stated in note 3. The recoverable amount of an asset is determined based on valuein-use
method. The method uses estimated cash flow projections over the estimated useful life of the asset
discounted using market rates. The Group’s management determines the useful life of other fixed assets and
the related depreciation charge. The depreciation charge for the year will change significantly if actual life is
different from the estimated useful life of the asset.
Business combination
In a business combination, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet
the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the
acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in
accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are
recognised and measured at fair value less costs to sell. The Group’s management determines the fair values
of the acquiree’s identifiable assets, liabilities, contingent liabilities and non-current assets classified as held
for sale.
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