Ophir Energy plc Annual Report and Accounts 2011

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Ophir Energy plc Annual Report 2011
2 Basis of preparation and significant accounting policies continued
2.9 Inventories
Inventories which comprise drilling consumables are stated at the lower of cost and net realisable value. Cost is
determined by using weighted average cost method and comprises direct purchase costs, cost of transportation
and other related expenses.
2.10 Cash and short-term deposits
Cash and short-term deposits in the balance sheet comprise cash at bank, in hand and short-term deposits with
original maturity dates of up to 12 months.
2.11 Trade and other payables
Trade and other payables are carried at amortised cost. They represent liabilities for goods and services provided
to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obligated to
make future payments in respect of the purchase of those goods and services. The amounts are unsecured and
are usually paid within 30 days of recognition.
2.12 Provisions
A provision is recognised when the Group has a legal or constructive obligation as a result of a past event and it is
probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can
be made of the obligation. If the effect of the time value of money is material, expected future cash flows are
discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to unwinding the discount is recognised as a finance cost.
2.13 Pensions and other post-retirement benefits
The Group does not operate its own pension plan but makes pension or superannuation contributions to private
funds of its employees which are defined contribution plans. The cost of providing such benefits are expensed in
the income statement as incurred.
2.14 Employee benefits
Wages, salaries, annual leave and sick leave
Liabilities for wages and salaries, including non-monetary benefits, annual leave and accumulating sick leave
expected to be settled within 12 months of the reporting date are recognised in respect of employees’ services
up to the reporting date. They are measured at the amounts expected to be paid when the liabilities are settled.
Liabilities for non-accumulating sick leave are recognised when the leave is taken and are measured at the rates
paid or payable.
Long service leave
The liability for long service leave is recognised and measured at the present value of expected future payments
to be made in respect of services provided by employees up to the reporting date using the projected unit credit
method.
BUSINESS REVIEW GOVERNANCE FINANCIAL STATEMENTS
Consideration is given to expected future wage and salary levels, experience of employee departures and periods
of service. Expected future payments are discounted using market yields at the reporting date on national
government bonds with terms to maturity and currencies that match, as closely as possible, the estimated future
cash outflows.
2.15 Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
2.16 Interest-bearing borrowing
All loans and borrowings are initially recognised at fair value less directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost
using the effective interest rate method.
Gains and losses are recognised in the income statement when liabilities are derecognised as well as through the
amortisation process. A financial liability is derecognised when the obligation under the liability is discharged or
cancelled or expires.