Ophir Energy plc Annual Report and Accounts 2011

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Ophir Energy plc Annual Report 2011
Notes to the financial statements continued
2 Basis of preparation and significant accounting policies continued
2.23 Income taxes
Current tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.
Current income tax is charged or credited directly to equity if it relates to items that are credited or charged to
equity. Otherwise income tax is recognised in the income statement.
Deferred tax
Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements, with the following exceptions:
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where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a
transaction that is not a business combination and, at the time of the transaction affects neither accounting nor
taxable profit or loss;
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in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint
ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable future; and
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deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences, carried forward tax credits or tax losses can
be utilised.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to
the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the
deferred income tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each
reporting period and are recognised to the extent that it has become probable that future taxable profit will be
available to allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected
to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or
substantively enacted at the balance sheet date.
Deferred income tax is charged or credited directly to equity if it relates to items that are credited or charged to
equity. Otherwise deferred income tax is recognised in the income statement.
2.24 Impairment
The Group assesses at each reporting date whether there is an indication that an intangible asset or item of
property plant & equipment may be impaired. If any indication exists, or when annual impairment testing for is
required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an
asset’s or cash-generating unit’s (“CGU”) fair value less costs to sell and its value in use and is determined for an
individual asset, unless the asset does not generate cash inflows that are largely independent of those from other
assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the
asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. In determining fair
value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can
be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples,
quoted share prices for publicly traded subsidiaries or other available fair value indicators.
The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared
separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast
calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and
applied to project future cash flows after the fifth year.
Impairment losses of continuing operations, including impairment on inventories, are recognised in the income
statement in expense categories consistent with the function of the impaired asset, except for a property previously
revalued and the revaluation was taken to other comprehensive income. In this case, the impairment is also
recognised in other comprehensive income up to the amount of any previous revaluation.