Annual Report 2005 (6 MB) - Lundin Petroleum

ACCOUNTING PRINCIPLES
ACCOUNTING PRINCIPLES ADOPTED BY THE GROUP
Principles of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has the sole right
to exercise control over the operations and govern the fi nancial
policies generally accompanying a shareholding of more than half
of the voting rights. The existence and eff ect of potential voting
rights that are currently exercisable or convertible are considered
when assessing the Group’s control. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group and are de-consolidated from the date that control ceases.
The consolidated fi nancial statements of the Lundin Petroleum
Group have been prepared using the purchase method of
accounting. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange, plus costs directly
attributable to the acquisition. Identifi able assets acquired
and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the
acquisition date, irrespective of the extent of any minority interest.
The excess of the cost of acquisition over the fair value of the
Group’s share of the identifi able net assets acquired is recorded as
goodwill. If the cost of acquisition is less than the fair value of the
net assets of the subsidiary acquired, the diff erence is recognised
directly in the income statement.
The minority interest in a subsidiary represents the portion of the
subsidiary not owned by the Company. The equity of the subsidiary
relating to the minority shareholders is shown as a separate item
within equity for the Group.
All intercompany profi ts, transactions and balances are eliminated
on consolidation. Unrealised losses are also eliminated unless
the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of subsidiaries have been changed
where necessary to ensure consistency with the policies adopted
by the Group.
Associated companies
An investment in an associated company is an investment in an
undertaking where the Group exercises signifi cant infl uence but
not control, generally accompanying a shareholding of at least
20% but not more than 50% of the voting rights. Such investments
are accounted for in the consolidated fi nancial statements in
accordance with the equity method. The diff erence between
the acquisition cost of shares in an associated company and the
net fair value of the assets, liabilities and contingent liabilities of
the associated company recognised at the date of acquisition
is recognised as goodwill. The goodwill is included within the
carrying amount of the investment and is assessed for impairment
as part of the investment. The Group’s share in the post-acquisition
results of the associated company is recognised in the income
statement and the Group’s share in post-acquisition movements
in the equity of the associated company are recognised the
> 52 <
Group’s equity. When the Group’s accumulated share of losses
in an associated company equals or exceeds its interest in the
associated company, the Group does not recognise further losses,
unless it has incurred obligations or made payments on behalf of
the associate.
Other shares and participations
Investments where the shareholding is less than 20% of the voting
rights are treated as fi nancial instruments.
Jointly controlled entities
Oil and gas operations are conducted by the Group as co-licensees
in unincorporated joint ventures with other companies. The
Group’s fi nancial statements refl ect the relevant proportions of
production, capital costs, operating costs and current assets and
liabilities of the joint venture applicable to the Group’s interests.
Foreign currencies
Items included in the fi nancial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (‘functional currency’).
The consolidated fi nancial statements are presented in SEK, which
is the currency the Group has elected to use as the presentation
currency.
Functional currency
Monetary assets and liabilities denominated in foreign currencies
are translated at the rates of exchange prevailing at the balance
sheet date and recognised in the income statement. Transactions
in foreign currencies are translated at exchange rates prevailing
at the transaction date. Exchange diff erences are included in the
income statement.
Presentation currency
The balance sheets and income statements of foreign subsidiary
companies are translated for consolidation using the current rate
method. All assets and liabilities of the subsidiary companies are
translated at the balance sheet date rates of exchange, whereas
the income statements are translated at weighted average rates of
exchange for the year. The translation diff erences which arise are
taken directly to the foreign currency translation reserve within
shareholders’ equity. On a disposal of a foreign operation the
translation diff erences relating to that operation will be transferred
from equity to the income statement and included in the result
on sale. Translation diff erences on long term intercompany loans,
used for fi nancing exploration activities, are taken directly to
shareholders’ equity.
For the preparation of the annual fi nancial statements, the
following currency exchange rates have been used.
Average Period end
1 Euro equals SEK 9.2800 9.3885
1 USD equals SEK 7.4550 7.9584