ANNUAL REPORT 2005 - Lukoil

FINANCIAL ACCOUNTS
found a sufficient quantity of reserves to justify its completion as a producing well and (b) the company is making
sufficient progress assessing the reserves and the economic and operating viability of the project. If either condition is
not met or if a company obtains information that raises substantial doubt about the economic or operational viability of
the project, the exploratory well would be assumed impaired, and its costs, net of any salvage value, would be charged
to expense. Following adoption of the changes, certain exploration costs which would have been charged to the income
statement will remain capitalized and will instead be subject to depreciation, depletion and amortization in future periods.
FSP No. 19-1 also requires certain additional disclosures in relation to suspended well costs. The adoption of the provisions
of FSP No. 19-1 during 2005 did not have a material impact on the Group's results of operations, financial position
or cash flows.
Cumulative effect of change in accounting principle
Effective January 1, 2003, the Group adopted SFAS No. 143, "Accounting for Asset Retirement Obligations." This accounting
standard applies to legal obligations associated with the retirement of tangible long-lived assets. SFAS No. 143
requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred
and a corresponding increase in the carrying amount of the related long-lived asset. Subsequently, the liability is accreted
for the passage of time and the related asset is depreciated over its estimated useful life.
Upon adoption of SFAS No. 143, the Group recorded a cumulative-effect adjustment resulting in an increase to net
income of $132 million (net of income tax of $46 million), including the Group's share of the effect of adoption by its equity
affiliates. The effect of adoption also included an increase of net property, plant and equipment of $330 million,
minority interest of $12 million, non-current deferred income tax assets and liabilities of a net $46 million and an increase
in the asset retirement obligation of $140 million.
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations –
an interpretation of FASB Statement No. 143" (FIN 47). This Interpretation clarifies that an entity is required to recognize
a liability for a legal obligation to perform asset retirement activities when the retirement is conditional on a future event
and if the liability's fair value can be reasonably estimated. The adoption of the provisions of FIN 47 in the fourth quarter
of 2005 did not have a material impact on the Group's results of operations, financial position or cash flows.
Comparative amounts
Certain prior period amounts have been reclassified to conform with current period presentation.
NOTE 3. CASH AND CASH EQUIVALENTS
As of December 31, 2005 As of December 31, 2004
Cash held in Russian rubles 346 218
Cash held in other currencies 905 557
Cash of a banking subsidiary in other currencies 102 176
Cash held in affiliated banks in Russian rubles 173 255
Cash held in affiliated banks in other currencies 124 51
Total cash and cash equivalents 1,650 1,257
NOTE 4. NON-CASH TRANSACTIONS
The consolidated statement of cash flows excludes the effect of non-cash transactions, which are described in the
following table:
Year ended
December 31, 2005
Year ended
December 31, 2004
Year ended
December 31, 2003
Non-cash investing activity 133 123 64
Settlement of bond liability with
the Company's common stock 300 - 395
Total non-cash transactions 433 123 459
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