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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2017
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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other fixed assets
Other fixed assets are stated at cost less accumulated depreciation and any accumulated impairment losses. Cost
includes the purchase price and directly associated costs of bringing the asset to a working condition for its intended
use. Depreciation commences when the other fixed assets are ready for their intended use and is calculated based on
the estimated useful lives of the applicable assets on a straight-line basis, on the following basis:
Office equipment
5 years
Motor vehicles
5 years
Building
10 years
Fixtures and fittings
10 years
The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of
any changes in estimate accounted for on a prospective basis.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets.
However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets
are depreciated over the shorter of the lease term and their useful lives.
Maintenance and repairs, replacements and improvements of minor importance are expensed as incurred. Significant
improvements and replacement of assets are capitalised.
The gain or loss arising on the disposal or retirement of other fixed assets is determined as the difference between the
sale proceeds and the carrying amount of the asset and is recognised in the consolidated income statement.
Inventories
Crude oil inventories are valued at fair value less costs to sell. Any changes arising on the revaluation of inventories are
recognised in the consolidated income statement. Other inventories comprising mainly of spare parts, materials and
supplies are valued at cost, determined on a weighted average cost basis, less allowance for any obsolete or slow-
moving items. Purchase cost includes the purchase price, import duties, transportation, handling and other direct costs.
Crude oil prepayments
In the ordinary course of business, the Group enters into long-term oil supply contracts. The contract terms may be
such that buyer is required to enter into an agreement to prepay for oil cargos. Such prepayment agreements may be
subject to various settlement and financing terms and as such the accounting treatment for each agreement is assessed
on a contract by contract basis.
The Group has entered into a long term oil supply contract and an associated prepayment facility agreement for Block
9 in Iraq. The expected settlement terms of any prepayments outstanding are assessed at each balance sheet date to
determine the classification of the prepayment received as a financial or non-financial liability. The Group considers
the prepayments drawn down under these agreements to relate to normal sales which will be settled within 12 months
of the drawdown by the delivery of a non-financial item in accordance with the Group’s expected oil entitlement from
the Block 9 risk service contract. Only in exceptional circumstances would the Group expect or be obliged to settle in
cash or another financial asset, such as a dramatic, unexpected fall in the oil price between drawdown and settlement
dates.
Accordingly, prepayments received are recorded as non-financial liabilities, unless evidence exists that settlement will
be in cash. When the expectation for repayment of a prepayment changes from settlement in physical delivery of oil
to settlement in cash, the non-financial liability will be re-classified as a financial liability. The interest applicable to
facility drawdowns will always be settled in cash and is considered to be a separate financial liability, which will be
recognised and measured at the amount payable.