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KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2014
23
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair value measurement
The Group measures financial instruments, such as derivatives convertible loans, at each balance sheet date. Also,
fair values of financial instruments measured at amortised cost are disclosed in note 33.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous
market for the asset or liability. The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair
value measurement as a whole:
•
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
•
Level 2: inputs other than quoted prices that are observable for assets or liabilities either directly (as prices) or
indirectly (derived from prices); and
•
Level 3: inputs for assets or liabilities that are not based on observable market data.
For financial instruments carried at amortised cost, the fair value is estimated by discounting future cash flows at
the current market rate of return for similar financial instruments.
For investments in equity instruments, where a reasonable estimate of fair value cannot be determined, the
investment is carried at cost.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines
whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest
level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of
the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained
above.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and revenue
can be reliably measured.
Revenue represents the value of sales exclusive of related sales taxes of oil and gas arising from upstream operations
when the oil has been lifted and the title has passed.
Interest income is recognised on an accrual basis in accordance with the substance of the relevant agreement.
Royalties
Royalties are accounted for in the consolidated statement of income in the same period as the income to which they
relate and are included within operating expenses. Royalty arrangements that are based on production, sales and
other measures are recognised by reference to the underlying arrangement.