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KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2014
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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories
Crude oil is valued at fair value less costs to sell. Any changes arising on the revaluation of inventories are
recognised in the consolidated statement of income. 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.
Foreign currencies
The individual financial statements of each Group entity are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each entity are expressed in USD, which is the functional and
presentation currency of the Company.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the
transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the
rates prevailing at the consolidated statement of financial position date. Non-monetary items carried at fair value that
are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was
determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not
retranslated.
Exchange differences are recognised in the consolidated statement of income in the period in which they arise except
for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is
neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are
recognised in the foreign currency translation reserve and recognised in the consolidated statement of income on
disposal of the net investment.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign
operations are expressed in USD using exchange rates prevailing at the balance sheet date. Income and expense
items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly
during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences
arising, if any, are classified as equity and transferred to the Group’s foreign currency translation reserve. Such
exchange differences are recognised in the consolidated statement of income in the period in which the foreign
operation is disposed of.
Contingencies
A contingent asset is not recognised in the consolidated financial statements but disclosed when an inflow of
economic benefits is probable.
Contingent liabilities are not recognised in the consolidated financial statements unless the outflow of resources
embodying economic benefits is probable and the amount of the obligation can be measured reliably. They are
disclosed as contingent liabilities unless the possibility of an outflow of resources embodying economic benefits is
remote.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the
cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Other borrowing costs are calculated on the accrual basis and are recognised in the consolidated statement of income
in the period in which they are incurred.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the
amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present
obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where