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KUWAIT ENERGY plc
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2014
25
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provisions (continued)
a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the
present value of those cash flows.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third
party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the
amount of the receivable can be measured reliably.
A decommissioning provision is calculated as the net present value of the Group’s share of the expenditure which
may be incurred at the end of the producing life of each field in the removal and decommissioning of the production,
storage and transportation facilities currently in place. The cost of recognising the decommissioning provision is
included as part of the cost of the relevant property, plant and equipment and is thus charged to the consolidated
statement of income on a unit of production basis in accordance with the Group’s policy for depletion and
depreciation of tangible non-current assets. Period charges for changes in the net present value of the
decommissioning provision arising from discounting are included in finance costs.
Share-based payments
Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the
grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out
in note 29.
The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest.
Employee Benefits
The liability recognised in the balance sheet in respect of defined benefit plan is the present value of the defined
benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation
is calculated annually by independent actuaries using the projected unit credit method. The present value of the
defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of
high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have
terms to maturity approximating to the terms of the related pension obligation. In countries where there is no deep
market in such bonds, the market rates on government bonds are used.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or
credited to equity in other comprehensive income in the period in which they arise.
Taxation
Certain of the Company’s subsidiaries are subject to taxes on income in various foreign jurisdictions. Income tax
expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
consolidated statement of income because it excludes items of income or expense that are taxable or deductible in
other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is
calculated using tax rates that have been enacted or substantively enacted by the consolidated statement of financial
position date.
The Group is subject to various forms of taxation in the countries in which it operates. These include income tax on
profits, royalties on production, sales taxes on revenues generated, and payroll taxes on benefits to employees.
The income tax expense recognised relates only to Area A in Egypt, where tax is levied on taxable profits, and hence
falls under the scope of IAS 12. In other jurisdictions the primary form of taxation is in the form of royalties on
production, which are deducted at source as government share of oil in line with PSCs. As such, these royalties are
not considered to constitute income tax as defined by IAS 12, and accordingly government share is netted off
revenue in line with the nature of the transactions.