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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2015
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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.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
The Group as lessee
Assets held under finance leases are recognised as assets of the group at their fair value or, if lower, at the present value
of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor
is included in the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit
or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with
the group’s general policy on borrowing costs (see
above).
Operating lease payments are recognised as an expense on a straight-line basis over the term of the relevant lease except
where another more systematic basis is more representative of the time pattern in which economic benefits from the
lease asset are consumed.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability.
The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where
another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are
consumed.
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 year 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 year, unless exchange rates fluctuated significantly during that year,
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 year in which the foreign operation is disposed of.
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