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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)
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.
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 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. The unwinding of the discount on the decommissioning provision is included within finance costs.
Employee Benefits
Payments to defined contribution retirement benefit schemes are recognised as an expense when employees have
rendered service entitling them to the contributions. Payments made to state-managed retirement benefit schemes are
dealt with as payments to defined contri
bution schemes where the group’s obligations under the schemes are equivalent
to those arising in a defined contribution retirement benefit scheme.
The liability recognised in the balance sheet in respect of defined benefit plans is the present value of the defined benefit
obligation at the end of the reporting year 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 year in which
they arise.
A liability for a termination benefit is recognised at the earlier of when the entity can no longer withdraw the offer of the
termination benefit and when the entity recognises any related restructuring 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.
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. The share options
granted to employees are treated as cancelled when employees cease to contribute to the scheme.
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