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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended 30 June 2016
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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Revenue generated under Production Sharing Contracts and Risk
Service Contracts is recognised once production commences and upon sale of Group’s share of the oil or gas to third
parties.
Interest income is recognised on an accrual basis in accordance with the substance of the relevant agreement.
Taxation
The Group is subject to various forms of taxation in the countries in which it operates. The Group is subject to income
tax within scope of IAS 12 in Egypt and Iraq. At Area A in Egypt, income tax is levied on taxable profits, and in Iraq at
Block 9, Siba and Mansuriya tax is levied on remuneration fees and other income arising under production service
contracts. The primary forms of taxation for all other assets are production related and are deducted at source as
government share of oil in line with production sharing contract terms. These production taxes are not considered to
constitute income tax as defined by IAS 12, and accordingly government share is netted against revenue in line with
the nature of the transaction. The taxation charge represents the sum of current tax and deferred tax.
The computation of the Group’s income tax expense and liability involves the interpretation of applicable tax laws and
regulations in the countries in which it operates. Therefore, judgement is required to determine provisions for income
taxes. To the extent that actual outcomes differ from management’s estimates, income tax charges or credits, and
changes in current and deferred tax assets or liabilities, may arise in future periods.
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 balance sheet date.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial
statements of the relevant subsidiaries and the corresponding tax bases used in the computation of taxable profit, and
are accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary
differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent
that it is probable that taxable profits will be available against which those deductible temporary differences can be
utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither
the taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year in which the
liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively
enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or
settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.