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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)
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 contribution 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.