Intermediate Accounting Deliverable
Introduction Of Company
We are going to discuss the statements of financial position of Kuwait petroleum corporations, which is a listed company in the Kuwait stock exchange. Firstly of all we have to know the mission of Kuwait petroleum. It’s a corporation of economic character, fully owned by state and run on commercial basis. It is one of the best oil and Gas Company and its all activities are based on exploration and production of petroleum, marketing, petrochemicals, transport and refining. Mission of this corporation is to successfully operate and manage all integrated activities in all over the world with most effective and efficient manner. KPC play a very important role in the development and support of economy, maintain superior commercials and technical expertise, developing national labor with managing the environmental, safety and health aspect related to business.
KPC has very broad vision. This corporation wants to be a most profitable and performance driver company, make strong the world class reputation of KPC operations, support in continuous learning in all areas, significantly contribute in the development and support of economy and apply most latest and appropriate technologies in its operations. The values of KPC are teamwork, trust, customer satisfaction, commitment to HSE, quality and excellence, integrity, honesty and transperacy, and at last innovation. (Citrix.com)
Now We Move The Financial Position Of KPC
As we consider the balance sheet of 2011 and 2012, we can see a major change in the profit of company. Revenues are increase with a major difference but also with increase in revenue over all expenses also increase.
Basic Measurements And Components
The consolidated financial statement prepared according to Law decree no.6 of 1980 and international financial reporting standards, which are issued by IASB. These consolidated financial statements are made according to historical cost convention, which is modified according to the fair value of available for sale investments and derivatives financial instruments. These financial statements are shown in Kuwaiti dinars, which are considered as group currency. According to IFRSs for preparation of financial statements, manage need to do judgments, assumptions and estimations that effect the accounting policies, amount of assets, liabilities , income, expense. Also measure the difference between actual and estimations. Estimates and assumptions are review at ongoing basis. In revision to estimates is happen in the period in which estimate revise and any other effected.
The consolidated financial statement includes the statements of corporations and its subsidiaries. Subsidiaries made their statements according to accounting policies of corporation. Non-controlling interest presents the profit or loss and assets of subsidiaries. These are also present in separate financial statements and subsidiaries equity also present separately. Corporation has control on subsidiaries and control kept till corporation has power to run the operation and financial policies to get benefits from its activities. For accessing control, potential voting rights should be exercisable. Intra group balance and transactions including profit or unrealized profit with loss are removed in consolidation. The financial statements of subsidiaries are prepared on line by line basis combine with assets, liabilities, income and expense with the all items of corporation. Business is combined with the acquisition method. Cost of acquisition determine according to consideration transferred, measured at fair value and the share of non-controlling interest. Those subsidiaries are keep as unconsolidated which have not significant operations during the whole year. (Jacobs.com, 2018)
Oil and gas producing and exploration activities are consider as using successful method. Successful exploratory and development drilling costs are capitalized and amortized with unit of production method. In Kuwait state development and exploration costs are capitalized according to straight line method. All property, plant and equipment are recorded at costs price. Remaining maintenance costs are incurred as routine charges. Major repair and renewal costs are used to improve the performance and depreciation also consider as major part so all these capitalize as separate entity to explain the life of asset. Under construction, assets are recorded at cost excluding any impairment loss. According to group accounting policy, al capital costs must be combined. These under construction are merging with real assets when they are substantially completed and come into the use. Deprecation of assets are charge when they come in the usage of business. Normally depreciation is charge according to straight line method. And its method, useful lives of assets and residual values are reviewed at each reporting date.
Crude oil inventory is measured at the lower of average cost and net releasable value. Cost was established by the government. Petroleum gas and finished products are valued at lower price and net realizable value. Cost is measured at weighted average method. Net realizable value is depending on estimated selling price minus any additional costs. In operations, all used spare parts, materials and supplies are valued at lower of costs and net realizable value and weighted average method used of cost determination. Trade receivables are mention at their costs minus impairment loss. Long term receivables are discounted at net present value. Deferred expense includes catalyst expense used in the refining processes that are amortized on straight line basis. Cash and cash equivalent include cash, short term bank deposits and highly liquid investment. Financial assets or liabilities are recognized when group work a party in any contract.
And they become derecognized when group transfer all risks and responsibilities with authority or ownership. Liabilities derecognized when contract is discharge or expired. An asset is impaired when its carrying amount is higher than its estimated recoverable amount. Recoverable amount is always higher then selling price of asset.impairement of assets also recognized. Impairment is determine as follow: asset carried at fair value, impairment is the difference between acquisition cost and fair value, if assets carried at cost, impairment is the difference between cost and present value of future cash flow and if asset carried at amortized cost, impairment is the difference between carrying amount and present value of future cash flow. Trade payables are mentioned at their amortized costs. Bank loans and overdrafts are recorded at the proceeds received, net of direct issue cost. Finance charges include premium payables and issue costs are accounted for accrual basis in profit and loss. All regular way slates and purchase are recorded at the date of trading.
Derivatives products include forward foreign exchange contract, futures a, options and swaps. They stated at fair value. This value is equivalent to unrealized gain or loss. Making sales and purchase contract are the part of international trading of group. Revenue are consider on the date legal title passes to the customer according to sale contract. Remaining operating revenue considered as work is performed with the related terms of contract. Interest recognized on accrual basis and dividend income recognized when the group right to receive payment is established. Rental paid under operating lease are expensed on straight line basis over the term of lease not related to term of payment. (Encyclopedia.com, 2006)
New different standards, amendments to standards and changes are effective for annual period start from 1 April 2011, so no any effect of these changes shown in the consolidated financial statements. IFRS 9 financial instruments are going to applicable in financial statements after 2014.a new package of consolidated standards are effective annual periods start after 2013.IFRS 13 fair value measurements become compulsory after 2013 in the group. IAS 19 employee benefit also applicable after 2013.
When different accounting policies processes are applicable in the group, management has to do some adjustments that show most significant effect on the consolidated financial statement. Recognition of provision: group includes many important issues which belong to outflow of economic benefits. Management need to consider between different factors whether a constructive obligation occurs at the reporting date or resulting risk of outflow of economic benefits is expected. Impairment for available for sale investment: group treated available for sale investment as impaired when a clear decline in the fair value show below cost for this proper judgment is required by management. Classification of securities : management make decision about securities that are they include in investment at fair value through loss or profit or consider as available for sale.
Classification of securities at fair value depend on management that how they monitor the performance of these securities when they are not for trading and change in their fair value reported as profit or loss for management. So it’s up to management decision to judge the security according to fair value of profit or loss or consider as available for sale. Impairment of goodwill: goodwill is impaired according to estimations of the values use for cash generating units to which the cist has been allocated. Due to specialized nature of tankers of oil and gas and changing market conditions, the estimation of their prices need proper judgment through management. (Eiu.com, 2017)
With the impairment of tankers, impairment of oil and gas also required to measure the correct price of oil and gas. in calculating the carrying value of its definite benefit scheme , management is require to apply number of assumptions which include investment growth, future salary growth and discount rate. After all above discussion we can say that KPC is a high profit generating company who is a major supporter of Kuwait economy, different changes in accounting terms and policies are implemented according to changing in time and requirements but proper and timely implementation is very much important for the profitable status of company.
- com. (n.d.). Kuwait Petroleum Corporation. Retrieved from https://www.citrix.com/customers/kuwait-petroleum-corporation-en.html
- com. (2017, May 30). Kuwait Petroleum Corporation presses ahead with investment. Retrieved from http://www.eiu.com/industry/article/625487046/kuwait-petroleum-corporation-presses-ahead-with-investment/2017-05-30
- com. (2006). Kuwait Petroleum Corporation. Retrieved from https://www.encyclopedia.com/social-sciences-and-law/economics-business-and-labor/businesses-and-occupations/kuwait-petroleum
- com. (2018, March 22). Kuwait Petroleum Corporation Selects Jacobs for Expansion in Local Refining Capacity Pre-Feasibility Study. Retrieved from http://invest.jacobs.com/investors/Press-Release-Details/2018/Kuwait-Petroleum-Corporation-Selects-Jacobs-for-Expansion-in-Local-Refining-Capacity-Pre-Feasibility-Study/default.aspx