BP Company

BP Company

S u b m i t t e d To : L e o n a r d
Hope
By: Alma Ponce

Table of Content

Introduction ...4
Who Is BP? ...4
Annual Report and Accounts .....5
What is the amount of property and equipment on the balance sheet for the
two most recent years? What is the amount of depreciation expense?
What amounts are on the cash flow statement for the most
recent year that relate to depreciation, gains and sales of property
and equipment, and purchases and sale of property of equipment?
What amounts are permitted for inclusion in the capitalized cost of
property and equipment? .............................................................................................7
Looking at the footnote disclosures of the company, what are
the individual components of property and equipment?
For example, what are the amounts for land, building, equipment,
accumulated depreciation, and so forth? How do companies
account for nonmonetary exchange and dispositions of property and
equipment? ...7
Does the company have intangible assets? If so, what are the types
of intangible assets (patent, copyrights, etc.) and their amounts?
What is the amount of amortization expense? What amounts on
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the most recent cash flow statement relate to the purchase

and sale of intangible assets? How do intangible assets differ from
property and equipment? What costs do we include in intangible
assets? ..8
Does the company have goodwill? What are the footnote disclosures
relating to goodwill and the related acquisition? Please also describe
the calculation of goodwill and how we account for differences between
fair value and book value of assets acquired...9
What are the company's depreciation methods? What is the range
of estimated useful lives used for depreciating its assets? Does the
company use the same depreciation methods for financial statements
and tax returns? If not, please describe the methods used for tax purposes..10
What are the company's footnote disclosures relating to impairment?
Please also describe how to determine whether an impairment
exists and how to calculate the impairment loss...12
What are the amounts and descriptions of the company's current
liabilities for the most recent year? Does the company have any
contingent liabilities? If yes, please describe. What are the three
categories of contingent liabilities and the treatment for each type?
Does the company have any subsequent events disclosed in its
footnotes? If so, please describe them...13

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What are the amounts and descriptions for all of the company's
long-term liabilities on its balance sheet for the two most recent
years? What is the interest expense for the two most recent years?
What amounts are included in the cash flow statements for proceeds
from issuance of debt and repayment of debt for the most recent year?
For each note payable discussed in the footnotes disclosures,
what is the interest rate, total amount borrowed, and maturity date? ...14
Does the company have bonds payable? If so, what are the amounts?
Please also describe how bonds payable differ from notes payable
and how to account for the issuance of bonds at par, at a discount,
and at a premium. How is the discount and premium amortized?
What is the effective interest method? ...16
Does the company have capital leases? If so, what are the amounts
and terms of the leases? What are the four criteria for a lease to be
considered a capital lease? What are the additional criteria for the
lessor? What is the difference between a sales-type lease and a
direct financing lease? ..17
Conclusion ..17
Bibliography 19

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BP has had its share of positive and negative events which circulated around the
world and affected not only the company and their financial numbers but Earth and the
people and animals around. Although viewing their annual financial reports from the
past ten years would be interesting to study, I will be concentrating on BPs 2012 annual
financial report.

So who is BP? BP is a company that provides their customers with fuel for
transportation, energy for heat and light, lubricants to keep engines moving and
petrochemical products used to make everyday items. (Resource number one)
BP is not only a United States provider; they offer their services to people all around the
world. April 20, 2010 marked an event known as the BP Oil Spill or Deepwater Horizon
Accident, which will be a day to remember in history as one of the most devastating oil
spills into the Gulf of Mexico. The explosion and fire on the BP operated drilling killed
eleven workers and thousands of gallons of oil spilled into the Gulf. Animals were
affected tremendously and the people around the Gulf with businesses were hit hard as
well. It took a lot of help from workers and volunteers to clean up the water and animals.
BP paid billions of dollars in settlements over the spill. Through this terrible tragedy BP
maintained to stay in the business with a positive attitude and along with that, they got
to work cleaning up their mess. BP to this day are still helping the economic and
environmental restoration efforts in the Gulf Coast which is just part of their commitment
to the region.

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Taking a deeper look into what annual reports are and consist of is a great way to
slowly introduce BPs annual report. So what is an annual report exactly? An annual
report, simply put is a document produced annually by all companies which are
designed to portray a true and fair view of the companys annual performance, with
audited financial statements prepared in accordance with company law and other
regulatory requirements, and also containing other nonfinancial information. (reference
3)
Reviewing the Companies Act 1985/9 will show the requirements that companies
are obligated to which include the publication of their annual report and accounts. Within
this act, it is required that the annual reports include a balance sheet, a profit and loss
account, a cash flow statement and a directors report. The annual report has its share
of stakeholders and these may include the shareholders, potential shareholders,
managers and employees, creditors and potential creditors, suppliers, employees and
their unions and the government for tax purposes. There are many different functions
that are within the annual report. The stewardship and accountability function is one to
start off with and the main purpose is reporting to shareholders. Next, there is the
decision making function which provides information about performance and changes in
the financial position of an enterprise that is useful to a wide range of users in making
economic decisions. Another important function is providing users, especially
shareholders with financial information so that they can make decisions such as buying
or selling shares. (reference 3) The final function is public relations which occurs within
the annual report and is an opportunity to publicize the corporate image. Although the
annual report can be quite overwhelming, the information that is included in the annual
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report can be broken down to understand. The information to be included in the annual
report are the rules governing the content of the annual report which derive from the
Statute law the Companies Act, accounting standards, stock exchange rules and
codes of best practice in corporate governance.
Finally we have the Companies Act of 1985/9. Here the directors have
stewardship of limited companies and are required to publish accounts which show a
true and fair view of the companys financial position. All accounts must be sent to all
shareholders, all the debenture holders and the Registrar of Companies at Companies
House. The accounts must be sent within ten months of the year-end for a private
company and within 7 months of the year end in the case of a public company.
(reference 3)

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I will be studying the numbers on the annual report for the years of 2012 and
2011. When looking at the annual report of BP, I conclude that the amount of property
plant and equipment for the two most recent years is $3,493 million. The amount for
2012 is $1,783 million and the amount for 2011 is $1,710 million. The depreciation
expense is $63,958 million. The amount for 2012 is $31,839 million and the amount for
2011 is $32,119 million.
The amounts that are on the cash flow statement for 2012 that relate to depreciation,
gains and sales of property and equipment, and purchases and sale of property of
equipment is:
Depreciation 2012 - $33,911 million
Amortization 2012 - $12,481 million
Proceeds from sale of equipment, property and investments/subsidiaries 2012
$22,900 million
Sale of property of equipment 2012 - $42,900

When taking a look at the footnote disclosures of BP, the individual components
of property and equipment that appear are gross debt $48,797 million, less: fair value
asset of edges related to finance debt $1,700 million = $47,097 million, less: cash and
cash equivalents $19,548 million = net debt $27,549 million, equity $119,620 million and
the equity net debt ratio 18.7%.
BP defines capital disclosures as total equity. The approach to managing capital
is set out in its financial framework which BP continues to refine to support the pursuit of
value growth for shareholders, whilst maintaining a secure financial base. BP intends to
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maintain a net debt ration within the 10-20% gearing range, and continue to hold a
significant liquidity buffer while uncertainties remain. (reference 4)
The intangible assets other than goodwill include expenditure on the exploration
for and evaluation of oil and natural gas resources, computer software, patents, licenses
and trademarks and are stated at the amount initially recognized, less accumulated
amortization and accumulated impairment losses. The intangible assets that are
acquired separately from a business are carried initially at cost. The intangible assets
with a finite life are amortized on a straight-line basis over their expected useful lives.
Amortization is listed along the side of depreciation and depletion and the sum of these
in 2012 is $12,481 million. Oil and natural gas properties, including related pipelines,
are depreciated using a unit-of-production method. The cost of producing wells
amortized over proved developed reserves. License acquisition, common facilities and
future decommissioning costs are amortized over total proved reserves. The unit-ofproduction rate for the amortization of common facilities costs takes into account
expenditure expected to be incurred in relation to these common facilities.

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BP Company does assess its goodwill along with its fixed assets, for possible
impairment if there are events or changes in circumstances that indicate that carrying
values of the assets may not be recoverable and, as a result, charges for impairment
are recognized in the groups results from time to time, with corresponding reductions in
the carrying values of the groups assets. An important note to take a look at when it
comes to goodwill is that BP is required to test annually for impairment of goodwill
acquired in a business combination. Goodwill is measures as being the excess of the
aggregate of the consideration transferred, the amount recognized for any minority
interest and the acquisition-date fair values of any previously held interest in the acquire
over the fair value of the identifiable assets acquired and liabilities assumed at the
acquisition date. (reference 4) So if there are low oil prices or natural gas prices or
refining margins or marketing margins for an extended period, the group may need to
recognize significant goodwill impairment charges. At the acquisition date, any goodwill
acquired is allocated to each of the cash-generating units, or groups of cash-generating
units, expected to benefit from the combinations synergies. Goodwill may also arise
upon investments in jointly controlled entities and associates, being the surplus of the
cost of investment over the groups share of the net fair value of the identifiable assets
and liabilities. The goodwill recording on the group balance sheet of 2012 is $11,861
million. When viewing the business combinations and the transaction that was
accounted for as a business combination using the acquisition method during 2012, we
can see that the measurements period adjustments amounted to an overall decrease of
$115 million in the net fair value of the identifiable assets and liabilities acquired, there
came an increase of $46 million in the goodwill arising on acquisition and an adjustment

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to reduce the contingent consideration to nil. Therefore, goodwill of $2,569 million arose
on acquisition, attributed to the market access and other benefits arising from the
business combination.

Depreciation methods within the BP Company consist of the calculations of the

estimates of oil and gas reserves. The impact of changes in estimated proved reserves
is dealt with prospectively by amortizing the remaining carrying value of the asset over
the expected future production. If proved reserve estimates are revised downwards,
earnings could be affected by higher depreciation expense or an immediate write-down
of the propertys carrying value. (Reference 4) Taking a look at the 2012 movements in
proved reserves are reflected in the tables showing movements in oil and gas reserves
by region in financial statements. The information found here on carrying the amounts of
the groups oil and gas properties, together with the amounts recognized in the income
statement as depreciation, depletion and amortization is contained in the financial
statements Note 15 and 9. (Reference 4, page263) An important aspect to mention
here is that property, plant and equipment and intangible assets are not depreciated
once they are classified as held for sale. The group ceases to use the equity method of
accounting from the date on which an interest in a jointly controlled entity or an interest
in an association becomes held for sale. But if a non-current asset or disposal group
has been classified as held for sale, but subsequently ceases to meet the criteria to be
classified as held for sale, the group ceases to classify the asset or disposal group as
held for sale. Non-current assets and disposal groups that cease to be classified as held
for sale are measured at the lower of the carrying amount before the asset or disposal
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group was classified as held for sale (adjusted for any depreciation, amortization or
revaluation that would have been recognized had the asset not been classified as held
for sale) and its recoverable amount at the date of the subsequent decision not to sell.
Development expenditure consists of installation and completion of infrastructure
facilities such as platforms, pipelines and drilling of development wells, including service
and unsuccessful development or delineation wells, is capitalized within property, plant
and equipment and is depreciated from the commencement of production. (Reference
4) Property, plant and equipment are stated at cost, less accumulated depreciation and
accumulated impairment losses.
Oil and natural gas properties, including related pipelines, are depreciated using a unitof-production method. The cost of producing wells is amortized over proved developed
reserves. License acquisition, common facilities and future decommissioning costs are
amortized over total proved reserves. The unit-of-production rate for the amortization of
common facilities costs takes into account expenditures incurred to date, together with
the future capital expenditure expected to be incurred in relation to these common
facilities. (Reference 4)
The other property, plant and equipment is depreciated on a straight line basis over its
expected useful life. The typical useful lives of the groups other property, plant and
equipment are as follows:
Land improvements

15 to 25 years

Buildings

20 to 50 years

Refineries

20 to 30 years

Petrochemicals plants

20 to 30 years

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Pipelines

10 to 50 years

Service Stations

15 years

Office equipment

3 to 7 years

Fixtures and fittings

5 to 15 years

The expected useful lives of property, plant and equipment are reviewed on an annual
basis and only if necessary, changes in useful lives are accounted for prospectively. The
carrying amount of property, plant and equipment is reviewed for impairment whenever
events or changes in circumstances indicate the carrying value may not be recoverable.

Capitalized leased assets are depreciated over the shorter of the estimated useful life of
the asset or the lease term. The operating lease payments are recognized as an
expense in the income statement on a straight-line basis over the lease term.

BP maintains disclosure control and procedures, as such term is defined

in Exchange Act Rule 13a-15(e). That are designed to ensure that information required
to be disclosed in reports the company files or submits under the Exchange Act is
recorded, processes, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms, and that such information is
accumulated and communicated to management, including the companys group chief
executive and chief financial officer, as appropriate, to allow timely decision regarding
required disclosure. (Reference 4) BPs disclosure controls and procedures were
designed so that they meet and management believes they meet reasonable assurance
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standards. In December of 2011, the IASB issued amendments to IFRS 7 Disclosures

Offsetting Financial Assets and Financial Liabilities and amendments to IAS 32
Offsetting Financial Assets and Financial Liabilities. The amendments listed introduce
new presentation and disclosure requirements about the effects of offsetting financial
assets and financial liabilities and related arrangements on an entitys financial position.
More specifically, the amendments to IFRS 7 are effective for annual periods beginning
on or after 1 January 2013, with the amendments to IAS 32 effective for annual periods
beginning on or after the upcoming of January 1, 2014. These are a few of the new
standards that BP has adopted this year and the upcoming year. When it comes to the
impairment calculated for the non-operating items in 2012 I would like to add that tax is
calculated using the groups discrete quarterly effective tax rate (adjusted for the Gulf of
Mexico oil spill, certain impairment losses and disposal in 2012, equity-accounted equity
- accounted earnings from 2012 onwards and the deferred tax adjustments relating to
changes to the taxation of the UK oil and gas production (2011 $683 million, 2012 $256
million)).

The amount of current liabilities listed for 2012 is $77,586 million. What makes up
the amount concludes is followed:
Trade and other payables

47,154

Derivative financial instruments

2,658

Accruals

6,810

Finance debt

10,030

Current tax payable

2,501
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Provisions

7,587

Liabilities directly associated with assets classified as held for sale

846

BP does have its share of contingent liabilities but only relating to the Gulf of
Mexico oil spill. The estimated costs of the assessment phase and the costs relating to
early restoration agreements are the only things measurable arising from the accident.
The reason is because the cost of business economic loss claims under the PSC
settlement have not yet received or processed by the DHCSSP, or any other potential
litigation, fines or penalties (except for the Clean Water Act civil penalty claims and
governmental claims), nor it practicable to estimate their magnitude or possible timing of
payment. So no amounts can be provided for the obligations as at 31 December 2012.
Despite these circumstances, BP has provided its best estimate of amounts expected to
be paid from the $20 billion trust fund. Included are the expected amount to be paid
pursuant to the Oil Pollution Act of 1990 (OPA 90).

The two years I will be reviewing is 2012 and 2011, the long-term liabilities for 2012 is
846 million and for 2011 is 538 million. Listed under liabilities which make up the total of
the long-term liabilities is as followed:
2012

2011

Trade and other payables

158

300

Provisions

688

98

140

Deferred tax liabilities

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Before I jump into numbers dealt with interest, I would like to point out that BP believes
that the best way to achieve sustainable success as a group is to act in the long-term
interests of their shareholders, our partners and society. As a global group, their
interests and activities are held or operated through subsidiaries, branches, joint
ventures or associates established in and subject to the laws and regulations of
many different jurisdictions. Finance costs comprise interest payable less amounts
capitalized, and interest accretion on provisions and long-term other payables, Finance
costs in 2012 were $1,125 million compared with $1,246 million in 2011.
The interest expense for 2012 is $13,758 and 2011 is $12,132. These statements
were found under cash flow and the notes on cash flow statement. In the table of cash
flows we have listed,
millions
Operating profit

2012
11,936

2011
11,136

Net operating charge for pensions and other

post-retirement benefits, less contributions

414

Dividends, interest and other income

13,758

Share-based payments

350

528

Decrease (increase) in debtors

240

3,253

Increase in creditors

374

39

Net cash outflow from operating activities

1,272

3,799

Interest Paid

43

47

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117
12,132

BP accessed US, European and Australian capital markets throughout the year
with bond issuances amounting to $11 billion in 2012. Since the Gulf of Mexico oil spill,
none of the capital market contains any additional financial covenants compared with
the groups capital markets issuances prior to the incident. The interest rate used to
determine the balance sheet obligation at the end of 2012 was 0.5%. The interest rate is
based on the real rate on long-dated government bonds. During 2012, $10.9 billion of
long-term taxable bonds were issued with tenors of three to 10 years. Other
investments that BP has on its income statement are the
millions

2012

2011

Repurchased gas pre-paid bonds

989

1,277

UK Bonds

4,885

4,141

US Bonds

2,159

2,022

Other Bonds

2,114

1,951

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BP has capitalized leases which are decoded as finance leases and these are
transferred to the group substantially all the risks and benefits incidental to ownership of
the leased item, are capitalized at the commencement of the lease term at the fair value
of the leased item or, if lower, at the present value of the minimum lease payments.
(Reference 4) These finance charges must be allocated to each period so as to achieve
a constant rate of interest on the remaining balance of the liability and are charged
directly against income. The capitalized leased assets are depreciated over the shorter
of the estimated useful life of the asset or the lease term. Another lease to take into
account is operating lease payments which are recognized as an expense in the income
statement on a straight-line basis over the lease term.
The criteria that must be met for a lease to be considered a capital lease is the lease
being classified as a purchase by the lessee, the lease term is greater than 75% of the
propertys estimated economic life; the lease contains an option to purchase the
property for less than fair market value; ownership of the property is transferred to the
lessee at the end of the lease term; or the present value of the lease payments exceeds
90% of the fair market value of the property. (Reference 5)

As you can see, analyzing financial statements can be quite tricky but when
viewing BPs annual report I found it very informative and organized. This made
answering all questions a little bit easier than compared to other companys annual
reports that I had viewed previously. After reading through BPs annual report, I realized
that they are a company that deserved a second chance after their mishap of the oil spill
years ago. They have given billions of dollars to help fix what happened in the Gulf.
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Viewing their number from the past years, I see that they are coming back up in
numbers slowly but surely throughout the years from the accident.

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Bibliography

1. http://www.bp.com/en/global/corporate/about-bp.html
2. http://www.huffingtonpost.com/2012/11/15/gulf-oil-spilltimeline_n_2139515.html#slide=865314
3. http://www.tutor2u.net/business/accounts/annual-report-and-accountsintroduction.html
4. http://www.bp.com/content/dam/bp/pdf/investors/BP_Annual_Report_and_Form_
20F_2012.pdf
5. http://www.investorwords.com/722/capital_lease.html

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