V ALIANT PETROLEUM PLC Annu A l Repo R t & Accounts 2009 ...

Annual Report & Accounts 2009
2. Significant accounting policies continued
(c) Revenue recognition
Revenue is recognised when it is probable that the economic benefits associated with a transaction will flow to the enterprise and
the amount of the revenue can be measured reliably. In particular, revenue from the production and sale of crude oil is recognised
when the title has been transferred to customers, which is when risk and rewards pass to the customer.
Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable.
Other income is measured at the fair value of the consideration received or receivable and represents amounts receivable for
goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes.
(d) Foreign currencies
Following the commencement of oil production from the Don Fields, the Group has switched its functional and presentation
currency from Sterling to US dollars with effect from 1st January 2009. The balance sheet at 31st December 2008 was converted
at the exchange rate on that date of GB£1: US$1.4378. Prior periods’ results and cash flows have been generally translated using
an average exchange rate for the year and prior period balance sheets at period end rates.
Transactions in foreign currencies are recorded at the rates of exchange ruling at the transaction dates. Monetary assets and
liabilities are translated into US dollars at the exchange rate ruling at the balance sheet date, with a corresponding charge or credit
to the income statement.
(e) Financial instruments
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes party to the
contractual provisions of the instrument. The Group has not entered into any derivative financial instruments during the year.
Cash and cash equivalents
Cash includes cash on hand and cash with banks. Cash equivalents are short-term, highly-liquid investments that are readily
convertible to known amounts of cash with three months or less remaining to maturity from the date of acquisition and that are
subject to an insignificant risk of change in value.
Investments
Fixed asset investments in subsidiaries are stated at cost in the Company only balance sheet and reviewed for impairment if there
are any indications that the carrying value may not be recoverable.
Trade receivables
Trade receivables are generally carried at original invoice amount less a provision for bad and doubtful debts. A provision for bad
and doubtful debts is established when there is objective evidence that the Group will not be able to collect all amounts due
according to the original terms of the receivable. The amount of the provision is the difference between the carrying amount and
the recoverable amount, being the present value of expected cash flows, discounted at the market rate of interest for similar
borrowers.
Borrowings
Borrowings are recognised initially at the fair value of the proceeds received which is determined using the prevailing market rate of
interest for a similar instrument, if significantly different from the transaction price, net of transaction costs incurred. In subsequent
periods, borrowings are recognised at amortised cost, using the effective interest method; any difference between fair value of the
proceeds (net of transaction costs) and the redemption amount is recognised as a finance cost over the period of the borrowings.
Borrowing costs directly attributable to acquisition of qualifying assets, which are assets that necessarily take a substantial period
of time to get ready for their intended use, are added to the cost of those assets, until such time the assets are substantially ready
for their intended use. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
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