BP Company
An Analysis of the Financial Statements of BP
BP CompanyAn Analysis of the Financial Statement of BP
12/8/2013Intermediate Accounting IIIAlma Ponce
Table of Contents
Introduction 2Body Report 3Conclusion .. 9Bibliography . 10
Introduction 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 in
whole, I will be concentrating on BPs deferred taxes,
post-retirement benefits, dilutive securities, and share-based
compensation. 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. 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.
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.
Deferred Taxes & Temporary and Permanent Differences
It is important to note that employees leaving before the age of
fifty five or later are entitled to a deferred pension that becomes
payable from fifty five or later. Moving onto deferred tax assets,
I would like to point out that they are recognized only to the
extent that it is probable that taxable profit will be available
against which the unused tax losses or tax credits can be utilized.
The deferred tax assets on the 2012 group balance sheet were
recorded as $874 million while the deferred tax liabilities were
recorded as $15,064 million. The deferred tax is provided using the
liability method on all temporary differences at the balance sheet
date between tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes. These liabilities are
recognized for all taxable temporary differences except: Where the
deferred tax liability arises on the initial recognition of
goodwill Where the deferred tax liability arises on the initial
recognition of an asset or liability in a transaction that is not a
business combination and at the time of the transaction, affects
neither accounting profit nor taxable profit or loss In respect of
taxable temporary differences associated with investments in
subsidiaries, jointly controlled entities and associates, where the
group is able to control the timing of the reversal of the
temporary differences and it is probable that the temporary
differences will not reverse in the foreseeable future. The
carrying amount of the deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilized. The deferred
tax assets and liabilities are measured at the tax rates that are
expected to apply in the period when the asset is realized or the
liability is settled, based on tax rates that have been enacted or
substantively enacted at the balance sheet date. Deferred and
assets and liabilities are offset only when there is a legally
enforceable right to set off current tax assets against current tax
liabilities and when the deferred tax assets and liabilities relate
to income taxes levied by the same taxation authority on either the
same taxable entity or different taxable entities where there is an
intention to settle the current tax assets and liabilities on a net
basis or to realize the assets and settle the liabilities
simultaneously. Deferred tax assets are recognized for all
deductible temporary differences, carry-forward of unused tax
credits and unused tax losses, to the extent that it is probable
that taxable profit will be available against which the deductible
temporary differences and the carry-forward of unused tax credits
and unused tax losses can be utilized, although with the exception
of certain transactions. Income Tax Provision The information I
found disclosed in the footnotes about provision was very
interesting because I learned that a provision will be
re-established for remaining business economic loss claims and the
estimate will increase as more information becomes available, the
interpretation of the protocols is clarified and the claims process
matures, enabling the company to estimate reliably the cost of
these claims. Also, a corresponding asset of an amount equivalent
to the provision is created within property, plant, and equipment.
That asset however is depreciated over the expected life of the
production facility. Any changes in the expected future costs are
reflected in both the provision and the asset. While a change in
estimate of a recognized provision or liability would result in a
charge or credit to net income in the period in which the change
occurs. Where discounting is used, the increase I the provision due
to the passage of time is recognized within finance costs. They are
split between amounts expected to be settled within twelve months
of the balance sheet (current) and amounts expected to be settled
later (non-current).
Defined Benefit & Contribution PlanDefined contribution
plans are money purchase schemes whereas defined benefit plans are
final salary and other types of schemes with committed pension
payment. Defined contribution plans offer retirement benefits that
are determined by the value of funds arising from contributions
paid in respect of each employee. Defined benefit plans offer
retirement benefits that are based on factors such as employees
pensionable salary and length of service. These plans have the
availability of being externally funded or underfunded.
Earnings per Share BP is a company whose intention is to use
part of their cash proceeds from the agreed transaction of the
TNK-BP to offset any dilution to their earnings per share. The
earnings per share in 2012 and 2011 are as followed in the
millions:From left to right, the numbers on the balance sheet
represent the note, 2012, 2011 & 2010 which can be
disregarded.
Share-based Compensation
All these share-based payment transactions relate to employees
compensation. The main share-based payment plans that existed
during the previous year are the plans for executive directors,
plans for senior employees, performance unit plans, restricted
share unit plans, BP Share Option Plan (BPSOP), BP ShareMatch
plans, BP ShareSave plan, and local plans.Direct & Indirect
Cash Flow Presentation MethodBP is one of those companies that have
direct and indirect interests depending on certain crude oil and
natural gas transportation systems. Control comprises the power to
govern the financial and operating policies of the investee so as
to obtain benefit from its activities and is achieved through
direct and indirect ownership of voting rights. The auditors
remuneration will show tax services relate to income tax and
indirect tax compliance, employee tax services and tax advisory
services. This is all I could find and which I learned as far as
the direct and indirect cash flow presentation method within BP.
Investing and Financing Activities I think it is important to look
at the free cash flow because it is here that one can examine how
it is delivered which the net cash is provided by operating
activities less net cash used in investing activities. The group
cash flow statement down below will show all the finances from the
past two years that reflect the investing and financing
activities.
Noncash TransactionsThe noncash transactions that can be found
on BPs cash flow statement are the business combination which is a
transaction in which an acquirer obtains control of a business or
many businesses. Then there are transactions that are made so that
physical delivery with operational and price risk can be settled
through spot and term contracts. ConclusionAs 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
taking a closer look at BPs annual report and their plans and
investments, 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. 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.
BIBLIOGRAPHY 1.
http://www.bp.com/en/global/corporate/about-bp.html
2.
http://www.bp.com/content/dam/bp/pdf/investors/BP_Annual_Report_and_Form_20F_2012.pdf
3. Roger A. Kerin, S. W. (2012). Marketing 11th Edition.
McGraw-Hill Education.
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