British Petroleum Assets Classified

Posted: September 6th, 2013

British Petroleum Assets Classified

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British Petroleum Assets Classified

In business, asset classifications are necessary for understanding the asset and its implications or contributions to the entity’s achievement of its goals and objectives. The commonly used classification of asset groups include fixed assets, investments by the entity, intangible assets owned, and current assets (British Petroleum Annual Report, 2011).

From the British Petroleum Financial statements, the assets are outlined as follows from the periods ended 31 December 2010 and 31 December 2011.

(British Petroleum Annual Report, 2011).

From the information provided, the difference in classification of the current assets is evident. The non-current assets or fixed assets are classified on their own. Other investments such as jointly controlled investments are also classified as fixed assets, whereas, in other entities, they are classified as part of the current assets. Furthermore, the entity classifies other liquid assets such as deferred taxes, financial instruments, prepayments, loan and the benefits of the pension plan, as surpluses (British Petroleum Annual Report, 2011).

In addition, according to the entity the non-current assets held for sale are calculated as the lesser carrying costs of the asset and its fair value in the market less the costs of sale of the identified asset. The non-current assets, with the disposal of assets groups, are classified as assets held for sale in the balance sheet if the same assets will give returns through their sale instead of through their continued use by the firm in revenue generation.

Furthermore, the classification of plant property and equipment of the entity are classified as assets held for sale given that they are not depreciated. The entity ceases to classify assets as held for sale if they fail to meet the criteria for classification as goods for sale. On the other hand, the intangible goods and assets are classified as assets held for sale, such as the amounts for goodwill to include the costs for exploration of oil and gas. In addition, other related costs to such activities are also classified as intangible assets given that they are aimed at providing the entity with new revenue avenues. Moreover, the assets property, plant and equipment of the entity are indicated as costs less the depreciation or amortization of such and other costs such as impairment losses or costs.

The depreciation provided for such assets is given in a straight-line method given that they have a constant rate of depreciation or amortization. Such enables review on impairments in the calculation of the rates due to unforeseeable as well as uncontrollable market forces external to the organization. The inventories in the entity are calculated through the method of first in first out to arrive at their total value. It is considered as a current asset and is calculated at the lesser cost and the net realizable value of the inventory (British Petroleum Annual Report, 2011).

In addition, the entity also classifies other assets as available financial assets for sale. Such assets include the financial instruments, which can be sold within a short time. However, items such as loans and receivables are not calculated as such. Loans accrue interest; hence, they take money out of the business coupled by other costs for the loan. Receivables, on the other hand, do not have surety for payment and could easily result in what is termed as bad debts for the entity (British Petroleum Annual Report, 2011).

Work Cited

British Petroleum Annual Report. (2011). Annual Report and Form 20-F: Building a Stronger and Safer BP. Retrieved from http://www.bp.com/assets/bp_internet/globalbp/globalbp_uk_english/set_branch/STAGING/common_assets/bpin2011/downloads/BP_Annual_Report_and_Form_20F_2011.pdf