Annual Report 2010

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ACCOUNTING PRINCIPLES if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also speciﬁes the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in proﬁt or loss. IAS 27 (revised) does not have a material impact on the Group’s ﬁnancial statements). IAS 36 (Amendment), ‘Impairment of assets’ (effective from 1 January 2010). The amendment clariﬁes that the largest cash generating unit to which goodwill should be allocated for the purposes of impairment testing is an operating segment. The amendment does not result in a material impact on the Group’s ﬁnancial statements. Principles of consolidation Subsidiaries Subsidiaries are all entities over which the Group has the sole right to exercise control over the operations and govern the ﬁnancial policies generally accompanying a shareholding of more than half of the voting rights. The existence and eﬀect of potential voting rights that are currently exercisable or convertible are considered when assessing the Group’s control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identiﬁable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The accounting for the excess of the cost of an acquisition over the fair value of the assets acquired refer to “Goodwill”. The non-controlling interest in a subsidiary represents the portion of the subsidiary not owned by the Group. The equity of the subsidiary relating to the non-controlling shareholders is shown as a separate item within equity for the Group. All intercompany proﬁts, transactions and balances are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Associated companies An investment in an associated company is an investment in an undertaking where the Group exercises signiﬁcant inﬂuence but not control, generally accompanying a shareholding of at least 20 percent but not more than 50 percent of the voting rights. Such investments are accounted for in the consolidated ﬁnancial statements in accordance with the equity method and are initially recognised at cost. The diﬀerence between the acquisition cost of shares in an associated company and the net fair value of the assets, liabilities and contingent liabilities of the associated company recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. The Group’s share in the post-acquisition results of the associated company is recognised in the income statement and the Group’s share in post-acquisition movements in the equity of the associated company are recognised directly in other comprehensive income of the Group. When the Group’s accumulated share of losses in an associated company equals or exceeds its interest in the associated company, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s percentage in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Other shares and participations Investments where the shareholding is less than 20 percent of the voting rights are treated as available for sale ﬁnancial assets. If the value of these assets has declined signiﬁcantly or has lasted for a longer period, an impairment charge is recognised in the income statement. If the event causing the impairment no longer exists, the impairment charge can be reversed in the income statement unless it involves an equity instrument. Dividend received attributable to these assets is recognised in the income statement as part of net ﬁnancial items. Jointly controlled assets Oil and gas operations are conducted by the Group as co-licencees in unincorporated joint ventures with other companies. The Group’s ﬁnancial statements reﬂect the relevant proportions of production, capital costs, operating costs and current assets and liabilities of the joint venture applicable to the Group’s interests. Transactions and non-controlling interests The Group applies a policy of treating transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the diﬀerence between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Foreign currencies Items included in the ﬁnancial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘functional currency’). The consolidated ﬁnancial statements are presented in United States Dollars, which is the currency the Group has elected to use as the presentation currency. IAS 21 states that a company may present its ﬁnancial statements in any currency. The generally accepted currency of the oil industry is United States Dollars and as such the Board of Directors of Lundin Petroleum has resolved that Lundin Petroleum will present its ﬁnancial statements in United States Dollars with eﬀect from 1 January 2010. The Board believes that presenting the ﬁnancial statements in this currency will further assist readers in understanding the underlying ﬁnancial position of the Company and its results. As a consequence the comparative ﬁgures are translated into United States Dollars whereby assets and liabilities are translated at the closing rate at the date of that balance sheet and income and expenses are translated at the exchange rates at the dates of the transactions. Equity is translated against historical rates. Jointly controlled entities As stated above, a subsidiary that is controlled by the Group will be fully consolidated within the results of Lundin Petroleum. Joint control exists when the Group does not have the control to determine the strategic operating, investing and ﬁnancing policies of a partially owned entity without the co-operation of others. When this is the case the entity is proportionally consolidated in accordance with the IFRS deﬁnition of joint control in an entity. 71

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