Essay About Replacement Cost Accounting Approach And Geographical Areas

Bp Accounting Policies
BP is one of the world’s largest petroleum and petrochemical groups. BP has wellestablished
operations in Europe, the United States, Australia, and parts of Africa and is
expanding into other regions, notably Southeast Asia, America, and the countries of the
former Soviet Union.
For some years, BP incorporated a replacement cost accounting approach into the
presentation of its group income statement and the results of its individual business and
geographical areas (see below for details of how to access BP’s accounts).
BP Accounting Policies (Excerpt from 2003 Annual Report and Accounts)
Accounting Convention
The accounts are prepared under the historical cost convention, except as explained under
stock valuation. Accounts prepared on this basis show the profits available to shareholders
and are the most appropriate basis for presentation of the group’s balance sheet. Profit or loss
determined under the historical cost convention includes stock holding gains or losses and, as
a consequence, does not necessarily reflect underlying trading results
Replacement Cost
The results of individual businesses and geographical areas are presented on a replacement
cost basis. Replacement cost operating results exclude stock holding gains or losses and
reflect the average cost of supplies incurred during the year and thus provide insight into
underlying trading results. Stock holding gains or losses represent the difference between the
replacement cost of sales and the historical cost of sales calculated using the first-in first-out
method.
Stock Valuation
Stocks, other than stock held for trading purposes, are valued at cost to the group using the
first-in first-out method or at net realizable value, whichever is lower. Stock held for trading
purposes is marked to market and any gains or losses are recognized in the income statement
rather than the statement of total recognized gains and losses. The directors consider that the
nature of the group’s trading activity is such that, in order for the accounts