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