Question

The Deepwater Horizon oil spill (also referred to as the BP oil disaster) is an industrial disaster that began on 20 April 2010, in the Gulf of Mexico on the BP-operated Macondo Prospect, considered to be the largest marine oil spill in the history of the petroleum industry. The U.S. government estimated the total discharge at 4.9 million barrels. How do you expect BP to account for this disaster in its 2010 financial statements?

Answer 1

This is the case of Contingency and event occurring after the balance sheet date.

These events requires adjustment to Assets and liabilities for the following types of event:-
a) Those which provide further evidence of condition that existed at the balance sheet date.
b) Those which indicate that fundamental assumption of Going Concern i.e continuance of existence or substratum of the enterprise.
c) Those which are required to be reflected in the financial statement due to statutory requirement or due to their special nature.
The present event do not relate to the condition existing at the balance sheet. It has no specific adjustment required in the financial statement. However, it requires disclosure in respect of post balance sheet event representing unusual changes affecting the existence or substratum of the enterprise at the balance sheet date.
In the present case, an industrial disaster that began on 20 April 2010, in the Gulf of Mexico on the BP-operated Macondo Prospect, considered to be one of the largest marine oil spill in the history of the petroleum industry has occurred and there was no condition existing at the balance sheet date. However the loss from such disaster is huge and is expected to have affect the decision of the users of balance sheet. Therefore, its adequate disclosure is required in the balance sheet