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British Petroleum Company Business Environment

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BP, The British Petroleum Company, is one of the largest international petroleum and petrochemical companies. It is an integrated energy firm involved in oil and gas detection, manufacture, refinement and advertising, and the manufacturing and marketing of petrochemicals. (Bower, 2010, 320) According to Business Week, BP was the third largest public company in Britain and the thirty-first largest in the world. BP was privatised in the 1980s.

The United Kingdom (U.K.) and the United States (U.S.) have active and extensive stock and bond markets, and a primary purpose of financial reporting in both countries is to provide investors and creditors (i.e., suppliers of capital) with information useful for decision making. Generally accepted accounting principles (GAAP) in the U.K. and the U.S. are similar. (Deans, Bob and Peter, 2010, 56) For example, both U.K. and U.S. GAAP require providing for un-collectible accounts and depreciating fixed assets over their useful lives. Nevertheless, differences exist between U.S. GAAP and U.K. GAAP, in terms of accounting standards and financial statement format and terminology.

BP uses historical cost accounting, but its income statement also reports replacement cost information about certain earnings components. BP uses the FIFO inventory valuation method. In the U.K., companies may not use the LIFO method for either tax purposes or financial reporting purposes. Because under LIFO the costs of the latest goods acquired are treated as the costs of the first goods sold, LIFO based cost of goods sold will approximate cost of goods sold computed on a current or replacement cost basis. In turn, this yields a measure of gross margin (or gross profit) under LIFO that reflects the ability of the company to generate revenues in excess of the replacement cost of the goods it sold.

British Petroleum Company Business Environment

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