STRATEGIC  REPORT DIRECTORS’  REPORT F INANCIAL  S T ATEMENTS www.bordersandsouthern.com  29  Borders & Southern Petroleum plc Annual Report & Accounts 2014 1 ACCOUNTING POLICIES  CONTINUED EXPLORATION AND EVALUATION EXPENDITURE IMPAIRMENT OF EXPLORATION AND EVALUATION EXPENDITURE PROVISIONS FOREIGN CURRENCIES OPERATING LEASES Rentals payable under operating leases are charged to the statement of comprehensive income on a straight line basis over the  lease term. Monetary assets and liabilities denominated in foreign currencies are translated into US dollars at the closing rates at the  reporting date and the exchange differences are included in the statement of comprehensive income. The functional and  presentational currency of the parent and all Group companies is the US dollar. Transactions in foreign currencies are translated into US dollars at the exchange rate ruling at the date of the transaction. A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a  result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. The Group has identified two cash-generating units, a Darwin CGU and a Stebbing CGU. In accordance with the provisions  of IFRS 6 the level identified for the purposes of assessing the Group’s exploration and evaluation assets for impairment may  comprise one or more cash-generating units. If any such facts or circumstances are noted, the Group, as a next step, perform an impairment test in accordance with the  provisions of IAS 36. In such circumstances the aggregate carrying value of the exploration and evaluations assets is compared  against the expected recoverable amount of the CGU. The recoverable amount is the higher of value in use and the fair value less  costs to sell. In accordance with IFRS 6 the Group firstly considers the following facts and circumstances in their assessment of whether the  Group’s exploration and evaluation assets may be impaired: The Group’s exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the  carrying amount of the exploration and evaluation assets may exceed the assets recoverable amount. Intangible exploration and evaluation assets are not depreciated and are carried forward, subject to the provisions of the  Group’s impairment of exploration and evaluation policy, until the technical feasibility and commercial viability of extracting  hydrocarbons are demonstrable. At such point exploration and evaluation assets are assessed for impairment and any  impairment loss is recognised before reclassification of the assets to a category of property, plant and equipment. Capitalised exploration and evaluation expenditure may include, amongst other costs, costs of licence acquisition, third party  technical services and studies, seismic acquisition, exploration drilling and testing but do not include general overheads. Any  property, plant and equipment (PPE) acquired for use in exploration and evaluation activities is classified as property, plant and  equipment. However, to the extent that such PPE is consumed in developing an intangible exploration and evaluation asset the  amount reflecting that consumption is recorded as part of the cost of the intangible exploration and evaluation asset. The costs of exploring for and evaluating hydrocarbon resources are accumulated and capitalised as intangible assets by  reference to appropriate cash-generating units (CGU), generally referred to as full cost accounting. Such CGUs have been  determined by the Group to be a Darwin CGU and a Stebbing CGU and are noted as not being larger than an operating segment  as determined in accordance with IFRS 8 Operating segments. The Group applies the requirements of IFRS 6 Exploration for and evaluation of mineral resources in respect of its exploration  and evaluation expenditure. The requirements of IFRS 6 are not applied to expenditure incurred by the Group before legal title  to explore for and evaluate hydrocarbon resources in a specific area, generally referred to as pre-licence expenditure. Likewise  the Group do not apply the requirements of IFRS 6 after the point at which the technical feasibility and commercial viability of  extracting hydrocarbons are demonstrable. •  whether the period for which the Group has the right to explore in a specific area has expired during the period or will expire in  the near future, and is not expected to be renewed; •  whether substantive expenditure on further exploration for and evaluation of mineral resources in a specific area is neither  budgeted nor planned; •  whether exploration for and evaluation of hydrocarbons in a specific area have not led to the discovery of commercially viable  quantities of hydrocarbons and the Group has decided to discontinue such activities in the specific area; and •  whether sufficient data exists to indicate that although a development in a specific area is likely to proceed, the carrying  amount of the exploration and evaluation assets is unlikely to be recovered in full from successful development or by sale.