In May 1901, William Knox D€™Arcy convinced the Shah of Persia (present-day Iran) to allow him to hunt for oil. The oil discovered in Persia in 1908 was the first commercially significant amount of oil found in the Middle East. The company making the discovery called itself the Anglo-Persian Oil Company, later named British Petroleum, or BP. Today, BP is one of the largest oil and gas exploration and refining companies in the world. The information below comes from Note 35 (Finance debt) of British Petroleum€™s 2008 financial statements.

1. In Great Britain, a finance lease is what we in the United States would call a capital lease. According to Note 35, British Petroleum expects to make total lease payments of $916 million under finance leases. However, a liability of only $620 million is reported. Why is there a difference between the two amounts?
2. The $916 million payment amount for the finance leases reflects the total of all lease payments that will be made under the agreements. British Petroleum also reports $32.584 billion of borrowings. Does that $32.584 billion amount reported reflect the amount of all payments that will be made under the loan agreements? Explain.
3. The future finance lease payments are separated into amounts to be repaid within one year, within two to five years, and after five years. How would a financial statement user find this payment timing information to beuseful?

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Finance Leases It (millions of dollars) 2008 Payments due within: $116 361 439 $916 296 $620 1 year 2 to 5 years. Thereafter Less finance charge Net obligation