BP operates off-shore drilling rigs including rigs in the Gulf of Mexico. On April 20, 2010, explosions and fire on the Deepwater Horizon rig led to the death of 11 crew members and a 200-million-gallon oil spill in the Gulf of Mexico. BP's 2010 annual report (prepared under IFRS) included the following concerning estimates of contingent liabilities (provisions):

How did BP record the \(\$ 9.2\) billion estimate in its 2010 financial statements? How would the accounting for this provision differ if BP had prepared its financial statements in accordance with U.S. GAAP?

Transcribed Image Text:

In estimating the amount of the provision, BP has determined a range of possible outcomes for Individual and Business Claims, and State and Local Claims.... BP has concluded that a reasonable range of possible outcomes for the amount of the provision as at 31 December 2010 is $6 billion to $13 billion. BP believes that the provision recorded at 31 December 2010 of $9.2 billion represents a reliable best estimate from within this range of possible outcomes.