Page 104 - ar2013.pdf

NOTES TO THE FINANCIAL STATEMENTS
For the Ànancial year ended 31 December 2013
102
COSCO Corporation (Singapore) Limited
F i nanc i a l Statement s
3. Critical accounting estimates, assumptions and judgements
Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the circumstances.
(a) Construction contracts
The Group uses the percentage-of-completion method to account for its contract revenue. The stage of
completion is measured by reference to the completion of a physical proportion of the contract work.
Significant judgement is required in determining the stage of completion, the estimated total contract costs,
the estimated completion dates, as well as the recoverability of the contracts.
If the stage of completion increases/decreases by 10% from management’s estimates, the Group’s
revenue will increase/decrease by $572,539,000 and the Group’s cost of sales will increase/decrease by
$525,949,000.
If the total contract costs to be incurred increase/decrease by 10% from management’s estimates, the
Group’s cost of sales will increase/decrease by $335,607,000.
(b) Useful life of property, plant and equipment
The management of the Group determines the estimated useful lives and related depreciation expense for
the property, plant and equipment. The management of the Group estimates useful lives of the property,
plant and equipment by reference to expected usage of the property, plant and equipment, expected repair
and maintenance, and technical or commercial obsolescence arising from the changes or improvements in
the market. The useful lives and related depreciation expense could change significantly as a result of the
changes in these factors.
(c) Impairment of receivables
Management reviews its receivables for objective evidence of impairment regularly. Significant financial
difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant
delay in payments are considered objective evidence that a receivable is impaired. In determining this,
management has made judgement as to whether there is observable data indicating that there has been a
significant change in the payment ability of the debtor, or whether there have been significant changes with
adverse effect in the technological, market, economic or legal environment in which the debtor operates.
Where there is objective evidence of impairment, management has made judgements as to whether an
impairment loss should be recorded in the income statement. In determining this, management has
used estimates based on historical loss experience for assets with similar credit risk characteristics. The
methodology and assumptions used for estimating both the amount and timing of future cash flows are
reviewed regularly to reduce any differences between the estimated loss and actual loss experience.
Any changes in the net present values of estimated cash flows from management’s estimates for all past due
receivables, will not result in any significant impact to the Group’s allowance for impairment.
(d) Warranty claims
The provision for warranty is based on estimates from known and expected warranty work and contractual
obligation for further work to be performed after completion. The warranty provision could differ from future
claims. Movements in provision for warranty are detailed in Note 28(b).