notes to the financial statements
for the financial year ended 31 December 2014 (Continued)
2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.23 Derivative financial instruments
A derivative financial instrument is initially recognised at its fair value on the date the contract is entered into and is subsequently carried at its fair value. The
method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item
being hedged. Gains or losses on derivatives that are not designated as a hedging instrument are recognised in profit or loss within ‘other gains/(losses) – net’.
The Group currently does not hedge any of its derivative financial instruments.
2.24 Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified
debtor fails to make payment when due.
The Company has issued corporate guarantees to banks for borrowings of certain subsidiaries. These guarantees are financial guarantees as they require the
Company to reimburse the banks if the subsidiaries fail to make principal or interest payments when due in accordance with the terms of their borrowings.
Financial guarantee contracts are recognised initially as a liability at fair value, net of transaction costs. Subsequent to initial recognition, the liability is
measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount initially recognised
less cumulative amortisation.
The fair value of financial guarantee contracts is the estimated amount that would be payable to the holder for assuming the obligations.
2.25 Revenue recognition
Revenue is recognised when it is probable that economic benefits will flow to the Group and the Company and when they can be measured reliably. Revenue is
measured at the fair value of consideration received or receivable.
(a)
Construction contracts
A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or
interdependent in terms of their design, technology and functions or their ultimate purpose or use.
When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised as revenue and expenses
respectively by reference to the stage of completion of the contract activity at the reporting date. The stage of completion of a construction contract
is determined based on the proportion that the contract costs incurred for work performed to date bear to the estimated total costs for the contract.
Costs incurred during the financial year in connection with future activity on a contract are excluded from costs incurred to date when determining the
stage of completion of a contract. Such costs are shown as amounts due from/(to) customers on construction contracts in the statement of financial
position unless it is not probable that such contract costs are recoverable from the customers, in which case such costs are recognised as an expense
immediately.
When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that
are likely to be recoverable.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
Contract revenue comprises the initial amount of revenue agreed in the contract and variations in the contract work and claims that can be measured
reliably. A variation or a claim is only included in contract revenue when it is probable that the customer will approve the variation or negotiations have
reached an advanced stage such that it is probable that the customer will accept the claim.
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Wah Seong Corporation Berhad • Annual Report 2014
