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3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS cont’d
3.1 Critical judgements made in applying accounting policies cont’d
WCT Berhad (66538-K)
annual report 2011
(a) Classification between investment properties and property, plant and equipment cont’d
Some properties comprise a portion that is held to earn rentals or for capital appreciation and another
portion that is held for use in the production or supply of goods or services or for administrative purposes.
If these portions could be sold separately (or leased out separately under a finance lease), the Group
would account for the portions separately. If the portions could not be sold separately, the property is an
investment property only if an insignificant portion is held for use in the production or supply of goods or
services or for administrative purposes. Judgement is made on an individual property basis to determine
whether ancillary services are so significant that a property does not qualify as investment property.
(b) Contract variations
Contract variations are recognised as revenue to the extent that it is probable that they will result in revenue
which can be reliably measured. This requires the exercise of judgement by management based on prior
experience, application of contract terms and relationship with the contract owners.
(c) Percentage-of-completion
The Group uses the percentage-of-completion method in accounting for its construction contract services.
The use of the percentage-of-completion method requires the Group to estimate the proportion of work
performed to date as a proportion of the total work to be performed and it is management's judgement
that the use of costs to date in proportion to total estimated costs provides the most appropriate measure
percentage-of-completion.
(d) Arbitration proceedings
Note 51 describes a contract dispute that is currently in process between a jointly controlled entity in
which the Company, through its Dubai Branch, has a 50% share (the "Arabtec-WCT Joint Venture") and the
contract owner. The calling of the Performance Security and its encashment, including the claim presented,
raises questions about the accounting treatment for the transaction. In light of the contract dispute arising,
the directors consider the amount of the encashed Performance Security as amounts receivable from the
contract owner pending resolution of the dispute.
In making this judgement, the Directors considered the criteria in The Framework for the Preparation and
Presentation of Financial Statements and in conjunction with FRS 137 Provisions, Contingent Liabilities and
Contingent Assets in considering whether the amounts payable can be recognised as an asset to the Group.
In particular, consideration was given to whether the calling of the Performance Security indicated that the
Group had a present legal obligation as a result of a past event, and whether it is probable that recognition
of the asset will result in future economic benefits flowing to the Group.
In the view of the Directors, the contract termination and call on the Performance Securities were not
justified, and following receipt of legal opinion on the arbitration proceedings initiated by the Arabtec-
WCT Joint Venture, the Directors believe that the outcome of the proceedings will be favorable and had
recognised the amount of the Performance Security as a receivable, and not as an expense on the basis of
the probability that any losses or additional costs to be borne by the Joint Venture is minimal and the Joint
Venture has a contractual right to recoup the Performance Securities.
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2011
cont’d