Change - S P Setia Berhad

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82 Annual report 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2008 1. SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The financial statements comply with applicable approved Financial Reporting Standards (“FRS”) issued by the Malaysian Accounting Standards Board and with the provisions of the Companies Act, 1965. The measurement bases applied in the preparation of the financial statements include cost, recoverable value, realisable value and fair value. Estimates are used in measuring these values. The financial statements are presented in Ringgit Malaysia (“RM”), which is also the Company’s functional currency. Unless otherwise indicated, the amounts in these financial statements have been rounded to the nearest thousand. (b) Changes in accounting policies The accounting policies adopted by the Group and the Company are consistent with those adopted in the previous financial year except for the adoption of the following new and revised FRSs effective on or after 1 July 2007: Amendment to FRS 121 : The Effects of Changes in Foreign Exchange Rates – Net Investment in a Foreign Operation FRS 107 FRS 111 FRS 112 FRS 118 FRS 137 Cash Flow Statements Construction Contracts Income Taxes Revenue Provisions, Contingent Liabilities and Contingent Assets The adoption of the above FRSs does not have any significant financial impact on the Group and the Company for the current financial year. (c) New FRSs that are not yet effective The Group and the Company have not adopted the FRS 139 Financial Instruments : Recognition and Measurement that has been issued and relevant to their operations but which are only effective for the financial periods beginning on or after 1 January 2010. (d) Significant accounting judgements and estimates The preparation of financial statements requires management to exercise judgement in the process of applying the accounting policies. It also requires the use of accounting estimates and assumptions that affect reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the balance sheet date, and reported amounts of income and expenses during the financial year. Although these estimates are based on management’s best knowledge of current events and actions, historical experiences and various other factors, including expectations for future events that are believed to be reasonable under the circumstances, actual results may ultimately differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. (i) Critical judgement made in applying accounting policies The followings are judgements made by management in the process of applying the Group’s accounting policies that have the most significant effect on amounts recognised in the financial statements:
83 S P Setia Berhad Group NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2008 1. SIGNIFICANT ACCOUNTING POLICIES (cont’d) (d) Significant accounting judgements and estimates (cont’d) (i) Critical judgement made in applying accounting policies (cont’d) Classification between investment properties and owner-occupied properties The Group determines whether a property qualifies as an investment property, and has developed certain criteria based on FRS 140 in making that judgement. In making its judgement, the Group considers whether a property generates cash flows largely independently of other assets held by the Group. Owner-occupied properties generate cash flows that are attributable not only to the property, but also to other assets used in the production or supply process. Some properties comprise a portion that is held to earn rental or for capital appreciation and another portion that is held for use in the production or supply of goods and services or for administrative purposes. If these portions could be sold separately (or leased out separately under a finance lease), the Group accounts for the portions separately. If the portions could not be sold separately, the property is accounted for as an investment property only if an insignificant portion is held for use in the production and supply of goods and 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. Revenue recognition of property development activities and construction contracts The Group recognises property development activities and construction contracts based on the percentage of completion method. The stage of completion of the property development activities and construction contracts is measured in accordance with the accounting policies set out in (n) and (o) below. Significant judgement is required in determining the percentage of completion, the extent of the development project and contract costs incurred, the estimated total revenue and total costs and the recoverability of the development project and contract. In making these judgements, management relies on past experience and the work of specialists. (ii) Key sources of estimation uncertainty The key assumptions concerning the future and other key sources associated with estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below: Depreciation of property, plant and equipment and investment properties Property, plant and equipment and investment properties are depreciated on a straight-line basis to write off their costs to their residual values over their estimated useful lives. Management estimates the useful lives of these assets to be within 3 to 50 years for property, plant and equipment and 50 to 96 years for investment properties. The carrying amounts of the Group’s and Company’s property, plant and equipment as at 31 October 2008 were RM80,226,000 and RM200,000 (2007 : RM63,185,000 and RM278,000), respectively. The carrying amounts of the Group’s and Company’s investment properties as at 31 October 2008 were RM167,931,000 and RM1,157,000 (2007 : RM95,032,000 and RM1,552,000), respectively. Changes in the expected level of usage, physical wear and tear and technological development could impact the economic useful lives and residual values of these assets, and therefore future depreciation charges could be revised.
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