Change - S P Setia Berhad

90
Annual report 2008
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 2008
1. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
(n)
Development properties (cont’d)
Where the outcome of a development cannot be reasonably estimated, revenue is recognised to the extent of property
development costs incurred that is probable will be recoverable, and the property development costs on the development
units sold shall be recognised as an expense in the period in which they are incurred.
When it is probable that total costs will exceed total revenue, the foreseeable loss is immediately recognised in the income
statement irrespective of whether development work has commenced or not, or of the stage of completion of development
activity, or of the amounts of profits expected to arise on other unrelated development projects.
The excess of revenue recognised in the income statement over the billings to purchasers of properties is recognised as
accrued billings under current assets.
The excess of billings to purchasers of properties over revenue recognised in the income statement is recognised as
progress billings under current liabilities.
(o)
Long term construction contracts
The Group’s long term construction contracts are all fixed price contracts and where their outcome can be reasonably
estimated, revenue is recognised on the percentage of completion method. The stage of completion is determined by the
proportion that costs incurred to-date bear to estimated total costs, and for this purpose, only those costs that reflect actual
contract work performed are included as costs incurred.
Where the outcome of a long term construction contract cannot be reasonably estimated, revenue is recognised only to
the extent of contract costs incurred that are expected to be recoverable. At the same time, all contract costs incurred are
recognised as an expense in the period in which they are incurred.
Costs that relate directly to a contract and which are incurred in securing the contract are also included as part of contract
costs if they can be separately identified and measured reliably and it is probable that the contract will be obtained.
When it is probable that total costs will exceed total revenue, the foreseeable loss is immediately recognised in the income
statement irrespective of whether contract work has commenced or not, or of the stage of completion of contract activity,
or of the amounts of profits expected to arise on other unrelated contracts.
On the balance sheet, contracts in progress are reflected either as gross amounts due from or due to customers, where
a gross amount due from customers is the surplus of (i) costs incurred plus profits recognised under the percentage of
completion method over (ii) recognised foreseeable losses plus progress billings. A gross amount due to customers is the
surplus of (ii) over (i).
(p)
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis.
In the case of finished goods and work-in-progress, cost comprises materials, direct labour, other direct charges and an
appropriate proportion of factory overheads.
In the case of completed houses held for sale, cost is determined based on specific identification method.
Net realisable value represents the estimated selling price in the ordinary course of business, less selling and distribution
costs and all other estimated cost to completion.