Full Annual Report 2006 - Singapore Technologies Engineering

THE WINNING SPIRIT ST Engineering AR 2006 118
Notes to the Financial Statements 31 DECEMBER 2006
(Currency – Singapore dollars unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(k) Impairment of financial assets (continued)
(ii) Assets carried at costs
If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair
value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled
by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the
difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at
the current market rate of return for a similar financial asset. The loss recognised is not reversed in future periods.
(iii) Available-for-sale financial assets
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal
payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss,
is transferred from equity to the statement of profit and loss. Reversals in respect of equity instruments classified as
available-for-sale are not recognised in profit or loss. Reversals of impairment losses on debt instruments are reversed
through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring
after the impairment loss was recognised in profit or loss.
(l) Trade and other creditors
Trade and other creditors are initially recognised at fair value and subsequently measured at amortised cost using the
effective interest method.
Gains and losses are recognised in the statement of profit and loss when the liabilities are derecognised as well as
through the amortisation process.
(m) Borrowings
Borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.
After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest method.
Gains and losses are recognised in the statement of profit and loss when the liabilities are derecognised as well through
the amortisation process.
Borrowing costs are recognised as expenses in the period in which they are incurred.
(n) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of past events, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation.
(i) Warranties
The warranty provision represents the best estimate of the Group’s contractual obligations at the balance sheet date.
The provision is based on past experience and industry averages for defective products. The majority of the costs is
expected to be incurred over the applicable warranty periods.
(ii) Liquidated damages
Provision for liquidated damages is made in respect of anticipated claims from customers on contracts of which
deadlines are overdue or not expected to be completed on time in accordance with contractual obligations. The
utilisation of provisions is dependent on the timing of claims.
(o) Income taxes
(i) Current tax
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted by the balance sheet date.