Full Annual Report 2006 - Singapore Technologies Engineering

119
Notes to the Financial Statements 31 DECEMBER 2006
(Currency – Singapore dollars unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(o) Income taxes (continued)
(ii) Deferred taxation
Deferred taxation is provided, using the liability method, on all temporary differences at the balance sheet date
between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred
tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled based on tax rates enacted or substantively
enacted at the balance sheet date.
Deferred tax liabilities are recognised for all taxable temporary differences associated with investments in subsidiaries,
associated companies and interests in joint ventures, except where the timing of the reversal of the temporary
difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and
unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible
temporary differences, carry-forward of unused tax assets and unused tax losses can be utilised.
At each balance sheet date, the Group re-assesses unrecognised deferred tax assets and the carrying amount of
deferred tax assets. The Group recognises a previously unrecognised deferred tax asset to the extent that it has
become probable that future taxable profit will allow the deferred tax asset to be recovered. The Group conversely
reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable
profit will be available to allow the benefit of part or all of the deferred tax asset to be utilised.
(p) Employee benefits
(i) Employee equity compensation benefits
Pursuant to the ST Engineering Share Option Plan, certain directors and employees are granted non-transferable
options to purchase the Company’s shares. The fair value of options granted is determined using a binomial model
and is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at
grant date and spread over the period during which the employees become unconditionally entitled to the options. In
valuing the share option, no account is taken of any performance condition, other than market conditions, if any. The
cumulative expense recognised for share options at each reporting date until the vesting date reflects the extent to
which the vesting period has expired and the Group’s best estimate of the number of share options that will ultimately
vest. The charge or credit to the statement of profit and loss for a period represents the movement in cumulative
expense recognised as at the beginning and end of that period.
The proceeds received are credited to share capital when the options are exercised.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per
share.
Pursuant to the ST Engineering Performance Share Plan, the Company’s shares can be awarded to certain employees
and directors of the Group. The details of the Performance Share Plan are described in Note 3.
The performance shares cost is amortised and recognised in the statement of profit and loss on a straight-line
basis over the three-year performance period. The fair value of the performance shares is determined at conditional
grant date using the Monte Carlo simulation model which takes into account the market conditions and non-market
conditions.
(ii) Pensions
The Group participates in the national pension schemes as defined by the laws of the countries in which it has
operations. In particular, the Singapore companies in the Group make contributions to the Central Provident Fund
scheme in Singapore, a defined contribution pension scheme. Contributions to national pension schemes are
recognised as an expense in the period in which the related service is performed.