Full Annual Report 2006 - Singapore Technologies Engineering

113
Notes to the Financial Statements 31 DECEMBER 2006
(Currency – Singapore dollars unless otherwise stated)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(b) Basis of consolidation (continued)
As the amalgamation of the Scheme Companies constitutes a uniting of interests, the pooling of interests method has
been adopted in the preparation of the consolidated financial statements in connection with the amalgamation.
Under the pooling of interests method, the combined assets, liabilities and reserves of the pooled enterprises are
recorded at their existing carrying amounts at the date of amalgamation. The excess or deficiency of amount recorded
as share capital issued (plus any additional consideration in the form of cash or other assets) over the amount
recorded for the share capital acquired is recorded as merger reserve. The merger reserve had been utilised in prior
years to partially write off the goodwill on acquisition of Founders Industries Pte Ltd and its subsidiaries.
Minority interests represent the portion of profit or loss and net assets in subsidiaries not held by the Group. They are
presented in the consolidated balance sheet within equity, separately from the parent shareholders’ equity, and are
separately disclosed in the consolidated statement of profit and loss.
(iii) The Group adopts the equity method to account for its interests in associated companies and joint ventures.
The Group’s share of the post-acquisition results of associated companies and joint ventures is included in the
consolidated statement of profit and loss. The Group’s share of the post-acquisition accumulated profits and reserves
of associated companies and joint ventures is included in the carrying value of the investments in the consolidated
balance sheet.
For this purpose, the audited financial statements of the associated companies and joint ventures are used. Where
audited financial statements are not available, the share of results is arrived at from the last audited financial
statements available and unaudited management financial statements to the end of the accounting period.
(iv) Goodwill or reserve on consolidation represents the excess or deficiency of the purchase consideration over the fair
value (assigned by the directors) of the underlying net assets of the subsidiaries, associated companies and joint
ventures at the date of acquisition. Following initial recognition, goodwill is measured at cost less any accumulated
impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in
circumstances indicate that the carrying value may be impaired.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to
benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are
assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:
• represents the lowest level within the Group at which the goodwill is monitored for internal management purposes;
and
• is not larger than a segment based on the Group’s reporting format determined in accordance with FRS 14
Segment Reporting.
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating
units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cashgenerating
units) is less than the carrying amount, an impairment loss is recognised. Impairment losses recognised
in respect of cash-generating unit (group of cash-generating units) are allocated first to reduce the carrying amount
of any goodwill allocated to cash-generating unit (group of cash-generating units) and then, to reduce the carrying
amount of the other assets in the cash-generating unit (group of cash-generating units) on a pro-rata basis.