FINANCIAL STATEMENTS (Full Version) - Sembcorp

Notes to the
Financial Statements
Year Ended December 31, 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Preparation
The financial statements are prepared in accordance with Singapore Financial Reporting Standards (“FRS”).
The financial statements are presented in Singapore dollars and rounded to the nearest thousand (“S$’000”),
unless otherwise indicated. They are prepared on the historical cost basis except where otherwise described in the
accounting policies below.
The preparation of financial statements in conformity with FRS requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and reported amounts of assets,
liabilities, income and expenses. Actual results may 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 estimates are revised and in any future periods affected.
Information about significant areas of estimation uncertainty and critical judgements in applying accounting
policies that have the most significant effect on the amount recognised in the financial statements are discussed
in Note 43.
With effect from January 1, 2008, the Group adopted the following new or amended FRS and Interpretations to
FRS (“INT FRS”) which are relevant to the Group’s operations:
INT FRS 111
INT FRS 114
FRS 102 – Group and Treasury Share Transactions
FRS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements
and their Interaction
The adoption of the above INT FRS did not result in substantial changes to the Group’s accounting policies. The
accounting policies set out below have been applied consistently by the Group. The accounting policies used by the
Group have been applied consistently to all periods presented in these financial statements.
b. Consolidation
i. Subsidiaries
Subsidiaries are those companies that are controlled by the Group. Control exists when the Group has the
power, directly or indirectly, to govern the financial and operating policies of a company so as to obtain
benefits from its activities.
The existence and effect of potential voting rights that are presently exercisable or presently convertible are
considered when assessing whether the Group controls another company.
Investments in subsidiaries are stated in the Company’s balance sheet at cost less impairment losses. The
financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases.
All business combinations are accounted for using the purchase method with effect from January 1, 2004
upon the adoption of FRS 103. Prior to January 1, 2004, business combinations were accounted for either by
the purchase method, or if they were between entities under common control, by the historical cost method
similar to the pooling-of-interest method.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
b. Consolidation (cont’d)
i. Subsidiaries (cont’d)
Under the purchase method, the cost of an acquisition is measured at the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable
to the acquisition. The excess of the Group’s interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities over the cost of acquisition is credited to the income statement in the period of the
acquisition.
ii.
Business combinations that involve entities under common control are excluded from the scope of FRS 103. Such
combinations are accounted at historical cost in a manner similar to the pooling-of-interests method, in the
preparation of the consolidated financial statements. Under this method of accounting, the difference between
the value of the share capital issued and the value of shares received is taken to the merger reserve.
The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and
liabilities recognised. Subsequently, any losses applicable to the minority interest in excess of the minority
interest are allocated against the interests of the parent.
Associates
Associates are companies in which the Group has significant influence, but not control, over the financial and
operating policies.
The existence and effect of potential voting rights that are presently exercisable or presently convertible are
considered when assessing whether the Group has significant influence over another company.
In the Group’s financial statements, they are accounted for using the equity method of accounting from the
day that significant influence commences until the date that significant influence ceases. When the Group’s
share of losses exceeds the carrying amount of the associate (including any other unsecured receivables,
that in substance, form part of the Group’s net investment in the associate), recognition of further losses is
discontinued unless the Group has incurred obligations or made payments on its behalf to satisfy obligations
of the associate that the Group has guaranteed or otherwise committed on behalf of.
The excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent
liabilities over the cost of acquisition is credited to the income statement in the period of the acquisition.
Where the audited financial statements are not available, the share of results is arrived at from unaudited
management financial statements made up mainly to the end of the accounting year to December 31.
iii. Joint Ventures
Joint ventures are those enterprises whose activities the Group has joint control over, established by contractual
agreement.
The existence and effect of potential voting rights that are presently exercisable or presently convertible are
considered when assessing whether the Group has joint control over the enterprise.
For incorporated joint ventures, the Group accounts for the joint ventures in the same manner as associates,
from the date joint control commences until the day that the joint control ceases.
For unincorporated joint ventures, the proportionate share in the unincorporated joint ventures’ individual
income, expenses, assets and liabilities are included in financial statements of the Group with items of a similar
nature on a line-by-line basis.
120 Delivering Essential Solutions Sembcorp Industries Annual Report 2008 121