FINANCIAL STATEMENTS (Full Version) - Sembcorp

Notes to the
Financial Statements
Year Ended December 31, 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
d. Property, Plant and Equipment (cont’d)
iv. Disposals
Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as
the difference between the estimated net disposal proceeds and the carrying amount of the asset and are
recognised in the income statement on the date of retirement or disposal.
For property, plant and equipment carried at revalued amounts, any related revaluation surplus is transferred
from the revaluation reserve to accumulated profits and is not taken into account in arriving at the gain or
loss on disposal.
v. Finance Lease Assets
Finance leases are those leasing agreements that give rights approximating to ownership. Property, plant and
equipment acquired by way of such leases is capitalised at the lower of its fair value and the present value
of the minimum lease payments at the inception of the lease, less accumulated depreciation and impairment
losses.
Lease payments are apportioned between the finance charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly to the income statement.
Capitalised leased assets are depreciated over the shorter of the economic useful life of the asset and the lease
term.
vi. Provision for Restoration Costs
A provision is recognised for the costs expected to be incurred to dismantle, remove and restore the asset upon
expiry of the lease agreement. The estimated costs form part of the cost of the property, plant and equipment
and are depreciated over the useful life of the asset.
vii. Depreciation
Depreciation is calculated using the straight-line method to allocate the cost less its residual value so as to write
off items of property, plant and equipment over their estimated useful lives. Each part of an item of property,
plant and equipment with a cost that is significant in relation to the total cost of an item is depreciated
separately. The estimated useful lives are as follows:
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
e. Investment Properties
Investment properties comprise significant portions of office buildings and freehold land that are held for longterm
rental yields or for capital appreciation, or both.
Investment properties are initially recognised at cost and subsequently carried at cost less accumulated depreciation
and accumulated impairment losses. Depreciation is recognised in the income statement on a straight-line basis
over the estimated useful lives ranging from 20 to 50 years. The assets’ depreciation methods, useful lives and
residual values are reviewed, if not insignificant, annually, and adjusted if appropriate. No depreciation is provided
on the freehold land.
Investment properties are subject to renovations or improvements at regular intervals. The cost of major
renovations and improvements is capitalised as additions and the carrying amounts of the replaced components
are written off to the income statement. The cost of maintenance, repairs and minor improvements is charged to
the income statement when incurred.
On disposal of an investment property, the difference between the estimated net disposal proceeds and the
carrying amount of the asset is recognised in the income statement.
f. Intangible Assets
i. Goodwill
Goodwill represents the excess of the cost of acquisition over the fair value of the Group’s share of the
identifiable net assets. Goodwill is stated at cost less accumulated impairment losses. Goodwill on acquisition
of subsidiaries is included in intangible assets. Goodwill on acquisition of associates and joint ventures is
included in investments in associates and joint ventures.
ii.
Goodwill arising from the acquisition of a minority interest in a subsidiary represents the excess of the cost of
the additional investment over the carrying amount of the net assets acquired at the date of exchange.
Goodwill is tested for impairment on an annual basis in accordance with Note 2(n).
Goodwill / Negative Goodwill Previously Written Off Against Reserves
Goodwill that has previously been taken to reserves is not taken to the income statement when (i) the business
is disposed of or discontinued or (ii) the goodwill is impaired. Similarly, negative goodwill that has previously
been taken to reserves is not taken to the income statement when the business is disposed of or discontinued.
Leasehold land and wet berthage
Land improvements
Buildings
Improvements to premises
Quays and dry docks
Floating docks
Plant and machinery
Marine vessels
Furniture, fittings and office equipment
Tools and workshop equipment
Motor vehicles
Lease period ranging from 20 to 60 years
Lease period ranging from 20 to 60 years
50 years or lease period ranging from 10 to 50 years, if lower
1 to 10 years
15 to 60 years
20 years
3 to 40 years
3 to 25 years
1 to 10 years
3 to 10 years
2 to 10 years
iii. Research and Development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical
knowledge and understanding, is recognised in the income statement as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the
production of new or substantially improved products and processes, is capitalised if the product or process
is technically and commercially feasible and the Group has sufficient resources to complete development.
The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of
overheads. Other development expenditure is recognised in the income statement as an expense as incurred.
Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.
The assets’ useful lives and residual values are reviewed, if not insignificant, annually, and adjusted if appropriate.
No depreciation is provided on freehold land and capital work-in-progress.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful life of 10 years.
Fully depreciated assets are retained in the financial statements until they are no longer in use.
124 Delivering Essential Solutions Sembcorp Industries Annual Report 2008 125