FINANCIAL STATEMENTS (Full Version) - Sembcorp

Notes to the
Financial Statements
Year Ended December 31, 2008
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
r. Provisions
A provision is recognised in the balance sheet when there is a legal or constructive obligation as a result of a past
event, the obligation can be reliably estimated and it is probable that an outflow of economic benefits will be
required to settle the obligation. If the effect is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
s. Income Tax Expense
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement
except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of
goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and joint
ventures to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at
the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws
that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are
offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to income
taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to
settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available
against which temporary differences can be utilised. Deferred tax assets are reviewed at each reporting date and
are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
t. Share Capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issuance of new ordinary shares and share options are deducted
against the share capital account.
Where the Company’s ordinary shares are repurchased (treasury shares), the consideration paid, excluding any
directly attributable incremental costs, is deducted from equity attributable to the Company’s equity holders and
presented as “reserve for own shares” within equity, until they are cancelled, sold or reissued.
When treasury shares are cancelled, the cost of treasury shares is deducted against the share capital account, if
the shares are purchased out of capital of the Company, or against the accumulated profits of the Company, if the
shares are purchased out of profits of the Company.
When treasury shares are subsequently sold or reissued pursuant to the Share-based Incentive Plans, the cost of the
treasury shares is reversed from the reserve for own shares account and the realised gain or loss on sale or reissue,
net of any directly attributable incremental transaction costs and related income tax, is recognised as a change in
equity of the Company. No gain or loss is recognised in the income statement.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
u. Dividend
Dividends on redeemable convertible preference share capital are recognised as a liability on an accrual basis.
Other dividends are recognised as a liability in the period in which they are declared.
Dividends on redeemable convertible preference share capital classified as a liability are accounted for as finance
costs. Dividends on ordinary shares and redeemable convertible preference share capital classified as equity are
accounted for as movements in revenue reserve.
v. Revenue Recognition
i. Income on Goods Sold and Services Rendered
Revenue on goods sold is recognised when the significant risks and rewards of ownership have been
transferred to the buyer. Revenue from the provision of consultancy services is recognised using the percentage
of completion method. The percentage of completion is measured by reference to the percentage of cost
incurred to-date to the estimated total costs for each project. Revenue on other service work is recognised
when the work is completed. Revenue excludes goods and services or other sales taxes and is after deduction
of any trade discounts. No revenue is recognised if there are significant uncertainties regarding recovery of the
consideration due, associated costs or the possible return of goods.
ii.
Contract Revenue
Revenue from repair work, engineering, overhaul, service work and marine and civil construction contracts
is recognised based on percentage of completion. The percentage of completion is assessed by reference to
surveys of work performed, or by reference to the ratio of costs incurred to-date to the estimated total costs for
each contract, with due consideration given to the inclusion of only those costs that reflect work performed.
When the outcome of a long-term contract can be estimated reliably, contract revenue and costs are recognised
as income and expense respectively using the percentage of completion method. When the outcome of a longterm
contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred
that can probably be recovered and contract costs are recognised as an expense in the period in which they
are incurred.
iii. Sale of Electricity and Gases
Revenue from the sale of electricity, utilities and gases is measured at the fair value of the consideration received
or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when
electricity, utilities and gases are delivered at the customers’ premises which is taken to be the point of time
when the customer has accepted the deliveries and the related risks and rewards of ownership and based on
contractual terms stipulated in respective agreements with customers.
iv. Service Concession Arrangement
Revenue relating to construction services under a service concession arrangement is recognised based on the
stage of completion of the work performed, consistent with the Group’s accounting policy on recognising
revenue on construction contracts. Operation or service revenue is recognised in the period in which the services
are provided by the Group. When the Group provides more than one service in a service concession arrangement,
the consideration received is allocated by reference to the relative fair values of the services delivered.
Infrastructure constructed under a service concession arrangement is not recognised as property, plant and
equipment of the Group.
Preference shares are classified as equity if it is non-redeemable. Preference shares are classified as a liability if they
are redeemable on a specific date or at the option of the shareholders.
134 Delivering Essential Solutions Sembcorp Industries Annual Report 2008 135