Notes to Financial Statements

Middle East Development Singapore Ltd.Annual Report 2008 41Notes to Financial Statements30 June 20082 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)Derecognition of financial assetsThe Group derecognises a fi nancial asset only when the contractual rights to the cash fl ows from the asset expire, orit transfers the fi nancial asset and substantially all the risks and rewards of ownership of the asset to another entity.If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to controlthe transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts itmay have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred fi nancialasset, the Group continues to recognise the fi nancial asset and also recognises a collateralised borrowing for theproceeds received.Financial liabilities and equity instrumentsClassification as debt or equityFinancial liabilities and equity instruments issued by the Company and the Group are classifi ed according to thesubstance of the contractual arrangements entered into and the defi nitions of a fi nancial liability and an equityinstrument.Financial liabilitiesTrade and other payables are initially measured at fair value net of transaction costs, and are subsequently measuredat amortised cost, using the effective interest rate method, with interest expense recognised on an effective yieldbasis.Interest–bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured atamortised cost, using the effective interest method. Any difference between the proceeds (net of transaction costs)and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance withthe Group’s accounting policy for borrowing costs.Financial guarantee contract liabilities are measured initially at their fair values and subsequently at the higher of theamount of obligation under the contract recognised as a provision in accordance with FRS 37 Provision, ContingentLiabilities and Contingent Assets and the amount initially recognised less cumulative amortisation in accordance withFRS 18 Revenue.Derecognition of financial liabilitiesThe Group derecognises fi nancial liabilities when, and only when, the Group’s obligations are discharged, cancelledor when they expire.CONSTRUCTION CONTRACTS – Where the outcome of a construction contract can be estimated reliably, revenueand costs are recognised by reference to the stage of completion of the contract activity at the balance sheet date,as measured by the proportion that contract costs incurred for work performed to date relative to the estimated totalcontract costs, except where this would not be representative of the stage of completion. Variations in contractwork, claims and incentive payments are included to the extent that they have been agreed with the customer.Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to theextent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expensesin the period in which they are incurred.When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised asan expense immediately.LEASES – Leases are classifi ed as fi nance leases whenever the terms of the lease transfer substantially all the risksand rewards of ownership to the lessee. All other leases are classifi ed as operating leases.