Ecowise Annual Report 2007 - ecoWise Holdings Limited

Notes to FinancialStatements31 October 20072. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)FINANCIAL GUARANTEE – A financial guarantee contract requires that the issuer makes specified payments toreimburse the holder for a loss when a specified debtor fails to make payment when due. Financial guarantee contractsare initially recognised at fair value and are subsequently measured at the greater of (a) the amount determined inaccordance with FRS 37 and (b) the amount initially recognised less, where appropriate, cumulative amortisationrecognised in accordance with FRS 18.SHARE CAPITAL – Ordinary shares are classified as equity. Incremental costs directly attributable to the issue ofnew shares or options are shown in equity as a deduction from the proceeds. Where the company reacquires its ownequity instruments as treasury shares, the consideration paid, including any directly attributable incremental cost isdeducted from equity attributable to the company’s equity holders until the shares are cancelled, reissued or disposedof. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributableincremental transaction costs and the related income tax effects, is included in equity attributable to the company’sequity holders and no gain or loss is recognised in the income statement.FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying values of current financial assets and financial liabilitiesincluding cash, accounts receivable, accounts payable approximate their fair values due to the short-term maturity ofthese instruments. The fair values of non-current financial instruments are not disclosed unless there are significantitems at the end of the year and in the event the fair values are disclosed in the relevant notes. Disclosures of fair valueare not made when the carrying amount is a reasonable approximation of fair value. The maximum exposure to creditrisk is the fair value of the financial instruments at the balance sheet date.REVENUE RECOGNITION – The revenue amount is the fair value of the consideration received or receivable from thegross inflow of economic benefits during the period arising from the course of the ordinary activities of the entityand it is shown net of related tax, estimated returns, discounts and volume rebates. Revenue from sale of goods isrecognised when significant risks and rewards of ownership are transferred to the buyer, there is neither continuingmanagerial involvement to the degree usually associated with ownership nor effective control over the goods sold, theamount of revenue and the costs incurred or to be incurred in respect of the transaction can be measured reliably.Revenue from rendering of services that are of short duration is recognised when the services are completed. Interestrevenue is recognised on a time-proportion basis using the effective interest rate that takes into account the effectiveyield on the asset. Rental revenue is recognized on a time-proportion basis that takes into account the effective yieldon the asset. Dividend revenue from investments is recognised when the shareholder’s right to receive the dividend islegally established. Management fee income is recognised upon the rendering of services. Revenue from constructioncontracts is recognised in accordance with the accounting policy on construction contracts.FOREIGN CURRENCY TRANSACTIONS – The functional currency is the Singapore dollar as it reflects the primaryeconomic environment in which the entity operates. Transactions in foreign currencies are recorded in the functionalcurrency at the rates ruling at the dates of the transactions. At each balance sheet date, recorded monetary balancesand balances measured at fair value that are denominated in foreign currencies are reported at the rates ruling at thebalance sheet and fair value dates respectively. All realised and unrealised exchange adjustment gains and losses aredealt with in the income statement. The presentation is in the functional currency.50 • ecoWise Holdings Limited • Annual Report 2007