notes to the financial statements - Singapore Technologies ...

SINGAPORE TECHNOLOGIES ENGINEERING LTD Annual Report 2011183NOTES TO THE FINANCIAL STATEMENTS31 December 2011(Currency - Singapore dollars unless otherwise stated)21. Inventories and work-in-progressGroup2011 2010$’000 $’000Inventories of equipment and spares 785,617 575,315Work-in-progress in excess of progress billingsWork-in-progress, including profits recognised 3,093,530 3,179,861Progress billings (2,285,477) (2,284,747)808,053 895,114Total inventories and work-in-progress at lower of cost and net realisable value 1,593,670 1,470,429Progress billings in excess of work-in-progressWork-in-progress, including profits recognised 3,078,244 2,043,709Progress billings (3,734,407) (2,610,902)(656,163) (567,193)In 2011, raw materials, consumables and changes in finished goods and work-in-progress recognised as cost of sales amounted to $3,663,208,000(2010: $3,539,892,000).(i)Revision to inventory obsolescence estimatesDuring the year, the Group engaged independent consultants to perform an industry and benchmarking study on the basis and estimates (the“obsolescence rates”) used to determine allowance for inventory obsolescence. The study considered the industry practices of the 4 mainoperating segments and compared the obsolescence rates against industry peer companies. Based on the results obtained, the Group hasrevised the obsolescence rates to align more closely with industry practices. The effect of these changes resulted in a write-back of allowancefor inventory obsolescence of $18,985,000 to the income statement.The determination of inventory obsolescence charge involves ascertaining the net realisable values of inventory, which are dependent on theprevailing selling prices, which in turn are impacted by demand and supply, technological advancement and etc. Therefore, it is impractical toestimate the effects of these changes on the income statements in the future years.(ii)Allowances for inventory obsolescence and foreseeable lossesAs at 31 December 2011, the inventories are stated after allowance for inventory obsolescence of $187,674,000 (2010: $195,316,000) andwork-in-progress in excess of progress billings is stated after provision for foreseeable losses of $6,365,000 (2010: $4,168,000).(iii)Net realisable value write-downAs at 31 December 2011, work-in-progress amounting to $38,718,000 (2010: $nil) was written down to the estimated net realisable value. Thewrite-down was included in cost of sales.