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| Home > Financial Statements > Statutory Reports > Notes to the Financial Statements |
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Estimates, assumptions concerning the future and judgements are made in the preparation of the financial statements. They affect the application of the Group’s accounting policies, reported amounts of assets, liabilities, income and expenses, and disclosures made. They are assessed on an on-going basis and are based on experience and relevant factors, including expectations of future events that are believed to be reasonable under the circumstances.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Information on other significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes:
| a. |
Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Information about the assumptions and their risk factors relating to goodwill impairment are disclosed in Note 16. |
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| b. |
Income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is involved in determining the group-wide provision for income taxes. There are certain transactions and computation for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income taxes and deferred tax provisions in the period in which such determination is made. |
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| c. |
Pension assumptions
The Group has decided on certain principal actuarial assumptions, as detailed in Note 28, in estimating its pension liability as at the balance sheet date. If there were adverse changes to these actuarial assumptions, then the Group’s unrecognised actuarial losses would increase with the risk that they would fall outside the corridor and would need to be recognised in the income statement. |
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| d. |
Depreciation of property, plant and equipment
Property, plant and equipment are depreciated on a straight-line basis over their estimated useful lives. Management estimates the useful lives of these property, plant and equipment to be within 1 to 60 years. The carrying amount of the Group’s property, plant and equipment are set out in Note 6. Changes in the expected level of usage and technological developments could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. |
Critical accounting judgements in applying the Group’s accounting policies
In the process of applying the Group’s accounting policies, management has made certain judgements, apart from those involving estimations, which have significant effect on the amounts recognised in the financial statements.
| a. |
Revenue recognition
The Group has recognised revenue on construction contract, ship and rig repair, building and conversion based on the percentage of completion method in proportion to the stage of completion. The percentage of completion is assessed by reference to surveys of work performed. Significant judgement is required in determining the appropriate stage of completion and estimating a reasonable contribution margin for revenue and costs recognition. |
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| b. |
Impairment of investments and financial assets
The Group follows the guidance of FRS 39 Financial Instruments: Recognition and Measurement on determining when an investment or financial asset is other than temporarily impaired. This determination requires significant judgement. The Group evaluates, among other factors, the duration and extent to which the fair value of an investment and financial asset is less than its cost; and the financial health of and near-term business outlook for the investment of financial asset, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. |
| a. |
In February 2009, the Group repaid US$88 million, which is the Group’s proportionate 40% share of the US$220 million EBL taken by ESWPC. The US$88 million repayment represented an injection of approximately US$44 million as equity interest into ESWPC and the remaining as a shareholder’s loan to ESWPC. |
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| b. |
Our subsidiary, Sembcorp Marine Ltd (“SCM”) acquired the remaining 30% equity interest in JPL Corporation Pte Ltd (“JPLC”) from its minority shareholders for a consideration of S$13,428,000. |
Certain comparatives in the financial statements have been changed from the previous year to be consistent with current year’s presentation.
The Group has not applied the following accounting standards (including their consequential amendments) and interpretations that have been issued as of the balance sheet date but are not yet effective:
| FRS 1 (revised 2008) |
Presentation of Financial Statements |
| FRS 23 (revised 2007) |
Borrowing Costs |
Amendments to FRS 32 Financial Instruments: Presentation and FRS 1 Presentation of Financial Statements
– Puttable Financial Instruments and Obligations Arising on Liquidation |
Amendments to FRS 39 Financial Instruments: Recognition and Measurement
– Amendment relating to eligible hedged items |
Amendments to FRS 101 First-time Adoption of Financial Reporting Standards and FRS 27 Consolidated
and Separate Financial Statements – Cost of an Investment in a Subsidiary, Jointly Controlled Entity
or Associate |
| Amendments to FRS 102 Share-based Payment – Vesting Conditions and Cancellations |
| FRS 108 |
Operating Segments |
| Improvements to FRSs |
| INT FRS 113 |
Customer Loyalty Programmes |
| INT FRS 116 |
Hedges of a Net Investment in a Foreign Operation |
FRS 1 (revised 2008) will become effective for the Group’s financial statements for the year ending December 31, 2009. The revised standard requires an entity to present, in a statement of changes in equity, all owner changes in equity. All non-owner changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive income or in two statements (a separate income statement and a statement of comprehensive income). Components of comprehensive income are not permitted to be presented in the statement of changes in equity. In addition, a statement of financial position is required at the beginning of the earliest comparative period following a change in accounting policy, the correction of an error or the reclassification of items in the financial statements. FRS 1 (revised 2008) does not have any impact on the Group’s financial position or results.
FRS 23 (revised 2007) will become effective for financial statements for the year ending December 31, 2009. FRS 23 (revised 2007) removes the option to expense borrowing costs and requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The Group’s current policy to capitalise borrowing costs is consistent with the requirement in the revised FRS 23.
The amendments to FRS 32 and FRS 1 on puttable financial instruments will become effective for the Group’s financial statements for the year ending December 31, 2009. The amendments allow certain instruments that would normally be classified as liabilities to be classified as equity if and only if they meet certain conditions. The Group does not issue such puttable financial instruments and thus the application of these amendments is not expected to have any significant impact on the Group’s financial statements.
The amendments to FRS 39 on eligible hedged items will become effective for the Group’s financial statements for the year ending December 31, 2010. The amendments clarify how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in 2 particular situations: (i) the designation of a one-sided risk in a hedged item; and (ii) the designation of inflation in particular situations. The Group is in the process of assessing the impact of these amendments.
The amendments to FRS 101 and FRS 27 on the cost of an investment in a subsidiary, jointly controlled entity or associate will become effective for the Company’s financial statements for the year ending December 31, 2009. The amendments remove the definition of “cost method” currently set out in FRS 27, and instead require an entity to recognise all dividend from a subsidiary, jointly controlled entity or associate as income in its separate financial statements when its right to receive the dividend is established. The application of these amendments is not expected to have any significant impact on the Company’s financial statements.
The amendments to FRS 102 on vesting conditions and cancellations will become effective for the Group’s financial statements for the year ending December 31, 2009. The amendments clarify the definition of vesting conditions and provide the accounting treatment for non-vesting conditions and cancellations. The application of these amendments is not expected to have any significant impact on the Group’s financial statements.
FRS 108 will become effective for financial statements for the year ending December 31, 2009. FRS 108, which replaces FRS 14 Segment Reporting, requires identification and reporting of operating segments based on internal reports that are regularly reviewed by the Group’s chief operating decision maker in order to allocate resources to the segment and to assess its performance. Currently, the Group presents segment information in respect of its business and geographical segments. The adoption of FRS 108 is not expected to have any impact to the Group.
Improvements to FRSs 2008 will become effective for the Group’s financial statements for the year ending December 31, 2009, except for the amendment to FRS 105 Non-current Assets Held for Sale and Discontinued Operations which will become effective for the year ending December 31, 2010. Improvements to FRSs 2008 contain amendments to
numerous accounting standards that result in accounting changes for presentation, recognition or measurement purposes and terminology or editorial amendments. The Group is in the process of assessing the impact of these amendments.
INT FRS 113 will become effective for the Group’s financial statements for the year ending December 31, 2009. INT FRS 113 concludes that where entities grant award credits as incentives to customers to buy their goods or services (e.g. loyalty points or free products), such customer loyalty programmes should be accounted for by taking a multiple sales approach, i.e. by deferring some of the revenue received from the initial sales transaction, to be recognised as revenue as and when the entity provides the goods or services promised under the customer loyalty programmes. The application of this Interpretation is not expected to have any significant impact on the Group’s financial statements.
INT FRS 116 will become effective for the Group’s financial statements for the year ending December 31, 2009. INT FRS 116 provides guidance on identifying foreign currency risks and hedging instruments that qualify for hedge accounting in the hedge of a net investment in a foreign operation. It also explains how an entity should determine the amounts to be reclassified from equity to profit or loss for both the hedging instrument and the hedged item. The application of this Interpretation is not expected to have any significant impact on the Group’s financial statements.
Other than the changes in disclosures relating to FRS 1, the initial application of these standards (including their consequential amendments) and interpretations is not expected to have any material impact on the Group’s financial statements. The Group has not considered the impact of accounting standards issued after the balance sheet date. |
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