57
FRONTKEN CORPORATION BERHAD
(651020-T)
ANNUAL REPORT 2014
NOTES TO THE
FINANCIAL STATEMENTS
(cont’d)
3.
SIGNIFICANT ACCOUNTING POLICIES
Critical Accounting Estimates And Judgements
Estimates and judgements are continually evaluated by the directors and management and are based
on historical experience and other factors, including expectations of future events that are believed to be
reasonable under the circumstances. The estimates and judgements that affect the application of the Group’s
accounting policies and disclosures, and have a significant risk of causing a material adjustment to the carrying
amounts of assets, liabilities, income and expenses are discussed below:
(i)
Impairment of Goodwill
Goodwill is tested for impairment annually and at other times when such indicators exists. This requires
management to estimate the expected future cash flows of the cash-generating unit to which goodwill
is allocated and to apply a suitable discount rate in order to determine the present value of those cash
flows. The future cash flows are most sensitive to budgeted gross margins, growth rates estimated
and discount rate used. If the expectation is different from the estimation, such difference will impact
the carrying value of goodwill.
(ii)
Contract Customers
The Group recognises contract customers in the profit or loss by using the stage of percentage-of-
completion method, which is the standard for similar industries.
The stage of completion is determined by the proportion that contract costs incurred for work performed
to date bear to the estimated total contract costs. Estimated losses are recognised in full when
determined. Contract costs estimates are reviewed and revised periodically as work progresses and
as variation orders are approved.
Significant judgement is required in determining the stage of completion, the extent of the contract
costs incurred, the estimated total contract revenue and costs as well as the recoverability of the project
undertaken. In making the judgement, the Group evaluates based on past experience and by relying
on the work of specialists. If the Group is unable to make reasonably dependable estimates, the Group
would not recognise any profit before a contract is completed, but would recognise a loss as soon as
the loss becomes evident.
Adjustments based on the percentage-of-completion method are reflected in contract revenue in the
reporting period. To the extent that these adjustments result in a reduction or elimination of previously
reported amount due from contract customers and contract revenue and costs, the Group recognises
a charge or credit against current earnings and amounts in prior periods, if any, are not restated.
(iii) Depreciation of Property, Plant and Equipment
The estimates for the residual values, useful lives and related depreciation charges for the property,
plant and equipment are based on commercial factors which could change significantly as a result of
technical innovations and competitors’ actions in response to the market conditions.
The Group anticipates that the residual values of its property, plant and equipment will be insignificant.
As a result, residual values are not being taken into consideration for the computation of the depreciable
amount.
Changes in the expected level of usage and technological development could impact the economic
useful lives and the residual values of these assets, therefore future depreciation charges could be
revised.
