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FRONTKEN CORPORATION BERHAD
(651020-T)
ANNUAL REPORT
2015
2.
BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONT’D)
The adoption of the above accounting standards and/or interpretations (including the consequential amendments, if
any) is expected to have no material impact on the financial statements of the Group upon their initial application except
as follows:-
(i)
MFRS 9 (IFRS 9 issued by IASB in July 2014) replaces the existing guidance in MFRS 139 and introduces a
revised guidance on the classification and measurement of financial instruments, including a single forward-
looking ‘expected loss’ impairment model for calculating impairment on financial assets, and a new approach to
hedge accounting. Under this MFRS 9, the classification of financial assets is driven by cash flow characteristics
and the business model in which a financial asset is held. Therefore, it is expected that the Group’s investments
in unquoted shares that are currently stated at cost will be measured at fair value through other comprehensive
income upon the adoption of MFRS 9. The Group is currently assessing the financial impact of adopting MFRS 9.
(ii) MFRS 15 establishes a single comprehensive model for revenue recognition and will supersede the current revenue
recognition guidance and other related interpretations when it becomes effective. Under MFRS 15, an entity shall
recognise revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services
underlying the particular performance obligation is transferred to the customers. In addition, extensive disclosures
are required by MFRS 15. The Group anticipates that the application of MFRS 15 in the future may have a material
impact on the amounts reported and disclosures made in the financial statements. However, it is not practicable
to provide a reasonable estimate of the financial impacts of MFRS 15 until the Group performs a detailed review.
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 requiresmanagement
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.
NOTES TO THE FINANCIAL STATEMENTS
(cont’d)