NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.21 Financial guarantee contracts (continued) The Company has issued corporate guarantees to banks for borrowings of certain subsidiaries. These guarantees are financial guarantees as they require the Company to reimburse the banks if the subsidiaries fail to make principal or interest payments when due in accordance with the terms of their borrowings. Financial guarantee contracts are recognised initially as a liability at fair value. Subsequent to initial recognition, the liability is measured at the higher of the amount determined in accordance with the ECL model under MFRS 9 ‘Financial Instruments’ and the amount initially recognised less cumulative amount of income recognised in accordance with the principles of MFRS 15 ‘Revenue from Contracts with Customers’, where appropriate. ECL is the difference between the expected payments to reimburse the holder of the guaranteed debt instruments less any amounts that the Company expects to receive from the holder, the debtor or any other party. See accounting policy 2.17(d) on impairment under ECL model. 2.22 Revenue recognition (a) Revenue from contracts with customers Revenue from contracts with customers is recognised by reference to each distinct performance obligation in the contract with customer. Revenue from contracts with customers is measured at its transaction price, being the amount of consideration which the Group expects to be entitled in exchange for transferring promised goods or services to a customer, net of goods and service tax, returns, rebates and discounts. Transaction price is allocated to each performance obligation on the basis of the relative standalone selling prices of each distinct good or services promised in the contract. Depending on the substance of the contract, revenue is recognised when the performance obligation is satisfied, which may be at a point in time or over time. Contract asset is the right to consideration for goods or services transferred to the customers. Where the cumulative revenue earned exceed progress billings, the balance is presented as ‘contract assets’ within current assets. Contract liability is the obligation to transfer goods or services to customer for which the Group has received the consideration or has billed the customer. Where progress billings exceed the cumulative revenue earned, the balance is presented as ‘contract liabilities’ within current liabilities. Specific revenue recognition criteria for each of the Group’s activities are as described below: (i) Contract revenue Contract revenue with customers include contracts relating to pipe coating, manufacturing of boilers and steam turbines as well as engineering and fabrication services. These contracts may include multiple performance obligations as they are not highly integrated. Hence, the transaction price will be allocated to each performance obligation based on the standalone selling price. Where the contracts are highly integrated, they are recognised as a single performance obligation. Revenue is recognised progressively based on the progress towards complete satisfaction of the performance obligation. Revenue are recognised over time when control of the asset is transferred over time when the Group’s performance: • creates and enhances an asset that the customer controls as the services are being performed; or • does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. Annual Report 2022 Wah Seong Corporation Berhad 125
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