2.
Summary of significant accounting policies (cont’d)
2.17 Provisions (cont’d)
Provisions for maintenance and warranties
The Group provides for maintenance and warranty claims on contractual items with customers after the substantial completion
of projects.
The provisions for maintenance and warranties represent the best estimate of the Group’s contractual obligations at the balance
sheet date. The provisions are based on past experience of the level of maintenance and rectification work. The majority of
the costs is expected to be incurred over the applicable warranty periods. The assumptions used to estimate maintenance and
warranties provisions are reviewed periodically in light of actual experience.
Provisions for share of a joint venture’s losses
The Group provides for its share of further losses in a joint venture, in excess of its interest in the joint venture when the Group
has incurred legal or constructive obligations or made payments on behalf of the joint venture. If the joint venture subsequently
reports profits, the Group resumes recognising its share of those profits only after its share of the profits equals the share of
losses not recognised.
2.18 Financial guarantee
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a
loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Financial guarantees are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable
to the issuance of the guarantee. Subsequent to initial recognition, financial guarantees are recognised as income in the profit
or loss over the period of the guarantee. If it is probable that the liability will be higher than the amount initially recognised less
amortisation, the liability is recorded at the higher amount with the difference charged to profit or loss.
2.19 Borrowing costs
Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition,
construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare the
asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are
capitalised until the assets are substantially completed for their intended use or sale. All other borrowing costs are expensed in
the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing
of funds.
NOTES TO THE FINANCIAL STATEMENTS
31 December 2014
Hock Lian Seng Holdings Limited
Annual report 2014
60
