Notes to the Financial Statements
31 December 2015
6XPPDU\ RI VLJQLȴFDQW DFFRXQWLQJ SROLFLHV FRQWȇG
2.14 Construction contracts
7KH *URXS SULQFLSDOO\ RSHUDWHV ȴ[HG SULFH FRQWUDFWV &RQWUDFW UHYHQXH DQG FRQWUDFW FRVWV DUH UHFRJQLVHG DV
revenue and expenses respectively by reference to the stage of completion of the contract activity at the end of
the reporting period (the percentage of completion method), when the outcome of a construction contract can
be estimated reliably.
The outcome of a construction contract can be estimated reliably when:
i)
Total contract revenue can be measured reliably;
LL
ΖW LV SUREDEOH WKDW WKH HFRQRPLF EHQHȴWV DVVRFLDWHG ZLWK WKH FRQWUDFW ZLOO ȵRZ WR WKH HQWLW\
iii)
The costs to complete the contract and the stage of completion can be measured reliably; and
LY 7KH FRQWUDFW FRVWV DWWULEXWDEOH WR WKH FRQWUDFW FDQ EH FOHDUO\ LGHQWLȴHG DQG PHDVXUHG UHOLDEO\ VR WKDW DFWXDO
costs incurred can be compared with prior estimates.
An expected loss on the construction contract is recognised as an expense immediately when it is probable that
total contract costs will exceed total contract revenue.
Contract revenue comprises the initial amount of revenue agreed in the contract and variations in contract
work, claims and incentive payments to the extent that it is probable that they will result in revenue and they are
capable of being reliably measured.
&RQWUDFW FRVWV LQFOXGH FRVWV WKDW UHODWH GLUHFWO\ WR WKH VSHFLȴF FRQWUDFW DQG FRVWV WKDW DUH DWWULEXWDEOH WR FRQWDFW
DFWLYLW\ LQ JHQHUDO DQG FDQ EH DOORFDWHG WR WKH FRQWUDFW &RVWV WKDW UHODWHG GLUHFWO\ WR D VSHFLȴF FRQWUDFW FRPSULVH
site labour costs (including site supervision); cost of materials used in construction; depreciation of equipment
used on the contract; cost of designs and technical assistance that is directly related to the contract.
The stage of completion is measured by reference to professional surveys of work performed. In evaluating the
stage of completion, the Group relies on past experience and the work of specialists.
2.15 Development properties
Development properties are properties acquired or being constructed for sale in the ordinary course of business,
rather than to be held for the Company’s own use, rental or capital appreciation.
Development properties are held as inventories and are measured at the lower of cost and net realisable value.
The costs of development properties include:
-
Leasehold rights for land;
-
Amounts paid to contractors for construction, and
-
Borrowing costs, planning and design costs, costs of site preparation, professional fees for legal services,
property transfer taxes, construction overheads and other related costs.
Non-refundable commissions paid to sales or marketing agents on the sales of real estate units are capitalised
when incurred.
Net realisable value of development properties is the estimated selling price in the ordinary course of business,
based on market prices at the reporting date and discounted for the time value of money if material, less the
estimated costs of completion and the estimated costs necessary to make the sale.
7KH FRVWV RI GHYHORSPHQW SURSHUWLHV UHFRJQLVHG LQ SURȴW RU ORVV RQ GLVSRVDO DUH GHWHUPLQHG ZLWK UHIHUHQFH WR
WKH VSHFLȴF FRVWV LQFXUUHG RQ WKH SURSHUW\ VROG DQG DQ DOORFDWLRQ RI DQ\ QRQ VSHFLȴF FRVWV EDVHG RQ WKH UHODWLYH
VL]H RI WKH SURSHUW\ VROG
Development properties for which revenue is recognised using the percentage of completion method is stated at
FRVW SOXV HVWLPDWHG SURȴWV WR GDWH OHVV SURJUHVV ELOOLQJV )RU RWKHU GHYHORSPHQW SURSHUWLHV IRU ZKLFK UHYHQXH LV
recognised using the completed contract method, these are stated at cost while progress billings are presented
separately as “progress billings to customers for development projects” in the balance sheet.
HOCK LIAN SENG HOLDINGS LIMITED
52
