MISC Annual Report 2017

NOTES TO THE FINANCIAL STATEMENTS MISC BERHAD | Annual Report 2017 200 2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) 2.4 Pronouncements not yet in effect (cont'd.) (iii) MFRS 16: Leases In April 2016, MASB issued MFRS 16 Leases which sets out principles for the recognition, measurement, presentation and disclosure of leases, and replaces the existing MFRS 117: Leases. The standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. Assets and liabilities arising from a lease are initially measured on a present value basis includes non-cancellable lease payments and also includes payments to be made in optional periods if the lessee is reasonably certain to exercise the option to extend the lease period, or not terminating the lease. Lessor accounting is substantially unchanged from the existing MFRS 117: Leases except for MFRS 16 requires enhanced disclosure to be provided by lessors that will improve information disclosed about lessor's risk exposure, particularly to residual value risk. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective transition approach. MFRS 16 is effective for annual periods beginning on or after 1 January 2019, with early application permitted, but not before an entity applies MFRS 15. The Group is currently assessing the impact of MFRS 16 and plans to adopt the new standard on the required effective date. 2.5 Significant accounting estimates and judgements (a) Critical judgements made in applying accounting policies The following are the judgements made by management in applying the Group's accounting policies that have the most significant effect on the amounts recognised in the financial statements: (i) Operating lease commitments - the Group as lessor In its ordinary course of business, the Group enter into lease arrangements with related and third parties on its ships and offshore floating assets. Where the Group has determined that it retains all the significant risks and rewards of ownership of these ships and offshore floating assets, the ships and offshore floating assets are recognised and classified as part of non-current assets of the Group and of the Corporation. (ii) Construction contracts The Group recognises revenue and expenses from construction contracts in the income statement by using the stage of completion method. The stage of completion is measured by reference to the completion of physical proportion of the contract work. 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 construction costs. In making this judgement, the Group evaluates based on past experience and by relying on the work of internal specialists.