EXCEL FORCE MSC BERHAD Annual Report 2020

EXCEL FORCE MSC BERHAD - ANNUAL REPORT 2020 61 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2020 (CONT’D) 2. BASIS OF PREPARATION (CONT’D) (c) Significant accounting judgements, estimates and assumptions The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. Judgements The following are the judgements made by management in the process of applying the Group’s accounting policies that have the most significant effect on the amounts recognised in the financial statements: Satisfaction of performance obligations in relation to contracts with customers The Group is required to assess each of its contracts with customers to determine whether performance obligations are satisfied over time or at a point in time in order to determine the appropriate method for recognising revenue. This assessment was made based on the terms and conditions of the contracts, and the provisions of relevant laws and regulation. The Group recognises revenue over time in the following circumstances: (i) the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs; (ii) the Group does not create an asset with an alternative use to the Group and has an enforceable right to payment for performance completed to date; and (iii) the Group’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. Where the above criteria are not met, revenue is recognised at a point in time. Where revenue is recognised at a point of time, the Group assesses each contract with customers to determine when the performance obligation of the Group under the contract is satisfied. Determining the lease term of contracts with renewal and termination options - Group as lessee The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has several lease contracts that include extension options. The Group applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise either the renewal or termination. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate (e.g., construction of significant leasehold improvements or significant customisation to the leased asset). The Group includes the renewal period as part of the lease term for leases of office spaces and computer equipment with non-cancellable period included as part of the lease term as these are reasonably certain to include extension options in new leases to provide operational flexibility. Furthermore, the periods covered by termination options are included as part of the lease term only when they are reasonably certain not to be exercised.