MISC Annual Report 2019

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.3 Summary of significant accounting policies (cont’d.) (r) Foreign currencies (cont’d.) (ii) Foreign currency transactions (cont’d.) Exchange differences arising on the translation of non-monetary items carried at fair value are included in the income statement for the year, except for the differences arising on the retranslation of non-monetary items (in respect of which gains and losses are recognised directly in other comprehensive income). Exchange differences arising from such non-monetary items are also recognised directly in equity. (iii) Foreign operations The results and financial position of operations that have a functional currency different from the presentation currency (“RM”) (“Foreign Operation”) are translated into RM as follows: - Assets and liabilities for each statement of financial position presented are translated at the closing rate prevailing at the reporting date; - Income and expenses for each income statement are translated at the exchange rate at the date of the transactions or an average rate that approximates those rates; and - All resulting exchange differences are taken to the currency translation reserve within other comprehensive income. (s) Revenue and other income recognition (i) Revenue from contracts with customers Revenue is measured based on the consideration specified in a contract with a customer and exclude amounts collected on behalf of third parties. The Group and the Corporation recognise revenue when or as it transfers control over a product or service to the customer. An asset is transferred when (or as) the customer obtains control of the asset. An entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met: (a) The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs; (b) The entity’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced; or (c) The entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If a performance obligation is not satisfied over time in accordance with the above criteria, the Group and the Corporation satisfy the performance obligation at a point in time. (a) Construction contract and marine repair The Group recognises revenue from construction contract and marine repair with customers mainly from its Heavy Engineering segment. The Group’s contract with customers mainly contain one performance obligation where the Group is contracted to construct a specific asset for a customer and to provide repair and maintenance services on customer’s marine vessels. 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.3 Summary of significant accounting policies (cont’d.) (s) Revenue and other income recognition (cont’d.) (i) Revenue from contracts with customers (cont’d.) (a) Construction contract and marine repair (cont’d.) The Group considers whether there are other promises in the contract with customers that are separate performance obligations. The Group typically only provides assurance type warranties to assure that the completed project complies with agreed-upon specifications of the contract and therefore, does not give rise to a separate performance obligation. Where the outcome of a contract cannot be reliably estimated, contract revenue is recognised to the extent of contract costs incurred, that is probable to be recoverable. Contract costs are recognised as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Transaction price comprises the initial amount of consideration agreed in the contract, 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. If the consideration in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal will not occur when the associated uncertainty with the variable consideration is subsequently resolved. The Group’s construction contracts contain penalty clauses (i.e. liquidated and ascertained damages) for late delivery. When it is probable that the construction contract will not be fulfilled on time, the penalty will be deducted from the contract transaction price. Revenue from construction contract is based on stage of completion. The stage of completion is measured by reference to the proportion of physical completion based on technical milestones defined under the contracts and taking into account the nature of activities and its associated risks. Contract assets represent the Group’s right to consideration in exchange for goods or services that the Group has transferred to a customer when that right is conditioned on something other than the passage of time. Contract assets are subjected to impairment in accordance to MFRS 9: Financial Instruments. The contract assets of the Group comprise of amounts due from customers on contracts. Contract liabilities represent the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration, or the amount is due, from the customer. The contract liabilities of the Group comprise of amounts due to customers on contracts. NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 FINANCIAL STATEMENTS MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019 274 275