MISC Annual Report 2019

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.) (b) Voyage and lightering income The Group’s contracts for voyage charters consist of a single performance obligation to provide the charterer with an integrated transportation service within a specified time period. The consideration in the contract (or “freight”) is determined either on a variable rate related to the cargo (e.g. cargo weight) or on a lump-sum basis. In addition, a voyage charter agreement usually includes a “laytime and demurrage” clause. If the laytime is exceeded, the charterer is responsible to pay the carrier specified damages, which may include liquidated damages called demurrage. Voyage and lightering income is recognised on percentage of completion basis, calculated on a voyage loading-to- discharge basis. The revenue is recognised evenly over the period from a ship’s departure from its cargo loading point to its next discharge point, at time when the revenue is determinable for the specified load and discharge point and collectability is reasonably assured. (c) Other shipping related income and non-shipping income Income from services rendered is recognised net of service taxes and discounts as and when the services are performed. (ii) Charter income Time charter and bareboat charter hire income as well as that of other services rendered are accounted for as a lease income on a straight-line basis over the firm period of the contract, as service is performed. Non-lease component of the time charter income is not separately disclosed as the pattern of revenue recognition for lease and non-lease components are the same and the lease and non-lease components are treated as a combined unit of account, classified as an operating lease. Revenue and voyage expenses of ships operating in pool arrangements are pooled and the resulting net pool revenues, calculated on a time charter equivalent basis, are allocated to the pool participants according to the number of days a ship operates in the pool with weighting adjustments made to reflect differing capacity and performance capabilities. The net pool revenues generated are recorded as charter hire income on an accrual basis. (iii) Finance income on lease receivables Finance income on lease receivables is recognised according to the effective interest rate method so as to provide constant periodic rate of return on the net investment. (iv) Interest income Interest income is recognised on an accrual basis using the effective interest method. (v) Dividend income Dividend income is recognised when the Group’s and the Corporation’s right to receive payment is established. 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.3 Summary of significant accounting policies (cont’d.) (t) Non-current assets held for sale Non-current assets are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition, subject only to terms that are usual and customary. Immediately before classification as held for sale, the measurement of the non-current assets is brought up-to-date in accordance with applicable MFRS. Then, on initial classification as held for sale, non-current assets are measured in accordance with MFRS 5: Non-Current Assets Held for Sale and Discontinued Operations that is, at the lower of carrying amount and fair value less costs to sell. Any differences are included in the income statement. (u) Repairs and maintenance Repairs and maintenance costs are recognised in the income statement in the period they are incurred. (v) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, being within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s and the Corporation’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows. (w) Equity instruments Ordinary shares are classified as equity. Dividends on ordinary shares are recognised in equity in the period in which they are declared. The transaction costs of an equity transaction are accounted for as a deduction from equity, net of tax. Equity transaction costs comprise only those incremental external costs directly attributable to the equity transaction which would otherwise have been avoided. (x) Fair value measurements Fair value of an asset or a liability, except for lease transactions, is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The measurement assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market or in the absence of a principal market, in the most advantageous market. (i) Financial instruments The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the end of reporting date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include: - using recent arm’s length market transactions; - reference to the current fair value of another instrument that is substantially the same; and - discounted cash flow analysis or other valuation models. Where fair value cannot be reliably estimated, assets are carried at cost less impairment losses, if any. 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 276 277