4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4.10 Inventories (a) Inventories of raw materials, work-in-progress, trading merchandise, manufactured inventories and other consumables. Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average cost formula. Cost of consumables, trading merchandise and raw materials comprises all costs of purchase plus other cost incurred in bringing the inventories to their existing location and condition. The cost of work-in-progress and manufactured inventories includes the cost of raw materials, direct labour, other direct costs and a proportion of production overheads based on normal operating capacity of the production facilities. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. (b) Property development costs Property development costs are determined based on a specific identification basis. Property development costs comprising costs of land, direct materials, direct labour, other direct costs, attributable overheads and payments to subcontractors that meet the definition of inventories are recognised as an asset and are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and applicable variable selling expenses. The asset is subsequently recognised as an expense in profit or loss when or as the control of the asset is transferred to the customer over time. (c) Land held for development Land held for development consists of land on which no significant development work has been undertaken. The land is carried at the lower of cost and net realisable value. The cost of land held for development consists of cost associated with the acquisition of land. These costs include the purchase price of the land, professional fees, stamp duties, commissions, conversion fee and other relevant levies. 4.11 Biological assets Biological assets comprised teak trees in timber plantation. Biological assets are measured at fair value less costs to sell. Fair value is determined based on the present value of expected net cash flows from the biological assets. The expected net cash flows are estimated using the expected output method and the estimated market price of the biological assets. Market prices are obtained from observable market prices (where available), contracted prices or estimated future prices. The costs to sell include the incremental selling costs, including royalty payable to authority. Any gains or losses arising from changes in the fair value less costs to sell net of transfers to produce stocks are recognised net in profit or loss. 4.12 Financial instruments Regular way purchases and sales of financial assets are recognised on trade date, the date on which the Group and the Company commit to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group and the Company have transferred substantially all the risks and rewards of ownership. NOTES TO THE FINANCIAL STATEMENTS P R G H O L D I N G S B E R H A D A N N U A L R E P O R T 2 0 2 1 100 31 December 2021 (cont’d)
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