MKH Annual Report 2020

129 MKH BERHAD 3. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) (r) Inventories (Cont’d) (i) Completed properties (Cont’d) Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. (ii) Materials and goods Inventories are valued at the lower of cost and net realisable value. The cost of inventories is based on the specific identification, first-in first-out and weighted average principles, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of work-in-progress and finished goods, cost includes raw materials, direct labour and an appropriate production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. (s) Contract assets and contract liabilities Contract asset is the right to consideration for goods or services transferred to the customers. The Group’s contract asset is the excess of cumulative revenue earned over the billings to-date. Where there is objective evidence of impairment, the amount of impairment losses is determined by comparing the contract asset’s carrying amount and the present value of estimated future cash flows to be generated by the contract asset. Contract asset is reclassified to trade receivables at the point at which invoices have been billed to customers. Contract liability is the obligation to transfer goods or services to customers for which the Group has received the consideration or has billed the customers. The Group’s contract liability is the excess of the billings to-date over the cumulative revenue earned. Contract liability is recognised as revenue when the Group performs its obligation under the contracts. (t) Contract costs The Group recognises the incremental costs of obtaining a contract with a customer, which are expected to be recovered, as an asset. The incremental costs of obtaining a contract are costs incur to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. These contract costs are initially measured at cost and amortised on a systematic basis that is consistent with the pattern of revenue recognition to which the asset relates. An impairment loss is recognised in profit and loss when the carrying amount of the contract cost asset exceeds the expected revenue less expected costs that will be incurred. Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2020