ACCOUNTABILITY | NOTES TO THE FINANCIAL STATEMENTS 193 INTEGRATED ANNUAL REPORT 2026 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) (a) Critical judgement in determining the lease classification (continued) Finance leases – Group as a lessor (continued) The most important judgement areas assessed by the Group in respect of finance leases are as follows: (continued) • Allocation of transaction price to multiple arrangement elements for lease contracts The Group provides design, supply, installation, operation, life extension and demobilisation of FPSO vessels. The vessels are constructed and leased to customers on a finance lease arrangement, and operated by the Group under a separate operating and maintenance agreement after the vessels are handed over to the customers. Therefore, the construction of the vessels, leasing and operations are each identified as a separate revenue element. The transaction price is allocated to each performance obligation based on the relative stand-alone selling prices. The relative stand-alone selling prices are estimated based on the expected costs to be incurred and expected profit margin applicable to each revenue element at the inception of the lease contract. Significant judgement is used to estimate the costs and profit margins applied in the allocation of the transaction price. Please refer to Notes 2.6(i) and Note 2.12(b) for the Group’s accounting policies on revenue recognition for the construction of FPSO vessels and finance lease arrangements respectively. • Determination of lease term The Group determines the lease term based on the period for which the Group has contracted to lease the asset together with any further terms for which the lessee has the option to continue to lease the asset. In determining the lease term, the Group considers all facts and circumstances that create an economic incentive for the lessor to exercise an extension option, including the indicators set out in paragraphs B37 to B40 of MFRS 16 Leases. Extension options are only included in the lease term if the lease is reasonably certain to be extended by the lessees. The evaluation of the term “reasonably certain” involves judgement. Extension options are included in certain leases of FPSOs across the Group in order to determine the net investment in these leases (Note 34(a)). The extension options are exercisable only by the respective lessees. The lease term is reassessed if an option is actually exercised (or not exercised). The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment. (b) Measurement and recognition of revenues on EPCIC contracts based on the input method For the Group’s EPCIC contracts to construct FPSO vessels for customers, revenue is recognised over time by reference to the Group’s progress towards completing the EPCIC of the FPSO. The measure of progress is determined based on the proportion of contract costs incurred to date to the estimated total contract costs (“input method”). Significant judgement is used to estimate the above-mentioned total contract costs to complete. In making these estimates, management has applied its past experience of completing similar projects, as well as quotations from and contracts with suppliers and sub-contractors. These estimations are also made with due consideration of the circumstances and relevant events that were known to management at the date of these financial statements. Total contract costs may also be affected by factors such as uncertainties in contract execution, variation in scope of works and acceptance of claims by customers. Costs and revenue (and the resulting gross margin) at completion reflect, at each reporting period, management’s current best estimate of the probable future benefits and obligations associated with the contract.
RkJQdWJsaXNoZXIy NDgzMzc=