EXCEL FORCE MSC BERHAD 61 Notes to the Financial Statements (Cont’d) 2. Basis of Preparation (Cont’d) (c) Significant accounting judgements, estimates and assumptions (Cont’d) Judgements The following are the judgements made by management in the process of applying the Group’s and the Company’s accounting policies that have the most significant effect on the amounts recognised in the financial statements: Satisfaction of performance obligations in relation to contracts with customers The Group and the Company are required to assess each of its contracts with customers to determine whether performance obligations are satisfied over time or at a point in time in order to determine the appropriate method for recognising revenue. This assessment was made based on the terms and conditions of the contracts, and the provisions of relevant laws and regulation. The Group and the Company recognise revenue over time in the following circumstances: (a) the customer simultaneously receives and consumes the benefits provided by the Group’s and the Company’s performance as the Group and the Company performs; (b) the Group and the Company do not create an asset with an alternative use to the Group and to the Company and have an enforceable right to payment for performance completed to date; and (c) the Group’s and the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. Where the above criteria are not met, revenue is recognised at a point in time. Where revenue is recognised at a point of time, the Group and the Company assess each contract with customers to determine when the performance obligation of the Group and of the Company under the contract is satisfied. Determining the lease term of contracts with renewal - Group and Company as lessee The Group and the Company determine the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised. The Group and the Company have several lease contracts that include extension options. The Group and the Company applies judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group and the Company reassess the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew. The Group and the Company include the renewal period as part of the lease term for leases of office spaces. The Group and the Company typically exercises its option to renew for these leases with renewal options. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period are set out below: Useful lives of property, plant and equipment, right-of-use (“ROU”) assets and product development costs (“PDC”) The Group and the Company regularly review the estimated useful lives of property, plant and equipment, ROU assets and PDC based on factors such as business plan and strategies, expected level of usage and future technological developments. Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned above. A reduction in the estimated useful lives of property, plant and equipment, ROU assets and PDC would increase the recorded depreciation and decrease the value of property, plant and equipment, ROU assets and PDC. The carrying amount at the reporting date for property, plant and equipment, ROU assets and PDC are disclosed in Notes 4, 5 and 6 respectively.
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