KINGSMEN CREATIVES LTD
ANNUAL REPORT
2014
45
2.
Summary of significant accounting policies (cont’d)
Basis of preparation of the financial statements
The preparation of the financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.
The estimates and assumptions are reviewed on an ongoing basis. Apart from those involving estimations and
assumptions, management has made judgements in the process of applying the Group’s accounting policies. The
areas requiring management’s subjective or complex judgements, or areas where estimates and assumptions are
significant to the financial statements, are disclosed at the end of this note to the financial statements.
Revenue recognition
The revenue amount is the fair value of the consideration received or receivable from the gross inflow of economic
benefits during the reporting period arising from the course of the activities of the Group and it is shown net of any
related sales taxes and rebates.
•
Revenue from construction contracts is recognised in accordance with the accounting policy on construction
contracts (see next note below).
•
Revenue from sale of goods is recognised when significant risks and rewards of ownership are transferred to the
buyer, there is neither continuing managerial involvement to the degree usually associated with ownership nor
effective control over the goods sold, and the amount of revenue and the costs incurred or to be incurred in respect
of the transaction can be measured reliably.
•
Revenue from rendering of services that are not significant transactions is recognised as the services are provided
or when the significant acts have been completed.
•
Rental revenue is recognised on a time-proportion basis that takes into account the effective yield on the asset on
a straight-line basis over the lease term.
•
Interest income is recognised using the effective interest method.
•
Dividend income from equity instruments is recognised when the Group’s right to receive payment is established.
Construction contracts
The Group principally operates fixed price contracts. Contract revenue and contract costs are recognised as revenue
and expenses respectively by reference to the stage of completion of the contract activity at the end of the reporting
period (the “percentage of completion method”), when the outcome of a construction contract can be estimated
reliably. Contract revenue corresponds to the initial amount of revenue agreed in the contract and any variations in
contract work, claims and incentive payments to the extent that it is probable that they will result in revenue; and
they can be reliably measured. Contract costs include costs that relate directly to the specific contract and costs that
are attributable to contract activity in general and can be allocated to the contract.
The outcome of a construction contract can be estimated reliably when: (i) total contract revenue can be measured
reliably; (ii) it is probable that the economic benefits associated with the contract will flow to the Group; (iii) the
costs to complete the contract and the stage of completion can be measured reliably; and (iv) the contract costs
attributable to the contract can be clearly identified and measured reliably so that actual contract costs incurred can
be compared with prior estimates.
When the outcome of a construction contract cannot be estimated reliably (principally during early stages of a
contract), contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable
and contract costs are recognised as expenses in the period in which they are incurred.
An expected loss on the construction contract is recognised as an expense immediately when it is probable that total
contract costs will exceed total contract revenue.
In applying the percentage of completion method, the stage of completion is measured by reference to certification
of value of work performed to date. Where there is no certification of value available, the stage of completion is
based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract
costs.
Notes to the Financial Statements
31 December 2014
