DEFINING DESIGN
QUALITY
94
Notes to the Financial Statements
31 December 2014
34.
Contingent liabilities
The Group has provided corporate guarantees to banks amounting to $27,834,000 (2013: $20,415,000) in connection
with banking facilities granted to its subsidiaries.
35.
Other matters
As reported in the financial statements for the reporting year ended 31 December 2012, a Settlement Agreement
dated 20 December 2010 (“Settlement Agreement”) was executed between a subcontractor and its business affiliate
and Kingsmen Exhibits Pte Ltd (“KE”) (a wholly owned subsidiary of the Company) which involved the subcontractor
assuming the repayment of a prepaid amount of $2,756,000made by KE to its business affiliate in respect of a project.
It was subsequently discovered that up to two employees of KE may have possibly provided personal guarantees
to the subcontractor for the project. When the personal guarantees were viewed together with the Settlement
Agreement, it would appear that some of the costs of the previously completed projects were under-recognised.
On 10 January 2013, KE had, on the advice of its professionals, entered into a subsequent Settlement Agreement
(“2013 Settlement Agreement”) with the subcontractor for the resolution of certain disputes relating to the value of
work done for the above project which was completed as of 31 December 2010.
Management had therefore reassessed the value of the works done and ascertained that a prepaid amount of
$2,756,000 could not be recovered. In prior years, $1,300,000 of the prepaid amount of $2,756,000 had been written
off to the consolidated income statement due to management being unsure of a full recovery of the prepaid amount.
Pursuant to the 2013 Settlement Agreement, KE paid a settlement sum of $765,000 to the subcontractor and also
wrote off a net sum of $691,000 which was sought to be recovered from the subcontractor. The financial impact
of $1,456,000 in relation to the aforesaid matter was adjusted for in the financial statements for the reporting year
ended 31 December 2012.
In connection with the aforesaid matter, the Audit Committee of the Company lodged a police report with the
Commercial Affairs Department (“CAD”) on 18 January 2013. As at the date the board of directors approved and
authorised these financial statements for issue, the Company is unable to ascertain the progress and outcome of the
investigation by the CAD and whether any findings that may arise from such investigation would result in any impact
on the financial statements of the Group.
36.
Event after the end of the reporting year
Subsequent to the end of the reporting year, the Company’s indirect wholly owned subsidiary, K-Fix Production
Sdn Bhd completed the purchase of a property located at Geran 237182 Lot 2592 in the Mukim Senai, District of
Kulaijaya, State of Johor, Malaysia in January 2015. The purchase consideration of MYR 35,000,000 was funded
through internal resources of the Group and bank borrowings.
37.
Changes in accounting policies
The accounting policies adopted are consistent with those of the previous reporting year except that in the current
reporting year, the Group has adopted all the new and revised FRS and INT FRS that are effective for annual periods
beginning on or after 1 January 2014. The adoption of these FRS and INT FRS did not result in any substantial change
to the Group’s accounting policies and has no significant impact on the financial statements for the current reporting
year except as discussed below:
FRS 110 Consolidated Financial Statements replaces the control assessment criteria and consolidation requirements
previously in FRS 27 Consolidated and Separate Financial Statements and INT FRS 12 Consolidation - Special Purpose
Entities. FRS 110 defines the principle of control and establishes control as the basis for determining which entities
are consolidated in the consolidated financial statements. It also provides more extensive application guidance on
assessing control based on voting rights or other contractual rights. Under FRS 110, control assessment will be based
on whether an investor has (i) power over the investee; (ii) exposure, or rights, to variable returns from its involvement
with the investee; and (iii) the ability to use its power over the investee to affect the amount of the returns.
The Group made an assessment as at the date of initial application of FRS 110 (i.e. 1 January 2014) as to whether or not
it has control over Kingsmen Middle East LLC in accordance with the definition of control and the related guidance
set out in FRS 110. The Group concluded that it has control over Kingsmen Middle East LLC, which was previously
accounted for as a 25% associate of the Group using the equity method of accounting. Although the Group does
not own more than half of the voting power of the company, it is able to govern the financial and operating policies
of Kingsmen Middle East LLC by virtue of agreements with other shareholders of the company. The nature of these
agreements results in the Group having the power over Kingsmen Middle East LLC’s variable returns. The effective
beneficial interest of the Group in Kingsmen Middle East LLC is assessed to be 55.51%. Therefore, in accordance
with the requirements of FRS 110, Kingsmen Middle East LLC was accounted for as a subsidiary of the Group in the
current reporting year with its financial statements consolidated with those of the Group.
With the adoption of FRS 110, the effects of the change in accounting treatment of Kingsmen Middle East LLC are
to be applied retrospectively. However, as the effect of the adoption is not material to the comparative figures, no
restatement of comparative figures has been made.
