BAKERTECHNOLOGYLIMITED
ANNUALREPORT2013
96
Notes to the
Financial Statements
for the financial year ended 31December 2013
2.
Summaryof significantaccounting policies (cont’d)
2.18
Leases (cont’d)
(a)
As lessee
Operating lease payments are recognised as an expense in the profit or loss on a straight-line basis over lease term. The
aggregate benefit of incentives providedby the lessor is recognised as a reductionof rental expense over the lease term
on a straight line basis.
(b)
As lessor
Leaseswhere theGroup retains substantiallyall the risks and rewardsof ownershipof theasset are classifiedasoperating
leases. Initial direct costs incurred innegotiatinganoperating leaseareadded to the carryingamount of the leasedasset
and recognised over the lease term on the same bases as rental income. The accounting policy for rental income is set
out inNote 2.19(b)(v). Contingent rents are recognised as revenue in the period inwhich they are earned.
2.19
Construction contracts and revenue
(a)
Construction contracts
TheGroupprincipally operates fixedprice 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 completionmethod), when the outcome of a construction contract can be estimated reliably.
The outcome of a construction contract canbe estimated reliablywhen:
(i) total contract revenue can bemeasured reliably;
(ii) it is probable that the economic benefits associatedwith the contract will flow to the entity;
(iii) the costs to complete the contract and the stage of completion can bemeasured reliably; and
(iv) the contract costs attributable to the contract can be clearly identified andmeasured reliably so that actual
contract costs incurred can be comparedwithprior estimates.
When theoutcomeof a construction contract cannot beestimated reliably (principallyduringearly stages of a contract),
contract revenue is recognisedonly to the extent of contract costs incurred that are likely tobe recoverable and contract
costs are recognised as expense in the period inwhich they are incurred.
An expected loss on the construction contract is recognised as an expense immediately when it is probable that total
contract costswill exceed total contract revenue.
In applying the percentage of completion method, revenue recognised corresponds to the total contract revenue (as
defined below) multiplied by the actual completion rate based on the proportion of total contract costs (as defined
below) incurred to date to the estimated costs to complete.
Contract revenue – Contract revenue corresponds to the initial amount of revenue agreed in the contract and any
variations in contractwork, claims and incentivepayments to theextent that it isprobable that theywill result in revenue;
and they can be reliablymeasured.
Contract costs –Contract costs include costs that relatedirectly to the specific contract and costs that are attributable to
contract activity in general and can be allocated to the contract.
