Notestothefinancialstatements
For the financial year ended31December 2015
3.
Significant accounting judgementsandestimates (cont’d)
3.2
Keysourcesof estimationuncertainty
Thekey assumptions concerning the futureandother key sourcesof estimationuncertainty at theendof each reportingperiodarediscussedbelow. TheGroup
based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about
futuredevelopments, however,may changedue tomarket changesor circumstancesarisingbeyond thecontrol of theGroup. Suchchangesare reflected in the
assumptionswhen they occur.
(a)
Impairment of non-financial assets
An impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value
less costs to sell and its value in use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s
length transactionof similarassetsorobservablemarket prices less incremental costs fordisposing theasset. The value inusecalculation isbasedona
discounted cash flowmodel. The cash flows arederived from thebudget for thenext five years anddonot include restructuring activities that theGroup
isnot yet committed toor significant future investments thatwill enhance theasset’sperformanceof the cashgeneratingunit being tested.
Impairment of goodwill
Asdisclosed inNote11 to the financial statements, the recoverableamount of thecashgeneratingunit isdeterminedbasedon value inusecalculations.
The value in use calculations are based on a discounted cash flowmodel. The recoverable amount ismost sensitive to the discount rate used for the
discountedcash flowmodel aswell as theexpected futurecash inflowsand thegrowth rateused forextrapolationpurposes. Thekeyassumptionsapplied
in thedeterminationof the value inuse includinga sensitivity analysisaredisclosedand further explained inNote11 to the financial statements.
The carryingamount of goodwill asat 31December 2015 is$7,551,000 (2014: $7,551,000).
(b)
Contract revenue
The Group recognises contract revenue by reference to the stage of completion of the contract activity at the end of each reporting period, when the
outcome of a construction contract can be estimated reliably. The stage of completion ismeasured by reference to the proportion that contract costs
incurred forworkperformed to date bear to the estimated total contract costs. Significant assumptions are required to estimate the total contract costs
and the recoverable variation works that will affect the stage of completion. The estimates aremade based on past experience and knowledge of the
projectengineers.Forproject inprogress,allowance for foreseeable losses ismadewhen thecontract revenuehas fallenbelowcontractcost.Thecarrying
amountsof assetsand liabilitiesarising from construction contractsat thebalance sheet datearedisclosed inNote15 to the financial statements.
If theestimated total contract cost of themajor ongoingprojectshadbeen 5%higher thanmanagement’s estimates, the carryingamounts of theassets
and liabilitiesarising fromconstructioncontractswouldhavebeen$119,000 (2014: $3,078,000) lower and$278,000 (2014: $614,000) higher, respectively.
3.
Significant accounting judgementsandestimates (cont’d)
3.2
Keysourcesof estimationuncertainty (cont’d)
(c)
Provisions
The provision for warranty is based on estimates from known and expected warranty work and contractual obligation after project completion. The
warranty expense incurred couldbehigher or lower than theprovisionmade. Theprovision forwarranty amountsaredetailed inNote20.
(d)
Estimationof net realisablevalue forwork-in-progress
Work-in-progress is statedat the lower of cost andnet realisable value (NRV).
NRV in respect of thework-in-progress is assessedwith reference tomarket prices at the reportingdate for similar completedLiftboats less estimated
costs to complete construction and less an estimate of the time value ofmoney to the date of completion. The carrying amount of thework-in-progress
statedat cost asat 31December 2015was$47,114,000 (2014: $9,066,000).
(e)
Useful lifeof vessel design
The vessel design is amortised on a straight-linebasis over its estimateduseful life.Management estimates theuseful life of the vessel design tobe 10
years. Thecarryingamountof thevessel design issetout inNote11.Changes in theexpected level ofusageand technological developmentscould impact
the economic useful life and the residual value of the asset; therefore future amortisation charges could be revised. If the estimated useful life of the
vessel design increaseby 5 years, the carryingamount of the vessel designwould increaseby$244,000 (2014: $Nil).
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BAKERTECHNOLOGYlimited
ANNUAL REPORT 2015
