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Notes to the
financial statements
For the financial year ended 31 December 2018
88
B A K E R T E C H N O L O G Y
L I M I T E D
2.
Summary of significant accounting policies (cont’d)
2.14
Impairment of financial assets (cont’d)
For trade receivables and contract assets, the Group applies a simplified approach in calculating
ECLs. Therefore, the group does not track changes in credit risk, but instead recognises a loss
allowance based on lifetime ECLs at each reporting date. The Group has established a provision
matrix that is based on its historical credit loss experience, adjusted for forward-looking factors
specific to the debtors and the economic environment.
For debt instruments at fair value through OCI, the Group applies the low credit risk simplification.
At every reporting date, the Group evaluates whether the debt instrument is considered to have
low credit risk using all reasonable and supportable information that is available without undue
cost or effort. In making that evaluation, the Group reassesses the internal credit rating of the debt
instrument. In addition, the Group considers that there has been a significant increase in credit risk
when the contractual payments are more than 30 days past due.
The Group considers a financial asset in default when contractual payments are 90 days past due.
However, in certain cases, the Group may also consider a financial asset to be in default when
internal or external information indicates that the Group is unlikely to receive the outstanding
contractual amounts in full before taking into account any credit enhancements held by the Group.
A financial asset is written off when there is no reasonable expectation of recovering the contractual
cash flows.
2.15
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, and short-term, highly liquid
investments that are readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value. These also include bank overdrafts that form an integral part
of the Group’s cash management.
2.16
Inventories
Inventories, which are made up of mainly materials, bunkering stocks, components and spares, are
stated at the lower of cost and net realisable value. Costs incurred in bringing the inventories to
their present location and condition are accounted for as follows:
–
Raw materials: purchase costs on a weighted average method.
–
Bunkering stocks: purchase costs on a first-in, first-out method.
–
Work-in-progress: costs of direct materials and labour and a proportion of manufacturing
overheads based on normal operating capacity.
Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the
carrying value of inventories to the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated
costs of completion and the estimated costs necessary to make the sale.