NOTES TO
FINANCIAL STATEMENTS
December 31, 2015
74
CITIC ENVIROTECH LTD.
Annual Report
2015
3 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (cont’d)
(ii)
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at
the end of the reporting period, that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year, are disclosed below.
Environmental engineering contracts
The Group recognises contract revenue based on the stage of completion method. The
stage of completion is measured in accordance with the accounting policy stated in Note 2
to the financial statements. Significant assumptions are required in determining the stage of
completion, the extent of the contract cost incurred, the estimated total contract revenue
and contract cost and the recoverability of the costs. In making the assumptions, the Group
evaluates by relying on past experience and the work of specialists. Management is satisfied
that the recognition of the revenue in the current year is appropriate and in accordance with
the Group’s policy for revenue recognition.
The revenue arising from environmental engineering contracts are disclosed in Note 30.
Service concession arrangements
Where the Group performs more than one service under the concession arrangements, the
consideration for the services provided under the concession arrangements is allocated to the
components by reference to their relative fair values.
Estimation is exercised in determining the fair values of the receivables under service
concession arrangements as well as impairment of the receivables under service concession
arrangements and intangible assets subsequent to initial recognition. Discount rates, estimates
of future cash flows and other factors are used in the determination of the amortised cost of
financial asset and corresponding finance income.
The assumptions used and estimates made can materially affect the fair value estimates.
The carrying amount of the Group’s intangible assets and receivables arising from service
concession arrangements at the end of the reporting period is disclosed in Notes 17 and 8 to
the financial statements respectively.
Determination of functional currency of the entities in the Group
FRS 21 The Effects of Changes in Foreign Exchange Rates requires the Company and the
entities in the Group to determine its functional currency to prepare the financial statements.
When determining its functional currency, the Company and the entities in the Group consider
the primary economic environment in which it operates, i.e. the one in which it primarily
generates and expends cash. The Company and the entities in the Group may also consider
the funding sources. Management applied its judgement and determined that the functional
currency of the Company is Chinese Renminbi (“RMB”).
