NOTES TO
FINANCIAL STATEMENTS
December 31, 2015
75
CITIC ENVIROTECH LTD.
Annual
Report
2015
3 CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION
UNCERTAINTY (cont’d)
(ii)
Key sources of estimation uncertainty (cont’d)
Impairment allowances for loans and receivables
Loans and receivables are carried at amortised cost using the effective interest method, less
any identified impairment losses. Appropriate allowances for estimated irrecoverable amounts
are recognised in profit or loss when there is objective evidence that the asset is impaired.
In making the estimation, management considered the procedures that have been in place to
monitor this risk as a significant proportion of the Group’s working capital is devoted to trade
receivables. In determining whether allowance for bad and doubtful debts is required, the
Group takes into consideration the aging status and the likelihood of collection. Following
the identification of doubtful debts, the responsible engineering personnel discusses with
the relevant customers and report on the recoverability of such debts. Specific allowance is
only made for receivables that are unlikely to be collected. In this regard, management is
satisfied that adequate allowance for doubtful debts has been made in the financial statements
in light of the historical records of the Group. The carrying amounts of loans and receivables
at the end of the reporting period are disclosed in Notes 7, 8 and 9 to the financial statements
respectively.
Classification between financial assets and/or intangible asset under INT FRS 112
Service
Concession Arrangements
The Group recognises the consideration received or receivable in exchange for the
construction services as a financial asset and/or an intangible asset under public-to-private
concession arrangement. However, if the Group is paid for the construction services partly
by a financial asset and partly by an intangible asset, it is necessary to account separately for
each component of the operator’s consideration. The consideration received or receivable for
both components shall be recognised initially at the fair value of the consideration received or
receivable.
The segregation of the consideration for a service concession arrangement between the
financial asset component and the intangible asset component, if any, requires the Group to
make an estimate of a number of factors, which include, inter alia, fair value of the construction
services, expected future sewage treatment volume of the relevant sewage treatment plant
over its service concession period, future guaranteed receipts and unguaranteed receipts, and
also to choose a suitable discount rate in order to calculate the present value of those cash
flows. These estimates are determined by the Group’s management based on their experience
and assessment on current and future market conditions.
The carrying amount of the service concession receivables and intangible assets at the end of
the reporting period is disclosed in Notes 8 and 17 respectively to the financial statements.
Useful lives of property, plant and equipment
As described in Note 2 to the financial statements, the Group reviews the estimated useful
lives of property, plant and equipment at the end of each annual reporting period. During
the financial year, management is satisfied that there is no change in the useful lives of the
property, plant and equipment from prior year. The carrying amounts of property, plant and
equipment at end of the reporting period are disclosed in Note 15 to the financial statements.
