Investor Presentaiton
HKAS 1.51(a)
HKAS 1.49
HKFRS 15.116(a)
HKFRS 15.117-118
HK Listco Ltd
Financial statements for the year ended 31 December 2023
20 CONTRACT ASSETS AND CONTRACT LIABILITIES
20
(a) Contract assets
HKFRS 15.116(a)
207
HKFRS 15.107-108
208
HKFRS 15.117
HKFRS 15.118
2023
2022207
$'000
$'000
Contract assets 208
Arising from performance under construction contracts
Arising from performance under made-to-order
manufacturing arrangements
1,478
14,553
9,073
8,785
10,551
23,338
Receivables from contracts with customers within the
scope of HKFRS 15, which are included in "Trade and
other receivables" (note 21(a))208
69,358
55,287
Typical payment terms which impact on the amount of contract assets recognised are as follows:
Construction contracts
The group's construction contracts include payment schedules which require stage payments
over the construction period once milestones are reached. These payment schedules prevent the
build-up of significant contract assets. New contract terms introduced in 2023 which a 20%
deposit is payable upfront (see note 1(aa)(i)(c)) has resulted in a contract liability at early stages
of the projects and a significant decrease in the contract asset balance at any given time
thereafter, compared to previous periods 209. However, the group also typically agrees to a one
year retention period for 5% of the contract value. This amount is included in contract assets
until the end of the retention period as the group's entitlement to this final payment is
conditional on the group's work satisfactorily passing inspection 210
209
HKFRS 15 requires entities to disclose the opening and closing balances of receivables, contract assets and contract liabilities from
contracts with customers if they are not otherwise separately disclosed or presented.
HKFRS 15 makes a distinction between contract assets and receivables based on whether the right to the consideration for the
performance completed up to date is unconditional or not. If the right to the consideration is unconditional, then this right should
be presented as a receivable. A right to consideration is unconditional if only passage of time is required before payment of that
consideration is due. This principle is illustrated in Examples 38 to 40 found in paragraphs IE197 to IE208 in the Illustrative Examples
accompanying HKFRS 15. If the right to the consideration is conditional on something other than the passage of time, e.g. an
entity's future performance, then such right should be presented as a contract asset.
If an entity has an unconditional right to receive consideration from a customer before it has transferred goods and services, then in
addition to recognising a receivable the entity would recognise a contract liability to reflect the entity's outstanding obligation to
transfer goods or services. A contract liability would also be recognised, rather than a payable, if the entity has received a non-
refundable deposit ahead of transferring goods or services.
HKFRS 15 requires entities to explain how the timing of satisfaction of their performance obligations relates to the typical timing of
payment and the effect that those factors have on the contract asset and contract liability balances. Paragraph 117 of HKFRS 15
states that the explanation provided may use qualitative information.
In addition, entities are required to explain, qualitatively and quantitatively, any significant changes in contract assets and liabilities
balances during the period. The following non-exhaustive list of items should be disclosed, if significant:
. changes due to business combinations;
•
•
•
•
cumulative catch-up adjustments to revenue that affect the corresponding contract asset or contract liability, including
adjustments arising from a change in the measure of progress;
a change in an estimate of the transaction price (including any changes in the assessment of whether an estimate of variable
consideration is constrained) or a contract modification;
impairment of a contract asset;
a change in the time frame for a right to consideration to become unconditional (i.e. for a contract asset to be reclassified to a
receivable); and
a change in the time frame for a performance obligation to be satisfied (i.e. for the recognition of revenue arising from a
contract liability).
The approach taken will depend on the fact and circumstances of the entity. For example, in this illustration, HK Listco has provided
information explaining the significant fall in the contract asset balance for construction contracts in the narrative notes which
explains the link between the payment terms and the contract assets and contract liabilities, as the change arose from a change in
HK Listco's typical payment terms.
131
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