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Low value assets costing less than $1,000 individually arewritten off to the profit and loss account.Construction-in-progress is not depreciated until each stageof development is completed and becomes operational.(G) STOCKS AND WORK-IN-PROGRESSStocks are stated at the lower of cost (principally on thefirst-in, first-out basis) and net realisable value. Provisionis made for deteriorated, damaged, obsolete and slowmovingstocks.Work-in-progress is valued at cost less progress paymentsreceived and receivable. Cost includes all direct materialand labour costs, equipment and sub-contracting services,together with appropriate overhead expenses exceptfor work-in-progress of a developmental nature whereproduction overheads are expensed as incurred.Provision for anticipated losses on uncompleted contractsis made in the year in which such losses are determined.(H) INCOME RECOGNITIONIncome is recognised using the following methods:(i) Income from sale of goods and services rendered isrecognised upon delivery of goods/services and acceptanceby customers.Where goods and services are supplied under a long-termcontract, profit is recognised as and when goods and services,representing part of a contract, are delivered, completedand billed. Provision for foreseeable losses on uncompletedcontracts is made as soon as such losses are determinable.(ii) Income from long-term contracts is recognised onthe percentage of completion method.The stage of completionis measured by the proportion of costs incurredto estimated total costs to complete the contracts and isrestricted by progress billings received or receivable.Losses, if any, are recognised immediately when theirexistence is foreseen.(iii) Income on shipbuilding, rebuild, repair, engineering,overhaul and service work is recognised when thework is completed and billed. Provision is made formaterial losses anticipated on uncompleted contracts.(iv) Dividend income is recognised on the receipt basisexcept for dividend income from subsidiaries and associatedcompanies which is recognised when the dividendsare proposed.(v) Management fee income is recognised on an accrualbasis upon which management services are renderedand billed.(vi) For certain subsidiaries, the first 25 percent of thetotal commission receivable for each contract is treatedas downpayment and is deferred and taken up in theprofit and loss account only upon the completion ofthe contract. Commission income in respect of eachcontract in excess of the first 25 percent of the totalamount receivable is taken up in the profit and lossaccount as and when it is billed.(vii) Any surplus arising from amounts under fund managementcan only be determined at the end of the relevantfund management period. Such surplus, if any, willbe recognised as income then.(viii) Finance charges from hire purchase financing isrecognised based on sum of digits method over thefinance period.(I) MEMBERSHIP RIGHTSTransferable corporate club memberships are stated at cost.Provision for diminution in value is made when in the opinionof the directors, there has been a decline, other thantemporary, in the value of the membership rights.(J) WARRANTIESProvision for warranty claims is made on the basis ofestimated cost to fulfil warranty obligations.(K) LIQUIDATED DAMAGESProvision for liquidated damages is made in respect ofimminent claims from customers on contracts of whichdeadlines are overdue or not expected to be completedon time in accordance to contractual obligations.(L) ENVIRONMENTAL LIABILITIESEnvironmental expenditures related to existing conditionsresulting from past or current operations and fromwhich no current or future benefit is discernible areexpensed as incurred. Expenditures which extend the lifeof the related property or mitigate or prevent futureenvironmental contamination are capitalised.Environmental liabilities are recorded at the time when itis probable and can be reasonably estimated.(M) BAD AND DOUBTFUL DEBTSKnown bad debts are written off. Specific provisions aremade for accounts considered to be doubtful. In addition,an amount is set aside as a general provision for doubtfuldebts to cover potential losses which, although not separatelyidentified, can be present in any portfolio of debtors.(N) DEFERRED TAXATIONDeferred taxation is provided using the liability methodon all material timing differences resulting from thedifferent treatment of certain items for accounting andtaxation purposes. Deferred tax benefits are, however,recognised only when there is a reasonable expectation oftheir realisation.(O) FOREIGN CURRENCY TRANSLATION(i) The accounting records of the companies in the Groupare maintained in their respective functional currencies.Transactions in foreign currencies during the financialyear are recorded in the respective functional currenciesusing exchange rates approximating those ruling attransaction dates.(ii) Monetary assets and liabilities in foreign currencies,except for foreign currency assets and liabilities hedgedby forward exchange contracts, are translated into therespective functional currencies at rates of exchangeapproximating those ruling at the balance sheet date.Foreign currency assets and liabilities hedged by forwardexchange contracts are translated into the respectivefunctional currencies at the contracted forward exchangerates. All resultant exchange differences are dealt withthrough the profit and loss account.(P) RESEARCH AND DEVELOPMENT EXPENDITUREResearch and development expenditure is charged to theprofit and loss account as and when incurred.(Q) HIRE PURCHASE AND FINANCE LEASES(i) Assets acquired on hire purchase arrangements arecapitalised in the financial statements and the correspondingobligation treated as a liability.The total interest,being the difference between the total instalmentspayable and the capitalised amount, is charged to the3. SHARE CAPITALprofit and loss account over the period of such hire purchasearrangements in equal monthly instalments to producea constant rate of charge on the balance of capitalrepayments outstanding.(ii) Finance leases are those leasing agreements that giverights and obligations approximating to ownership. Assetsfinanced under such leases are treated as if they had beenpurchased outright at the present value of the minimumlease payments and the corresponding leasing commitmentsare shown as obligations to the lessors. Lease paymentsare treated as consisting of capital and interestelements and the interest is charged to the profit and lossaccount over the period of the lease to produce a constantrate of charge on the balance of capital repaymentsoutstanding. All other leases are operating leases and theannual rentals are charged to the profit and loss accountas and when incurred.(iii) Assets acquired on hire purchase and finance leasearrangements are depreciated in accordance with thepolicy set out in (F) above.(R) GOVERNMENT GRANTSGrants in recognition of specific expenses are taken toincome in the same year as the relevant expenses.Similarly, grants related to depreciable assets areallocated to income over the period in which suchassets are depreciated and used in the projects subsidisedby the grants.(S) SEGMENTSFor management purposes, the Group is organised on aworld-wide basis into four major operating businesseswhich is the basis on which the Group reports its primarysegment information.Segment revenue, expenses and results include transfersbetween business segments and between geographicalsegments. Such transfers are accounted for on an arm’slength basis.GROUP AND COMPANY2000 1999$’000 $’000Authorised:4,999,999,999 ordinary shares and 1 special share of $0.10 each 500,000 500,000Issued and fully paid:2,855,694,045 (1999: 2,838,689,213) ordinary shares and 1 special share of $0.10 each 285,569 283,869128 • visionnotes to the financial statements • 129