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Notes to the Financial Statements 2018
1. Statement of accounting policies continued
The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. Revenue derived from sources other than construction contracts will continue to be recognised at a point in time. Revenue earned through construction contracts will continue to be recognised over time; principally using an input method. The Group has the current intention to adopt NZ IFRS 15 using the retrospective approach. The following matters are relevant to the Group under NZ IFRS 15: Construction i) Performance obligations • The Group has assessed construction contracts to identify performance obligations to be delivered to customers. The assessment completed did not identify any construction contracts which required the unbundling of multiple performance obligations and as such under the adoption of NZ IFRS 15 there will not be a material impact on the recognition of revenue with existing contracts. ii) Variable consideration • Where revenue recognised is not stipulated within the contract and therefore variable in nature, the Group estimates the amount of revenue to which it is entitled. Under NZ IFRS 15 variable consideration is recognised to the extent that it is highly probable not to result in a significant reversal in future periods. The adoption of NZ IFRS 15 will not have a material impact on the recognition of revenue within existing contracts. iii) Pre-contract costs • NZ IAS 11 previously allowed, in certain circumstances, for the capitalisation of expenditure incurred in securing a contract. NZ IFRS 15 restricts the capitalisation of such costs to those that it would not have incurred if the contract had not been obtained. At 30 June 2018, the Group had costs capitalised of $2 million that would be expensed under NZ IFRS 15. iv) Loss making contracts • Loss making contracts will now be accounted for under NZ IAS 37 rather than under NZ IAS 11. This will not have an impact on the Group’s recognition of revenue. Residential i) Recognition • NZ IFRS 15 requires the recognition of revenue when the customer obtains control of a good or a service, instead of when risks and rewards transfer under NZ IAS 18. NZ IFRS 15 leads to a change in timing of recognition for residential house sales, such that revenue from the sale of housing inventory is recognised at a point in time when control has passed to the customer (generally when title has passed). At 30 June 2018, the Group recognised $88 million of revenue and $20 million of EBIT from housing sales that would not be recognised under NZ IFRS 15. At 30 June 2017, the Group recognised $47 million of revenue and $13 million of EBIT from housing sales that would be recognised in the year ended 30 June 2018 under NZ IFRS 15.
Construction Contracts Earnings on construction contracts (including sub-contracts) are determined using the percentage-of-completion method. Earnings on construction contracts (including sub-contracts) are determined using the percentage-of-completion method. Earnings are not recognised until the outcome of the contract can be reliably estimated. The Group uses its professional judgement to assess both the physical completion and the forecast financial result of the contract. When a contract is identified as loss-making, a provision is immediately made for estimated future losses on the entire contract (refer to Note 13). Changes in accounting policies The following sets out the new accounting standards and amendments to standards that were applicable to the Group from 1 July 2017. NZ IFRS 9 Financial Instruments NZ IFRS 9 replaces the provisions of NZ IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The impact of adopting NZ IFRS 9 is summarised below: • NZ IFRS 9 introduces new classification and measurement requirements for financial assets and liabilities that are within the scope of NZ IAS 39. There have been no changes to the classification or carrying amounts of financial assets and financial liabilities in the statement of financial position under NZ IFRS 9. • • The hedge accounting rules in NZ IFRS 9 align hedge accounting more closely with the Group’s risk management activities and allows for the hedging of aggregated exposures. The effectiveness test has been replaced with the principle of establishing an economic relationship between the hedging instrument and hedged item rather then applying the bright line test that existed under NZ IAS 39. The adoption of NZ IFRS 9 did not result in significant changes to the Group’s hedge accounting relationships as at 1 July 2017. The Group has elected to apply the hedge accounting requirements on a retrospective basis from the date of initial application where permitted under NZ IFRS 9. • The NZ IFRS 9 impairment requirements are based on an expected credit loss model, replacing the incurred loss methodology under NZ IAS 39. The Group has applied the simplified approach for trade and other receivables, A number of new standards, amendments and interpretations have been issued by the International Accounting Standards Board and the External Reporting Board in New Zealand that are not yet effective and have not been early adopted by the Group. Those which may be relevant to the group are set out below: NZ IFRS 15 Revenue from Contracts with Customers NZ IFRS 15 ‘Revenue from Contracts with Customers’ replaces NZ IAS 18 Revenue and NZ IAS 11 Construction Contracts and is effective for the Group from the period beginning 1 July 2018. with the impact of NZ IFRS 9 being immaterial. Standards not yet effective or early adopted
60 Fletcher Building Limited Annual Report 2018
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