ASC PTY LTD
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -CONTINUED
For the year ended 30 June 2019
The Group makes estimates, judgements and assumptions concerning the future. These estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the Group and that are believed to be reasonable under the circumstances.
Key sources of estimation uncertainty
Revenue and profit recognition
The consolidated entity undertakes a number of long term construction and service contracts. Accounting for these contracts requires a number of assumptions and estimates to be made in relation to the stage of completion and expected outcome of the contract.
The majority of the Group's contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts. For contracts with multiple performance obligations, the Group allocates the contract's transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.
The Group has an Estimate at Completion (EAC) process in which management reviews the progress and execution of our performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and opportunities and the related changes in estimates of revenues and costs. The risks and opportunities include management's judgment about the ability and cost to achieve the schedule, technical requirements and other contract requirements.
Due to the nature of the work required to be performed on many of our performance obligations, the estimation of total revenue and costs at completion is complex, subject to variables and requires significant judgment. It is common for some of our long term contracts to contain performance fees, incentive fees or other provisions that can either increase or decrease the transaction price. These variable amounts are generally awarded upon achievement of certain performance metrics, program milestones or cost targets and can be based upon customer discretion. We estimate transaction price to the extent it is probable that a significant reversal of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is resolved. Our estimate of variable consideration and determination to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.
Contract modifications are routine in the performance of the Group's contracts. Contracts are sometimes modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct and are accounted for as part of the existing contract.
The Group recognises revenue predominantly over time as the Group performs because of the continuous transfer of control to the customer, using costs incurred to date relative to total estimates costs at completion (EAC) to measure progress towards satisfying our performance obligations. Incurred costs represent work performed which corresponds with and best depicts the transfer of control to the customer. Contract costs include labour, material and subcontractor costs and overhead.
Forecasts of costs to complete the construction of the three AWDs are undertaken quarterly as part of the contractual requirements of ABTIA. As at June 2014, management's forecasts of costs to complete the three AWDs indicated that it was probable that total costs related to the contract will exceed total contract revenues which would cause ASC to incur a loss pursuant to ABTIA. The estimated loss was recognised in the 2013/14, 2014/15, 2016/17 and 2017/18 financial years in line with AASB 111 Construction Contracts. As at 30 June 2019, the expected loss has been reviewed in the current period based on management's most recent forecast and new accounting standard AASB 15 Revenue from Contracts with Customers.
The provision for the loss is based on estimates which will be revised as the contract proceeds. If the future estimates or outcome of the long term construction contract differs from earlier estimates this will impact future period financial results. For example, if there was a material change to the estimate of future production hours, compensation for design change, lengthening of the expected construction schedule or other funds are allocated to the project there could be a material impact on the financial outcome of the contract and accordingly the estimated loss or profit of the project would change. Any future changes to estimates of contract revenue or contract costs resulting in a change to the estimated loss or profit of the project will be accounted for as a change in accounting estimate and recognised in the period those changes occur.
Net pension assets / liabilities
The ASC Superannuation Fund engaged the services of an independent consulting actuary for the purpose of the ASC Superannuation Fund asset and liability valuation as at 30 June 2019. The "projected unit credit method" has been used for this valuation in accordance with AASB 119 Employee Benefits. Based on the independent actuarial assessment, the value of net pension asset as at 30 June 2019 is $760,000 (2018: $620,000). If there are events that differ from the estimates and assumptions made at balance date, such differences will impact the Net Pension Assets/Liabilities provision in future periods.