Page 51 - Inegrated Annual Report 2020-Eng

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | 31 DECEMBER 2020

Provision for expected credit losses on trade receivables

In measuring the expected credit loss allowance for financial assets measured at amortised cost, management
uses the Expected Credit Loss (ECL) model and assumptions about future economic conditions and credit
behavior such as likelihood of customer defaulting. Management consider the following judgements and
estimates:

• Development of ECL model, including formula and choice of inputs;

• Determining the criteria if there has been a significant increase in credit risk and so allowances for financial
assets should be measured on a lifetime ECL basis and the qualitative assessments;

• The segmentation of financial assets when the ECL is assessed on a collective basis; and

• Determination of associations between macroeconomic scenarios and, economic inputs, and their effect on
probability of default (PDs), exposure at default (EADs) and loss given default (LGD); and

• Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the
economic inputs into ECL models.

The Group recognises lifetime expected credit loss (ECL) for trade and unbilled receivables using the simplified
approach (note 12). As of 31 December 2020, the provision for expected credit losses on trade receivables and
retention receivables amounted to AED 60,318 thousand (2019: AED 49,674 thousand).

Unbilled receivables

Unbilled receivables represent amounts relating to work performed which is yet to be billed to customers.
Unbilled receivables are measured by applying the minimum recoverable rates expected, to the actual quantities
dredged or the related works performed. Management believes that all unbilled receivables are collectible
within twelve months from the reporting date and accordingly the balance is classified under current assets.
Significant judgments are involved in management’s assessment of the amounts of revenue and unbilled
receivables recognised and the recoverability of these amounts. These judgments are reviewed as events occur
and accordingly any changes thereon may have an impact on the amount of revenue recognised and unbilled
receivables in these consolidated financial statements.

The Group receives lump sum payments from certain clients in settlement of outstanding invoices and as
advances for several projects. The allocation of proceeds against invoices and unbilled receivables is determined
based on management’s judgment.
As of 31 December 2020, the provision for expected credit losses on unbilled receivables amounted to AED
46,758 thousand (2019: AED 40,041 thousand).

Useful life of property, plant and equipment and intangible assets

Management assigns useful lives and residual values to the items of property, plant and equipment based
on the intended use of the assets and the expected economic lives of those assets. Subsequent changes in
circumstances such as technological advances or prospective utilization of the assets concerned could result in
the actual useful lives or residual values differing from initial estimates.

The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous
estimates due to physical wear and tear, technical or commercial obsolescence and other limits on the use of
the asset. The revision is based on the technical assessment carried by the Group.

During the year, management has reviewed the residual values and useful lives of the major items of property,
plant and equipment and changed its estimate in respect of the useful life of dredgers from 25 to 18 years, along
with an increase in the estimate of their residual values. This change has been accounted for as a change in
accounting estimate in accordance with the requirements of IAS 8. Accordingly, the effect of this change has
been recognized prospectively in the consolidated statement of profit or loss.

2020 Integrated Annual Report 51