Baker Technology Limited
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75
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Key auditmatters (cont’d)
Determination of net realisable value of the liftboat
As disclosed inNote 11, in2014 theGrouphad acquired a vessel design and theGroup commenced the construction
of a liftboatwith the intention to sell tocustomers in theoil andgas industry.Thecarryingamount of thevessel design
is disclosed inNote 11 and the cost of the construction of the liftboat is included inwork in progress inNote 16.
In accordance with FRS 2
Inventories
, the Group recognised the liftboat at the lower of cost and net realisable
value. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs for
completion and the estimated costs necessary tomake the sale. Further, the net realisable value of the liftboat has
an impact onmanagement’s assessment of the vessel design capitalised as an intangible asset as they are related.
As disclosed in Note 3.2(b), due to the uncertainty in oil prices, the oil and gas industry has been affected by
delays in rigs and vessel deliveries, resulting in significant pressures on the contract rates, which may have a
bearing on the net realisable value.We have identified this as a key audit matter as themanagement’s process of
determining the net realisable value is complex and involved management exercising significant judgement and
making assumptions.
We evaluated the reasonableness of the net realisable value of the liftboat determined by the management by
obtaining an understanding of the specifications of the liftboat and considered themarket analyst reports.We also
discussedwithour internal industry sector andvaluation specialists toobtainunderstandingof the liftboat business.
We compared the net realisable value to recent selling prices in themarket and performed sensitivity analysis by
considering thedifferent specificationsof the liftboats in themarket.Weconsidered theadequacyof thedisclosures
related to the liftboat and vessel design inNotes 3, 11 and 16 to the consolidated financial statements.
Independent
auditor’s report
For the financial year ended 31 December 2016
