FGV Audited Financial Statements 2020

3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (t) Revenue recognition (continued) (i) Revenue from contracts with customers (continued) Sales with a right of return When the customer has a right to return the goods within a given period, the Group is obliged to refund the purchase price. Revenue is adjusted for the expected value of the returns and cost of sales were adjusted for the value of the corresponding goods expected to be returned. A refund liability for the expected refunds to customers is recognised as adjustment to revenue and correspondingly in trade and other payables. At the same time, the Group has a right to recover the goods from the customer where the customer exercises his right of return and recognises a refund asset and a corresponding adjustment to cost of sales The refund asset is measured by reference to the former carrying amount of the product. Accumulated experience is used to estimate such returns at the time of sale at a portfolio level using the expected value method. Because the number of goods returned has been steady for years, management assessed that it is highly probable that a significant reversal in the cumulative revenue recognised will not occur. The validity of this assumption and the estimated amount of returns are reassessed at each reporting date. Expected volume rebates/incentives Certain goods may be sold with volume rebates/incentives comprising distribution incentive, insurance rebate, distribution rebate and special sales incentives. Revenue from these sales is recognised based on the price specified in the contract, net of the estimated volume rebates/incentives. Accumulated experience is used to estimate and provide for the rebates/incentives, using the expected value method, and revenue is only recognised to the extent that it is highly probable that a significant reversal will not occur. A refund liability for the expected volume rebates/incentives to customers in relation to sales made until the end of the reporting period is recognised as adjustment to revenue and correspondingly in trade and other payables. Quality claims The Group’s obligation to provide quality claims against off-spec goods under the Group’s standard contractual terms is recognised as a provision. Receivables, contract asset and contract liabilities A receivable is recognised when the goods are delivered or services are rendered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due. Contract asset is the right to consideration in exchange for goods or services that the Group has transferred to the customers. A contract asset is recognised when the services rendered by the Group exceed the amount already billed. Contract liability is the Group’s obligation to transfer goods or services to customers. A contract liability is recognised when the Group has received the sales consideration in advance or billings or payments by the customers exceed the services rendered by the Group. Contract cost During the year, the Group has elected the practical expedient to recognise incremental cost incurred to obtain contract with period of less than one year as an expense when incurred. 46 Notes to the Financial Statements For The Financial Year Ended 31 December 2020 FGV HOLDINGS BERHAD Audited Financial Statement 2020