Contract assets and liabilities

12 Months Ended

Dec. 31, 2023

Contract assets and liabilities

Note 6: Contract assets and liabilities

Contracts with customers usually stipulate the timing of payment, which is defined by the terms found within the various contracts under which work was performed during the period. Therefore, contract assets and liabilities are created when the timing of costs incurred on work performed does not coincide with the billing terms.

The Group’s consolidated balance sheets present contract assets which contains earned unbilled revenue associated with contract work that has been completed but not paid by customers, that are generally due once the job is completed and approved.

Contract assets consisted of the following at December 31:

	2023		2022
	US$’000		US$’000
Unbilled revenue		66		217

The Group’s consolidated balance sheets present contract liabilities which contains deferred revenue (previously identified as billings in excess of costs on uncompleted contracts) and unearned warranty revenue.

Contract liabilities consisted of the following at December 31:

	2023		2022
	US$’000		US$’000
Deferred revenue		650		625

The following table provides information about contract assets and contract liabilities from contracts with customers:

	December 31,
	2023			2022
	US$’000			US$’000
Contract assets		66			217
Contract liabilities		(650	)		(625	)
Net contract liabilities		(584	)		(408	)

The difference between the opening and closing balances of the Group’s contract assets and contract liabilities primarily results from the timing of the Group’s billings in relation to its performance of work. The amounts of revenue recognized in the period that were included in the opening contract liability balances were US$492,000 and US$212,000 for the years ended December 31, 2023 and 2022, respectively. The revenue consists primarily of work performed on previous billings to customers.   

The net liabilities position for contracts in process consisted of the following at December 31:

	2023			2022
	US$’000			US$’000
Costs incurred in contracts in process		229			682
Revenue earned but not yet billed		26			68
Less: billings to date		(839	)		(1,158	)
		(584	)		(408	)

The net liabilities position for contracts in process is included within the contract asset and contract liability in the accompanying consolidated balance sheets as follows at December 31:

	2023			2022
	US$’000			US$’000
Unbilled revenue		66			217
Deferred revenue		(650	)		(625	)
		(584	)		(408	)

Disaggregated revenue from contracts

	Year ended December 31,
	2023		2022		2021
	US$’000		US$’000		US$’000
Revenue
Trading and manufacturing (revenue recognized at point in time)		12,143		9,332		9,619
Engineering (revenue recognized over time)		5,797		5,617		11,769
		17,940		14,949		21,388

ZHEJIANG TIANLAN

Contract assets and liabilities

6. Contract assets, net and liabilities

Contracts with customers usually stipulate the timing of payment, which is defined by the terms found within the various contracts under which work was performed during the period. Therefore, contract assets and liabilities are created when the timing of costs incurred on work performed does not coincide with the billing terms.

The Group’s consolidated balance sheets present contract assets, net which contains earned unbilled revenue associated with contract work that has been completed but not paid by customers, that are generally due once the job is completed and approved.

Contract assets, net consisted of the following at December 31:

	2023		2022
	RMB’000		RMB’000
Unbilled revenue		72,880		76,992

The Group’s consolidated balance sheets present contract liabilities which contain deferred revenue (previously identified as billings in excess of costs and estimated earnings on uncompleted contracts).

Contract liabilities consisted of the following at December 31:

	2023		2022
	RMB’000		RMB’000
Deferred revenue		43,452		34,503

The following table provides information about contract assets, net and contract liabilities from contracts with customers at December 31:

	2023			2022
	RMB’000			RMB’000
Contract assets		72,880			76,992
Contract liabilities		(43,452	)		(34,503	)
Net contract assets		29,428			42,489

The difference between the opening and closing balances of the Group’s contract assets, net and contract liabilities primarily results from the timing of the Group’s billings in relation to its performance of work.

The net asset position for contracts in process consisted of the following at December 31:

	2023			2022
	RMB’000			RMB’000
Costs and estimated earnings on uncompleted contracts		239,648			688,184
Less: billings to date		(210,220	)		(645,695	)
		29,428			42,489

Contract assets, net consisted of the following at December 31:

	2023			2022
	RMB’000			RMB’000
Gross contract assets		83,170			89,440
Less: allowance for doubtful accounts		(10,290	)		(12,448	)
		72,880			76,992