Singapore Shipping Corp

[gzbkel]

Seems to me that a straight line way of calculating revenue is not so bad, because it takes into account the reduced profit later in the life of the vessels.
I think few of us are previously aware that charter rates "decelerate" over the charter period. This accounting method will prevent a bad surprise later on.

Would be interesting to know what is the rate of deceleration...

[bliss88]

With the new straight line method of accounting for charter revenue, would revenue still be recorded whilst vessels are in dry docking?

[lkw175]

What could be the key factors leading to the gap down during yesterday trading? straight line method will result in reduced reporting revenue later? or the disappointment in dividend (maintain and didn't increase)? or there are others? can any buddies enlightened? Thanks.

[ksir]

Of course if ppl who were like me, previously ignorance in decelerating charter rate, the valuation is no longer the same.

Having said that, i do think the contracts are attractive.
Rather than straight line rate, the decelerated is better in time-value-of-money sense. You get more cashflows in early years.
The cashflows can be used to pay off debts which will be fully paid in about 10years time?

Instead of straight line revenue recognition, i'd rather they use accelerated depreciation. In this case, it's more real life yes?

I am waiting for it to drop more. May even sell my cmh in market if opportunity arises.

<vested>

[gzbkel]

According to AR2015, they use straight line depreciation for PPE, including vessels.
Therefore, the new straight line revenue recognition is fitting I think.

Had they retained the old decelerating revenue recognition, I think they should have the same decelerating depreciation for vessels (depreciate more initially, then reduce gradually), since the vessels earn more in the beginning years compared to the last few years.

[ZZF]

According to AR2015, they use straight line depreciation for PPE, including vessels.
Therefore, the new straight line revenue recognition is fitting I think.

Had they retained the old decelerating revenue recognition, I think they should have the same decelerating depreciation for vessels (depreciate more initially, then reduce gradually), since the vessels earn more in the beginning years compared to the last few years.

Seems like market doesn't appreciate the change in ac policy lol.

[valuebuddies]

I do agree with straight line method in accounting the revenue, to me revenue should be recognised to the extents of costs incurred. Since the roro is on straight line method of depreciation, then the same method to recognise the value. I don't think this is a provisions in the accounting standards, is more like a theory or common sense to me.

[CityFarmer]

I do agree with straight line method in accounting the revenue, to me revenue should be recognised to the extents of costs incurred. Since the roro is on straight line method of depreciation, then the same method to recognise the value. I don't think this is a provisions in the accounting standards, is more like a theory or common sense to me.

I agree with the view. Cost and revenue should be aligned, to be realistic. It is a basic rule for accounting, I guess, but I am not an accountant.

(not vested)

[Yoyo]

I do agree with straight line method in accounting the revenue, to me revenue should be recognised to the extents of costs incurred. Since the roro is on straight line method of depreciation, then the same method to recognise the value. I don't think this is a provisions in the accounting standards, is more like a theory or common sense to me.

I agree with the view. Cost and revenue should be aligned, to be realistic. It is a basic rule for accounting, I guess, but I am not an accountant.

(not vested)

The discussion centre on one of the basic accounting concepts and principles- The Matching Concept/ Principle
https://www.business-case-analysis.com/m...ncept.html

The matching concept is an accounting practice whereby expenses are recognized in the same accounting period as the related revenues are recognized. The period's revenues, that is, are reported along with the expenses that brought them. 
The purpose of the matching concept is to avoid misstating earnings for a period. Reporting revenues for a period without reporting all the expenses that brought them could result in overstated or understated profits.
Applying the concept requires accrual accounting, the practice of recognizing revenues when they are earned and expenses when they are incurred—not necessarily when cash actually flows in those transactions.

Simply - how to best match revenue and cost/expense to arrive at the resultant profit - at times, a judgement call.

Hope this helps to clarify.

A snapshot of the various basic accounting principles can be found in the below link.
http://www.accountingtools.com/basic-acc...principles

[ksir]

Yeah I totally agree with the principle of Accounting.
Cost & Revenue matching is a key if not the key of balance Accounting

The Depreciation cost is matched to Charter Revenue which is all good.
Although I prefer decelerated depreciation to match decelerated Revenue, but alas it's a matter of more real-life matching, but bottom line should be about the same.

However, to stretch a bit further and just for the sake of discussion and my own learning.
So we take into consideration the depreciation cost, but how about the Finance cost?
In my limited accounting knowledge, CMIIW, the Finance cost is not considered as Cogs and hence need not match revenue?!

If that's the case, the finance cost of 10 years (I can't remember the term loan years) finance loan for the ship acquisition will only be 10 years and suddenly dropped to 0 on year 11 on ward?

Due to low interest rate environment, it may not be too drastic and obvious, but it's something that I think not really matching the revenue with cost?

From Engineering guy, so please bear with me. Lolx