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Contract assets and liabilities

12 Months Ended

Dec. 31, 2022

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:

	2022		2021
	US$’000		US$’000

Unbilled revenue		217		74

The Group’s consolidated balance sheets present contract liabilities which contains 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:

	2022		2021
	US$’000		US$’000

Deferred revenue		625		1,076

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

	December 31,
	2022			2021
	US$’000			US$’000

Contract assets		217			74
Contract liabilities		(625	)		(1,076	)
Net contract liabilities		(408	)		(1,002	)

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$212,000 and US$79,000 for the years ended December 31, 2022 and 2021, 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:

	2022			2021
	US$’000			US$’000

Costs incurred in contracts in process		682			169
Estimated earnings		68			59
Cost and estimated earnings on uncompleted contracts		750			228
Less: billings to date		(1,158	)		(1,230	)
		(408	)		(1,002	)

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:

	2022			2021
	US$’000			US$’000

Unbilled revenue		217			74
Deferred revenue		(625	)		(1,076	)
		(408	)		(1,002	)

Disaggregated revenue from contracts

	Year ended December 31,
	2022		2021		2020
	US$’000		US$’000		US$’000
Revenue
Trading and manufacturing (revenue recognized at point in time)		9,332		9,619		9,476
Engineering (revenue recognized over time)		5,617		11,769		3,881
		14,949		21,388		13,357

ZHEJIANG TIANLAN

Contract assets and liabilities

6.	Contract assets, net and liabilities

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:

	2022		2021
	RMB’000		RMB’000

Unbilled revenue		76,992		72,310

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:

	2022		2021
	RMB’000		RMB’000

Deferred revenue		34,503		37,481

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

	2022			2021
	RMB’000			RMB’000

Contract assets		76,992			72,310
Contract liabilities		(34,503	)		(37,481	)

Net contract assets		42,489			34,829

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:

	2022			2021
	RMB’000			RMB’000

Costs and estimated earnings on uncompleted contracts		688,184			503,434
Less: billings to date		(645,695	)		(468,605	)

		42,489			34,829

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

	2022			2021
	RMB’000			RMB’000

Gross contract assets		89,440			81,198
Less: allowance for doubtful accounts		(12,448	)		(8,888	)

		76,992			72,310