SG&A AND EXPENSE CATEGORIZATION POLICY

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1 fjrake,&scull QHSE Ref. No. IMS/FIN/SGA/05Rev. 01 SG&A AND EXPENSE CA TEGORIZA TION 21st May2009 SG&A AND EXPENSE CATEGORIZATION POLICY Rev Date Revision Record 21/05/09 First issue for approval Page 1 of 5

2 SG&A AND EXPENSE CATEGORIZATION QHSE Ref. No. IMS/FIN/SGA/05 Rev st May PURPOSE 1.1. DSI policy requires each business stream to submit a financial reporting package ( Monthly Management Reports package ) which accurately reflects the financial status of the business unit and in the preparation of the reporting package complies with the provisions of the DSI PJSC accounting policy and procedures manual with respect to expense categorization 1.2. The purpose of this policy is to provide guidelines on the SG&A and expense categorization 2.0 SCOPE This Policy is applicable to all DSI business stream companies, their subsidiaries and affiliates. 3.0 DEFINITIONS SG & A = Selling, General and Administrative Expenses 4.0 RESPONSIBILITY The responsibility of implementing this policy and reporting the performance of the company in as per the below listed SG&A and Expense categorization lies with the Financial Controller and Area General Manager of each business stream company 5.0 PROCEDURE 5.1. The Management Reporting Package should be in prepared accordance to the DSI Chart of Accounts standardized across all business streams and the SG&A and expense categorization guidelines laid out in this policy 5.2. The reporting packages should be in line with the general guidelines on classification of expenses described below: PAYROLL RELATED COSTS: Projects (Project Management and Labour) Exception: SG&A while estimating / bidding new work. Site Stores Exception: No exception Central Stores, Transportation, Plant & Maintenance General Rule: Booked in SG&A, but recharged to Prime Cost based on a charge rate (based on the plant & tools utilized on projects) Exception: No exception Procurement Exception: SG&A while estimating / bidding new work Page 2 of 5

3 SG&A AND EXPENSE CATEGORIZATION QHSE Ref. No. IMS/FIN/SGA/05 Rev st May 2009 Estimation Exception: Prime Cost when working on major change orders Other Departments (Human Resources, Administration, Finance & Accounts, IT, and Management Offices) Exception: Prime Cost when working directly on project related activities Inter-company Transfers General Rule: Other Income (Net Impact) Exception: None MATERIAL, SUBCONTRACTORS COSTS: Material Costs s Exception: SG&A only if utilized for Overheads Sub-Contractor Costs s Exception: SG&A only if utilized for Overheads OCCUPANCY COSTS: Rent, Depreciation, Real estate taxes, Utilities & Other for Overheads and Prime Costs for projects related Exception: If major cost items, it may be allocated to Prime Cost on a logical basis to be determined at the local subsidiary level e.g. Camp rent and related charges are charged back to the Prime Cost based on a charge rate. EMPLOYEE RELATED COSTS: Recruitment, Visa & Immigration, Medical etc for Overheads and Prime Costs for projects related Exception: Depending on the payroll costs classification, related costs will be allocated to Prime Costs and SG&A respectively OTHER COSTS: Vehicle Related Expenses Exception: Allocation from SG&A to Prime Cost as recharge or SG&A dependent on the user of the motor vehicle IT Related Expenses Exception: Allocation from SG&A to Prime Cost as recharge if the services are identifiable clearly Page 3 of 5

4 SG&A AND EXPENSE CATEGORIZATION QHSE Ref. No. IMS/FIN/SGA/05 Rev st May 2009 Contractors All Risk (CAR) and Liability Insurance Exception: Allocation for Directors and Officers, Property, Office Contents and Vehicle Insurance Costs Small Tools / Tools Repair / Booked in SG&A and recharged back to Prime Costs based on a charge rate Exception: Large tools capitalized Legal Fees Exception: Prime Costs if readily identifiable to specific jobs Business Promotion & Marketing Expenses Exception: Prime Costs if readily identifiable to specific jobs Office Related Expenses Exception: Prime Costs if readily identifiable to specific jobs Finance Charges Exception: Prime Costs if readily identifiable to specific jobs M&A Expenses Exception: Capitalized at the time of purchase DEPRECIATION EXPENSES: Construction Machinery / Equipment Exception: Allocation from SG&A to Prime Cost as a recharge Commercial Vehicle and Motor Vehicle for Overheads and Prime Costs for projects related [Buses are directly charged to Prime Costs based on the number of laborers. Pickups are recharged based on the number of hours utilized by each project] Exception: Allocation from SG&A to Prime Cost as recharge dependent on the user Furniture & Fixtures for Overheads and Prime Costs for projects related Exception: Allocation from SG&A to Prime Cost as recharge dependent on the user Office Machines & Equipment Exception: None Land & Buildings Exception: None Page 4 of 5

5 SG&A AND EXPENSE CATEGORIZATION QHSE Ref. No. IMS/FIN/SGA/05 Rev st May 2009 OTHER ITEMS: Management Fees Exception: None Corporate Fees General Rule: Separate Overhead Charges Exception: None 5.3. Indirect Prime Cost allocations In certain circumstances, it is not practical to allocate certain costs to Prime Costs even though they classify as Prime Cost expenses. Many costs fall into this category due to the inability to directly relate individual purchases to individual projects. In these cases, a more practical approach maybe to accumulate the costs in a traditional SG&A account and allocate the aggregate figures to Prime Cost as an Indirect Allocation. The allocation may be based on revenue, cost, labour hours etc and generate a recharge to the Prime Costs. If any method of Indirect Prime Costs allocations is used, it should conform to the following general guidelines The allocation must be definable and the application consistent to all projects You must be able to reconcile Gross Margin per WIP to the General Ledger since these indirect costs were not direct charges. You may wish to add a line item entitled Indirect Prime Cost to the WIP schedule to make reconciliations easier; and The allocation must be accomplished via a Journal Entry 5.4. Overhead Allocation Includes expenses recorded in SG&A accounts that are being reclassified as Prime Costs. Please not that legal fees allocated to Prime Costs need to be broken down in SG&A 5.5. Interest Income / Expense Interest income and expense should be broken out and classified separately 5.6. Depreciation Total depreciation expense in Fixed Assets must equal the total amount of depreciation included in Prime Costs and SG&A on your Income Statement 6.0 ATTACHMENTS Type Name Number / Code Form IMS/FIN/SGA/05/01 Page 5 of 5

6 EXPENSE Employee Related Costs - 1 Salaries Expense Leave Salary Expense Gratuity Expense Bonus Expense Employee Related Costs - 2 Air Tickets for Employees Accommodation for Employees Visa & Immigration Exp for Employees Recruitment Expense for Employees (Staff) Recruitment Expense for Employees (Labour) Recruitment Postage Charges Training Expense for Employees Medical Insurance for Employees Transportation Expense for Employees Labour Guarantees Charges for Absconding Employees Business Promotion & Marketing Expenses Business Promotion Exp. Sales & Advertising Exp. Page 1 of 6

7 Sponsorships Exp. Conference & Event Exp. Entertainment Exp. Trade Journals & Publications Business Travel Exp Donations & Gifts Web Site Exp Branding Exp Media Exp PR (Public Relation) Exp CSR (Corp. Social Responsibility) Exp Subscriptions Office Related Expenses Office Insurances Exp Audit Fees Trade Licences Exp Visa & Immigration Exp. for Guests Accommodation & Hotel Exp. for Guests Safety Equip. Exp Kitchen / Pantry / Canteen Expense Page 2 of 6

8 Telephone / Fax / Telex Expenses Courier / Postage Expense Printing Exp. (External) Printing Paper Photocopying Exp Stationary Exp. Water & Electricity Exp. Water Exp Electricity Exp Cleaning Exp. Garbage Clearing Exp. Rent Exp. Land Fee Cooking Gas Pest Control Exp. Fuel Exp. Repair of Tools & Equipments Repair of Furniture & Fixture Gen. Maintenance Small Tools & Consumables Page 3 of 6

9 Office Machines & Equipment Repairs & Spare Parts Legal & Professional Fees Tendering Cost Sundry / Misc. Expense IT Related Expenses Computer Software Licenses Expense Computer Accessories - Printer Cartridges Computer Accessories - Others Computer Software Exp Computer Repairs & Spare Parts Vehicles Related Expenses Vehicles Insurance Vehicles Fuel / Oil Expense Salik (Toll) Expense Vehicles Registration Expense Vehicles Accident Related Expenses Vehicles Repair Expense Vehicles Spare Parts Expense Vehicles Tires Expenses Vehicles Other Expense Page 4 of 6

10 Vehicles Hire / Rental Expense Depreciation & Amortization (Overheads Related) Goodwill Amortization Depreciation Allocation to Projects Furniture & Fixtures - Depre. Expense Office Machines & Equipments - Depre. Expense Plants & Tools - Depre. Expense IT Equipments - Depre. Expense IT Software & Licences - Depre. Expense Land & Buildings - Depre. Expense Motor Vehicles -Depre. Expense Commercial Vehicles - Depre. Expense Lease Hold Improvements - Depre. Expense Finance Charges Bank Interest on OD Bank Interest on TR Bank Charges Bank Charges on L/G's Bank Interest on Term Loans Page 5 of 6

11 Management Fees & Tax Management Fees Board Member Fees Tax / Zakat Merges & Acquisitions M&A Advisory Fees Financial Valuation Fees Due Diligence Exps M&A Consultant Fees Provision Related Expenses Bad Debts Provision Exp (Specific) Bad Debts Provision Exp (General) Inventory Provision Expenses Extraordinary Items Extraordinary Gain or Loss Page 6 of 6

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