MSM Malaysia Holdings Berhad Annual Report 2019

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 17 PROPERTY, PLANT AND EQUIPMENT (CONTINUED) (b) Impairment assessment The Group has embarked on a plan to rationalise the capacity of its three refinery plants to address the sugar production capacity incurred during the year. Accordingly, the Directors of the Company has resolved to cease the operations of the sugar refinery of a subsidiary from July 2020. Consequently, management performed an impairment assessment on the Group’s property, plant and equipment ("PPE") (Note 17), right-of-use ("ROU") assets (Note 18) and intangible assets (Note 19). As a consequence of the assessment, an impairment of RM138.8 million was recorded for the financial year ended 31 December 2019. Management has assessed the recoverable amount of the cash-generating unit (“CGU”) based on discounted cash flow analysis to determine its value in use. For the purpose of the assessment, management determined the entire non- monetary assets of a subsidiary as one CGU as this was the smallest identifiable unit which generates independent cash flows of the subsidiary, with the exception of the factory land as it is able to generate independent cash flows. Cash flows for the non-monetary assets were projected based on past experience and management’s expectations of 6 months only which is the remaining operation period of the factory division of the subsidiary. As for the recoverable amount of the factory land, the value assessed was based on the recent sales value of land located in the same vicinity as the factory land. Projected future cash flows are based on Group’s judgement in terms of assessing future uncertain parameters such as selling price, raw sugar price, sales volume and terminal value growth rate. These judgements are based on the historical track record and expectations of future events that are believed to be reasonable under current circumstances. The pre-tax discount rate used for the discounted cash flow analysis is 9%. Based on management’s assessment, the recoverable amount of approximately nil was lower than the carrying amount of the CGU of the raw sugar refining division of the subsidiary, and the shortfall had been applied to all non-monetary assets and an impairment loss of RM130,637,000, RM7,968,000 and RM179,000 had been recognised for property, plant and equipment, ROU assets and intangible assets respectively. 173 FINANCIAL STATEMENTS 08