Datasonic Group Berhad Annual Report 2020

DATASONIC GROUP BERHAD I ANNUAL REPORT 2020 (Registration No. 200801008472 (809759-X)) 119 Notes to the Financial Statements for the financial year ended 31 March 2020 (Cont’d) 4. SIGNIFICANT ACCOUNTING POLICIES (CONT’D) 4.1 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT’D) (f) Impairment of Trade Receivables The Group uses the simplified approach to estimate a lifetime expected credit loss allowance for all trade receivables. The Group develops the expected loss rates based on the payment profiles of past sales and the corresponding historical credit losses, and adjusts for qualitative and quantitative reasonable and supportable forward-looking information. If the expectation is different from the estimation, such difference will impact the carrying value of trade receivables. (g) Impairment of Other Receivables The loss allowances for other financial assets are based on assumptions about risk of default and expected loss rates. The Group uses judgement in making these assumptions and selecting appropriate inputs to the impairment calculation, based on the past payment trends, existing market conditions as well as forward-looking estimates at the end of each reporting period. (h) Impairment of Goodwill Goodwill is tested for impairment annually and at other times when such indicators exist. This requires management to estimate the expected future cash flows of the cash-generating unit to which goodwill is allocated and to apply a suitable discount rate in order to determine the present value of those cash flows. The future cash flows are most sensitive to budgeted gross margins, growth rates estimated and discount rate used. If the expectation is different from the estimation, such difference will impact the carrying value of goodwill. (i) Fair Value Estimates for Certain Financial Assets and Financial Liabilities The Group carries certain financial assets and financial liabilities at fair value, which requires extensive use of accounting estimates and judgement. While significant components of fair value measurement were determined using verifiable objective evidence, the amount of changes in fair value would differ if the Group uses different valuation methodologies. Any changes in fair value of these assets and liabilities would affect profit and/or equity. (j) Impairment of Development Expenditure The Group determines whether the development expenditure are impaired by evaluating the extent to which the recoverable amount of the asset is less than its carrying amount. This evaluation is subject to changes such as market performance, economic and political situation of the country. A variety of methods is used to determine the recoverable amount, such as valuation reports and discounted cash flows. For discounted cash flows, significant judgement is required in the estimation of the present value of future cash flows generated by the assets, which involve uncertainties and are significantly affected by assumptions used and judgements made regarding estimates of future cash flows and discount rates. (k) Classification of Leasehold Land The classification of leasehold land as a finance lease or an operating lease under the former MFRS 117 ‘Leases’ requires the use of judgement in determining the extent to which risks and rewards incidental to its ownership lie. Despite the fact that therewill be no transfer of ownership by the end of the lease term and that the lease termdoes not constitute themajor part of the indefinite economic life of the land, management considers that the present value of the minimum lease payments approximates the fair value of the land at the inception of the lease. Accordingly, management is of the view that the Group has acquired substantially all the risks and rewards incidental to the ownership of the land through a finance lease. The Group has applied MFRS 16 using the modified retrospective approach during the financial year. As a result, the above accounting estimates and judgement were applied until 31 March 2019.