96
FRONTKEN CORPORATION BERHAD
(651020-T)
ANNUAL REPORT 2014
NOTES TO THE
FINANCIAL STATEMENTS
(cont’d)
14. GOODWILL ON CONSOLIDATION
The Group
2014
2013
RM
RM
At beginning of year
25,394,265
25,394,265
Arising from acquisition of a subsidiary (Note 12)
8,366,591
–
At end of year
33,760,856
25,394,265
Goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating unit (“CGU”)
that is expected to benefit from that business combination. The carrying amount of the goodwill had been
allocated as follows:
The Group
2014
2013
RM
RM
Frontken (East Malaysia) Sdn. Bhd.
805,812
805,812
Ares Green Technology Corporation
24,588,453
24,588,453
TTES Frontken Integrated Services Sdn. Bhd.
(formerly known as TTES Team & Specialist Sdn. Bhd.)
8,366,591
–
33,760,856
25,394,265
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill
might be impaired.
The recoverable amount of the CGU is determined from value-in-use calculation. The key assumptions for
the value-in-use calculation are those regarding the expected changes to pricing and direct costs, growth
rates and discount rates during the period.
2014
2013
%
%
Budgeted gross margin
26 to 37
26 to 37
Growth rates
0.0 to 5.0
0.0 to 5.0
Pre-tax discount rate
10.20
10.27
The calculation of value-in-use for CGU are most sensitive to the following assumptions:
(i)
Budgeted gross
margin
Management determines budgeted gross margin based on past performance and
its expectations of market development.
(ii)
Growth rates
The growth rates are based on industry growth forecasts. Changes in selling prices
and direct costs are based on past practices and expectations of future changes
in the market. These calculations use pre-tax cash flow projections based on
financial budgets approved by management and extrapolated cash flows for a
three-year period based on growth rates consistent with the long-term average
growth rate for the industry.
(iii)
Discount rate
Management estimates discount rate using pre-tax rate that reflect current market
assessments of the time value of money and the risk specific to the CGU. The rate
used to discount the forecasted cash flows reflects specific risks and expected
returns relating to the industry.
The management believes that no reasonable change in the above key assumptions would cause the carrying
amount of the goodwill to exceed its recoverable amounts.
