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FRONTKEN CORPORATION BERHAD
(651020-T)
ANNUAL REPORT
2015
3.
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Critical Accounting Estimates And Judgements (Cont’d)
(iii) Depreciation of Property, Plant and Equipment
The estimates for the residual values, useful lives and related depreciation charges for the property, plant and
equipment are based on commercial factors which could change significantly as a result of technical innovations
and competitors’ actions in response to the market conditions.
The Group anticipates that the residual values of its property, plant and equipment will be insignificant. As a result,
residual values are not being taken into consideration for the computation of the depreciable amount.
Changes in the expected level of usage and technological development could impact the economic useful lives
and the residual values of these assets, therefore future depreciation charges could be revised.
(iv) Income Taxes
There are certain transactions and computations for which the ultimate tax determination may be different from
the initial estimate. The Group recognises tax liabilities based on its understanding of the prevailing tax laws and
estimates of whether such taxes will be due in the ordinary course of business. Where the final outcome of these
matters is different from the amounts that were initially recognised, such difference will impact the income tax
expenses and deferred tax balances in the year in which such determination is made.
(v) Impairment of Non-Financial Assets
When the recoverable amount of an asset is determined based on the estimate of the value in use of the cash-
generating unit to which the asset is allocated, the management is required to make an estimate of the expected
future cash flows from the cash-generating unit and also to apply a suitable discount rate in order to determine the
present value of those cash flows.
(vi) Impairment of Trade and Other Receivables
An impairment loss is recognised when there is objective evidence that a financial asset is impaired. Management
specifically reviews its loans and receivables financial assets and analyses historical bad debts, customer
concentrations, customer creditworthiness, current economic trends and changes in the customer payment terms
when making a judgement to evaluate the adequacy of the allowance for impairment losses. Where there is
objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical
loss experience for assets with similar credit risk characteristics. If the expectation is different from the estimation,
such difference will impact the carrying value of receivables.
(vii) Classification of Leasehold Land
The classification of leasehold land as a finance lease or an operating lease requires the use of judgement in
determining the extent to which risks and rewards incidental to its ownership lie. Despite the fact that there will be
no transfer of ownership by the end of the lease term and that the lease term does not constitute the major part
of the indefinite economic life of the land, management considered that the present value of the minimum lease
payments approximated to the fair value of the land at the inception of the lease. Accordingly, management judged
that the Group has acquired substantially all the risks and rewards incidental to the ownership of the land through
a finance lease.
(viii) 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.
NOTES TO THE FINANCIAL STATEMENTS
(cont’d)