Tropicana Corporation Berhad Annual Report 2020

3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT'D.) 3.1 Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: (a) Property development The Group recognises certain of its property development revenue and expenses in the statements of comprehensive income by using an input method which is based on costs incurred for work performed up to the reporting period relative to the total expected cost to the satisfaction of those performance obligations. Significant judgement is required in determining the measure of progress, the extent of the property development costs incurred, the estimated total property development revenue and costs, as well as the recoverability of the property development costs. In making the judgement, the Group evaluates based on past experience and by relying on the work of specialists. The carrying amounts of the Groups' land held for property development and property development cost are disclosed in Note 16. (b) Deferred tax assets Deferred tax assets are recognised for all unused tax losses, unabsorbed capital allowances and other deductible temporary differences to the extent that it is probable that taxable profit will be available against which the losses and capital allowances can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profit together with future tax planning strategies. The total unrecognised tax losses and unutilised capital allowances of the Group are disclosed in Note 12. (c) Provision of expected credit loss of trade receivables, other receivables and contract assets The Group and the Company assess the credit risk at each reporting date, whether there have been significant increases in credit risk since initial recognition on an individual basis. To determine whether there is a significant increase in credit risks, the Group and the Company consider factors such as the probability of insolvency or significant financial difficulties of the debtors and default or significant delay in payments. Where there is a significant increase in credit risk, the Group and the Company determine the lifetime expected credit loss by considering the loss given default and the probability of default assigned to each counterparty customer. The financial assets are written off either partially or full when there is no realistic prospect of recovery. This is generally the case when the Group and the Company determine that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amount subject to the write-offs. The carrying amounts of the trade and other receivables and contract assets are disclosed in Notes 23 and 24 respectively. 3. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT'D.) 3.1 Key sources of estimation uncertainty (cont'd.) (d) Impairment of investments in subsidiaries The Company conducts impairment reviews of investments in subsidiaries whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Determining whether these investments are impaired requires an estimation of their recoverable amounts which is the higher of the asset’s fair value less costs to sell and present value of the estimated future cash flows expected to be derived from these assets including the proceeds from its disposal. Any subsequent increase in recoverable amount is recognised in profit or loss. During the financial year, after reviewing the business environment as well as the Company's strategies, past and future performance of its investments in subsidiaries, management concluded that there were impairment losses in the investments in subsidiaries amounting to RM16,895,000 as disclosed in Note 18. (e) Fair valuation of investment properties The Group carries its investment properties at fair value, with changes in fair value being recognised in the profit or loss. Significant judgement is required in determining the fair value which may be derived based on different valuation methods. In making the judgement, the Group engaged independent valuation specialists to determine the fair values as disclosed in Note 17. (f) Income tax Significant judgement and estimates are used in arriving at taxable profits for the year and for prior years, including assessing the deductibility of expense items for tax purposes. Management are guided by tax laws/cases on such instances. Management believes that all deductions claimed, in arriving at taxable profits for current and prior years, are appropriate and justifiable. The Group has significant open tax assessments with Inland Revenue Board (" IRB ") at the reporting date. As management believes that the tax positions are supportable, the Group has not recognised any additional tax liability on these uncertain tax positions. The maximum exposure of these uncertain tax positions, not recognised in these financial statements is amounting to RM14,708,720. 3.2 Judgement made in applying accounting policies In the process of applying the Group's and the Company's accounting policies, management has made the following judgements, apart from there involving estimations, which have the most significant effect on the amounts recognised in the financial statements: Classification between investment properties and property, plant and equipment The Group has developed certain criteria based on MFRS 140 in making judgement whether a property quali es as an investment property. Investment property is a property held to earn rentals or for capital appreciation or both. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately (or leased out separately under a nance lease), the Group would account for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insigni cant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so signi cant that a property does not qualify as investment property. NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December 2020 ANNUAL REPORT 2020 TROPICANA CORPORATION BERHAD FINANCIAL STATEMENTS AND OTHER INFORMATION 200 201