Wah Seong Corporation Berhad Annual Report 2017

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2017 FINANCIAL STATEMENTS WAH SEONG CORPORATION BERHAD ANNUAL REPORT 2017 131 8 INVESTMENT IN ASSOCIATES Group 2017 RM’000 2016 RM’000 Quoted shares in Malaysia 130,114 130,114 Unquoted shares 84,093 189,043 Share of post-acquisition results and reserves (28,984) (47,487) 185,223 271,670 Less: Accumulated impairment loss - (56,487) 185,223 215,183 Share of net assets of associates 185,223 215,183 Quoted shares in Malaysia at fair value 71,404 82,223 Quoted shares – Petra Energy Berhad As at 31 December 2017 and 31 December 2016, the fair value of the Group’s investment in quoted shares is based on level 1 of the fair value hierarchy. The market value of the Group’s interest in quoted shares, representing its fair value as at 31 December 2017, was approximately RM71,404,000 (2016: RM82,222,500). This fair value is approximately RM22,920,000 (2016: RM27,516,000) below the carrying value, giving rise to an impairment indicator. Therefore, the recoverable amount is determined using value-in-use calculations. These calculations are based on the discounted cash flows expected to be generated from the investment. Financial budgets approved by management covering a period of 5 years and the terminal period are based on past performance and management’s expectation of the future market developments. The value-in-use calculations are mainly driven by the revenue growth rate, terminal value growth rate and discount rate. The discount rate reflects the current market assessment of the risks specific to the industry and is based on the cost of equity expected of the investment. The revenue growth rate takes into consideration the secured contracts as at 31 December 2017 and the historical performance. The growth rate assumed for terminal value considers external macroeconomic sources of data and industry specific trends. The following table presents the key assumptions used for the value-in-use calculations. 2017 2016 Revenue growth rate for 5 years <0%* – 3.0% 4.6% Discount rate 12.9% 12.4% Growth rate for terminal value 2.0% 2.0% * Negative growth is due to end of ongoing project.