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 147 13 GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) Impairment testing of goodwill Goodwill arising from business combination has been allocated to the Group’s cash-generating units (“CGU”) identified according to operating divisions. The carrying amounts of goodwill allocated to the respective CGUs are as follows: Group 2017 RM’000 2016 RM’000 Cash-generating units Specialised Pipe Coating and Corrosion Protection Services (CGU A) 77,157 83,048 EPC, Fabrication and Rental of Gas Compressors and Process Equipment (CGU B) 66,035 72,041 143,192 155,089 The recoverable amount of the CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a period of 5 years (2016: 5 years) based on past performance and their expectations of the market development. Terminal value is estimated at the end of the 5-year period. Value-in-use was determined by discounting the future cash flows generated from the CGUs based on the following key assumptions on the premise that there will be no material changes in the Group’s principal activities. 2017 2016 Revenue growth rate Pre-tax discount rate Revenue growth rate Pre-tax discount rate CGU A <0%* – 5.0% 19.4% 3.7% 19.0% CGU B 4.8% 20.5% 4.5% 16.5% * Negative growth is due to end of ongoing project. The key assumptions used in calculating the value-in-use are described below: (i) Terminal growth rate Terminal growth rate of 2.0% for CGU A and 1.5% for CGU B (2016: zero growth rate for both CGU A and CGU B) were used to determine the terminal values beyond the 5-year period cash flows. (ii) Discount rate The discount rates used reflect the weighted average cost of capital of the Group with a premium representing the business risk of the respective CGUs.