Yinson Annual Report 2019

Yinson Holdings Berhad ANNUAL REPORT 2019 148 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) (b) Measurement of ECL allowance for financial assets The measurement of ECL allowance for financial assets measured at amortised cost and at FVOCI is an area that requires the use of significant assumptions about future economic conditions and credit behaviour of customers. Explanation of the inputs, assumptions and estimation techniques used inmeasuring ECL is detailed in Note 42(b). Areas of significant judgements involved in the measurement of ECL are detailed as follows: (i) Significant increase in credit risk During the financial year, the Group and the Company have assessed and transferred a portfolio of other receivables from performing category to underperforming category, arising from significant increase in credit risk in these receivables since initial recognition. As at reporting date, these receivables is subject to considerable credit risk, because even a slight deterioration in cash flows could result in these receivables missing a contractual payment on the amount owing to the Group and the Company. Accordingly, the Group and the Company have recognised a lifetime ECL on these receivables. (ii) Determining the number and relative weightings of forward-looking scenarios The Group and the Company measure loss allowance at probability-weighted amount that reflects the possibility of credit loss occurring. This requires forecast of economic variables and their associated impact on PD (‘probability of default’), LGD (‘loss given default’) and EAD (‘exposure at default’) which are provided in possible scenarios along with scenario weightings. Probability-weighted ECLs are determined by running each scenario through the relevant ECL model and multiplying it by the appropriate scenario weighting. As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. The Group and theCompany consider these forecasts to represent its best estimate of the possible outcomes and are appropriately representative of the range of possible scenarios. (c) Impairment of vessels Each vessel is deemed to be a single CGU as the Group manages each vessel separately. The Group reviews these CGUs at each reporting date for impairment indicators in accordance with the accounting policy stated in Note 2.20. If there is an impairment indicator, the recoverable amount for the vessel will be ascertain based on the higher of the fair value less costs of disposal and its value in use. For value in use calculations, the future cash flows are based on contracted cash flows and estimates of uncontracted cash flows for the useful lives of each vessel discounted by an appropriate discount rate. The impairment testing for CGU requires management’s estimates and judgement to derive future cash flows based on key assumptions such as charter rates, utilisation levels and costs escalation based on historical trends amongst others. The discount rate used is based on industry average that varies over time. The Group has evaluated the carrying amounts of vessels against their recoverable amounts and recorded an impairment charge to the carrying value of vessels of RM33,030,000 (2018: RM32,793,000) as disclosed in Note 16. The key assumptions and basis used to determine the recoverable amounts of the vessels are disclosed in Note 16. (d) Useful life and residual value of vessels The Group reviews the residual value and useful life of vessels, tugboats and barges at each reporting date based on factors such as business plans and strategies, expected level of usage and future technological developments. A reduction in the estimated useful life of vessels, tugboats and barges would increase the recorded depreciation and decrease the carrying value of vessels, tugboats and barges. The net book of value of vessels, tugboats and barges at 31 January 2019 is RM4,418,216,000 in Note 16. For the financial year ended 31 January 2019 Notes to the financial statements (cont’d)