Yinson Annual Report 2020

241 Annual Report 2020 5. Critical accounting estimates and judgements (CONTINUED) (d) Impairment of FPSOs, OSVs and tankers Each FPSO, OSV and tanker is deemed to be a single CGU as the Group manages each FPSO, OSV and tanker 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 FPSO, OSV and tanker will be ascertained 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 FPSO, OSV and tanker discounted by an appropriate discount rate. The impairment testing for each 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 OSVs against their recoverable amounts and recorded an impairment charge to the carrying value of OSVs of RM4,883,000 (2019: RM33,030,000) as disclosed in Note 16(g). The key assumptions and basis used to determine the recoverable amounts of the OSVs are disclosed in Note 16(g). (e) Useful life and residual value of FPSOs, OSVs and tankers The Group reviews the residual value and useful life of FPSOs, OSVs and tankers 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 residual value and estimated useful life of FPSOs, OSVs and tankers would increase the recorded depreciation and decrease the carrying value of FPSOs, OSVs and tankers. The net book value of FPSOs, OSVs and tankers at 31 January 2020 is RM4,430,359,000 in Note 16. For the financial year ended 31 January 2020, the impact of the sensitivity resulting from a 5 years increase/ decrease in the estimated useful life and a 10% increase/decrease in estimated residual value of FPSOs, OSVs and tankers on the expected carrying value of property, plant and equipment and the depreciation expense charged to profit or loss annually are analysed as follows: Carrying value of property, plant and equipment Depreciation expense Group Group RM’000 RM’000 Useful life - Increase by 5 years 4,480,212 172,761 - Decrease by 5 years 4,332,239 320,734 Residual value - Increase by 10% 4,425,063 227,910 - Decrease by 10% 4,417,214 235,760