78 MSC BERHAD Notes to the Financial Statements (cont’d) 5. Product Development Costs Group Company 2024 2023 2024 2023 RM RM RM RM Cost At 1 January/1 July 42,789,216 35,507,750 36,568,086 30,391,782 Additions 4,752,577 7,281,466 1,116,652 6,176,304 Transfer upon corporate reorganisation exercise - - (37,684,738) - At 30 June 47,541,793 42,789,216 - 36,568,086 Accumulated amortisation At 1 January/1 July 27,357,466 23,333,209 23,214,682 19,732,801 Charge for the financial year/period 2,769,182 4,024,257 553,628 3,481,881 Transfer upon corporate reorganisation exercise - - (23,768,310) - At 30 June 30,126,648 27,357,466 - 23,214,682 Carrying amount At 30 June 17,415,145 15,431,750 - 13,353,404 (a) Product development costs comprise salaries of personnel involved in the development and design of products prior to the commencement of commercial production. The amortisation charges are recognised in Statements of Profit or Loss under “cost of sales” line items. Additional development costs with finite useful lives are amortised over a period of 5 to 10 years. Certain development costs are not amortised as these assets are not available for use and are still under development as at the financial year end. (b) The Group and the Company review the carrying amount of product development costs at the end of each reporting period to determine whether there is any indication of impairment. If any such indications exist, the recoverable amount of the cash-generating unit (“CGU”) is determined based on its value in use. The value in use was determined by discounting the future cash flows expected to be generated from the continuing use of the CGU based on the financial budgets prepared by the management covering a period of five (5) years. The key assumptions used in the value in use calculations are as follows: (i) The anticipated average annual revenue growth rates used in the cash flow budgets and plans of the CGU at 3% to 52% (2023: 5%) per annum from years 2025 to 2029 (2023: 2024 to 2028). (ii) Profit margins were projected based on the historical profit margin achieved or pre-determined profit margin for the products. (iii) A pre-tax discount rate of 8.24% (2023: 9.10%) per annum has been applied in determining the recoverable amount of the CGU. The discount rate was estimated based on the Group’s weighted average cost of capital plus a reasonable risk premium. Based on the assessment, the Directors are of the view that no impairment loss is required as the recoverable amount of the CGU is higher than its carrying amount. (c) Sensitivity to changes in assumptions The management believes that there is no reasonable possible change in any key assumption that would cause the CGU carrying amount to exceed its recoverable amount.
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