2019 UEM Edgenta Annual Report

182 183 UEM EDGENTA AT A GLANCE MESSAGE FROM OUR LEADERSHIP STRATEGIC FOCUS OPERATIONAL REVIEW SUSTAINABILITY EFFORTS CORPORATE GOVERNANCE INTRODUCTION FINANCIAL REVIEW ADDITIONAL INFORMATION Notes to the Financial Statements For the year ended 31 December 2019 Notes to the Financial Statements For the year ended 31 December 2019 UEM Edgenta Berhad Annual Report 2019 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.5 Significant accounting judgements and estimates The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. (a) Judgements There are no critical judgements made by management in the process of applying the Group’s accounting policies that may have significant effects on the amounts recognised in the financial statements. (b) Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: (i) Revenue recognition - Asset consultancy The Group recognises its revenue and profit on consultancy contract services based on the percentage of completion, calculated by reference to the proportion of costs incurred to date against the total expected costs for the contracts. Full provision is made for losses on all contracts when they are first foreseen. Significant estimates are applied especially in determining the total expected costs for the contracts in order to reliably estimate the percentage of completion. (ii) Impairment of goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the ‘value-in-use’ of the CGU to which the goodwill is allocated. Estimating a value-in-use amount requires management to make an estimate of the expected future cash flows from the CGU and also to determine suitable discount and growth rates in order to calculate the present value of those cash flows. The carrying amounts of goodwill at 31 December 2019 was RM534.7 million (2018: RM534.1 million). Further details are disclosed in Note 16(a). (iii) Impairment of investment in subsidiaries The Company determines whether investment in subsidiaries is impaired when there is an indication of impairment. This requires an estimation of the ‘value-in-use’ of the investment in subsidiaries. Estimating a value-in-use amount requires management to make an estimate of the expected future cash flows and also to determine suitable discount and growth rates in order to calculate the present value of those cash flows. The carrying amounts of investment in subsidiaries at 31 December 2019 was RM1,707.6 million (2018: RM1,789.0 million). Further details are disclosed in Note 17. (iv) Provision for ECLs of trade receivables and contract assets The Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments in calculating ECLs for trade receivables and contract assets. The amount and timing of future cash flows are then estimated based on historical credit loss experience for assets with similar credit risk characteristics and adjusted with forward-looking information such as forecast economic conditions. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECLs on the Group’s trade receivables and contract assets is disclosed in Note 21 and Note 22 respectively. 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.5 Significant accounting judgements and estimates (cont’d.) (b) Key sources of estimation uncertainty (cont’d.) (v) Income taxes Significant estimation is involved in determining the provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. (vi) Deferred tax assets Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The deferred tax assets amounting to RM13.3 million (2018: RM13.0 million) are mainly related to subsidiaries of which management is confident that it would be probable for the related subsidiaries to generate future taxable profits. If the Group was able to recognise all unrecognised deferred tax assets, profit and equity would have increased by RM14.4 million (2018: RM9.8 million). Further details are disclosed in Note 32. (vii) Deferred consideration payable Deferred consideration payable arose from the acquisition of Edgenta GreenTech Sdn. Bhd. (”EGT”) (formerly known as KFM Holdings Sdn. Bhd.) in prior year. At each reporting period, the Group assesses the fair value of the deferred consideration payable based on the projected profitability of EGT, and considers the current and projected market conditions. During the year, management assessed the fair value of the remaining deferred consideration payable for EGT to be RM2.9 million (2018: RM8.7 million) due to lower probability of EGT meeting the performance targets. Accordingly, an amount of RM5.3 million (2018: RM9.3 million) was recognised in profit or loss representing the fair value changes relating to the deferred consideration payable during the current financial year. Further details of the deferred consideration payable are disclosed in Note 31(d).