NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022 3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated by the Directors and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the current circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below. (a) Impairment of goodwill The Group tests goodwill for impairment annually in accordance with the accounting policy 2.10(a) and whenever events or changes in circumstances indicate that the goodwill may be impaired. For the purposes of assessing impairment, goodwill is allocated to cash-generating units that are expected to benefit from the synergies of the business combination in which the goodwill arose. The estimation of the present value of future cash flows generated by the cash-generating units or groups of cash-generating units are based on management’s judgement of the developments in the market and the expected future performance, taking into account the impact of the uncertainty of the future economic condition. These discounted cash flow calculations use five-year projections that are based on financial forecast. Cash flow projections take into account past experience and represent management’s best estimate about future developments. Cash flows after the five-year period are extrapolated to perpetuity using terminal growth rates. Key assumptions on which management has based its determination of recoverable value include estimated revenue amount and weighted average cost of capital adjusted for specific risks associated with the cashgenerating units. Due to the uncertainty of the future economic condition, management developed the base case and worst case scenario of cash flow projections. Probabilities of occurrence were assigned to each scenario to arrive at a single set of cash flow projection. The assumptions used in both scenarios and the probabilities of occurrence assigned required management’s judgement. Changes in assumptions could affect the results of the Group’s test for impairment of goodwill. Further details of the carrying amount and the key assumptions applied in the impairment assessment of goodwill are given in Note 7. (b) Carrying amount of non-financial assets The Group assesses whether there is any indication that non-financial assets are impaired at the end of each reporting period. Impairment is measured by comparing the carrying amount of an asset with its recoverable amount. Recoverable amount is measured at the higher of the fair value less cost to sell for that asset and its value-in-use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). For certain plant and equipment, fair value less cost to sell is determined based on estimates prepared by an independent expert. The fair value is estimated based on comparison of market transacted price for similar plant and equipment, and where necessary, adjusted for age, usage and conditions of the plant and equipment and expectation of future market outlook of the industry due to the uncertainty of the future economic condition. Details of the carrying amount and the key assumptions applied in the impairment assessment of property, plant and equipment and investment properties are in Notes 4 and 6 to the financial statements. There is no impairment charge to the property, plant and equipment and investment properties during the financial year. Refer to Notes 4 and 6 for further details. Annual Report 2022 Wah Seong Corporation Berhad 129
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