NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022 10 INVESTMENT IN ASSOCIATES Group 2022 2021 RM’000 RM’000 Quoted shares in Malaysia 130,114 130,114 Unquoted shares 90,790 105,965 Share of post-acquisition results and reserves (63,953) (39,875) 156,951 196,204 Less: Accumulated impairment loss (55,133) (14,606) 101,818 181,598 Share of net assets of associates 101,818 181,598 Quoted shares in Malaysia at fair value 74,433 66,644 Quoted shares – Petra Energy Berhad As at 31 December 2022 and 31 December 2021, the fair value of the Group’s investment in quoted shares is based on Level 1 of the fair value hierarchy. The market value of the Group’s interest in quoted shares, representing its fair value as at 31 December 2022, was approximately RM74,433,000 (2021: RM66,644,000). This fair value is approximately RM27,087,000 (2021: RM37,208,000) below the carrying value, giving rise to an impairment indicator on the carrying value of the investment of RM101,520,000 (2021: RM103,852,000). As the fair value less costs of disposal is lower than the value-in-use of the investment, the Group has determined the recoverable amount of the investment using discounted cash flows expected to be generated from the investment. The calculations use pre-tax cash flow projections based on financial budgets approved by the Group covering a period of 5 years (2021: 5 years) based on past performance and management’s expectations of market development. Terminal value is estimated at the end of the 5-year period. 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. The key assumptions used in the cash flow projections to determine the recoverable amount for the investment under the base case and worst case scenarios are as follows: (a) The revenue forecast is supported by management’s expected projects, which is in line with past performance records, future market outlook and management’s expectation of market developments. A reduction to the revenue forecast was applied for the worst case scenario; (b) Pre-tax discount rate of 16.3% (2021: 15.1%) was applied for both scenarios, benchmarked against comparable companies at the date of assessment; and (c) A terminal growth rate of 1.0% (2021: 1.0%) was applied across both scenarios. The value-in-use is above the carrying value of the Group’s investment in quoted shares. As such, no impairment loss is deemed necessary to be recognised in the financial year ended 31 December 2022 and 31 December 2021. Wah Seong Corporation Berhad Annual Report 2022 154
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