NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022 10 INVESTMENT IN ASSOCIATES (CONTINUED) Sensitivity The recoverable amount of the investment would equal its carrying amount if the key assumptions were to change as follows: 2022 2021 From To From To Pre-tax discount rate 16.3% 17.5% 15.1% 16.0% Growth rate for terminal value 1.0% (0.6%) 1.0% (0.7%) Unquoted shares – Evraz Wasco Pipe Protection Corporation (“EWPPC”) During the current financial year, due to imposition of international prohibitions on certain linked individuals, the Group recorded a reduction of USD8,986,000 (equivalent to approximately RM39,537,000) on the carrying amount of its investment in EWPPC. This will be written back when the international prohibitions are subsequently removed. In the previous financial year, 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) Discount rate of 14.7% was applied for both scenarios, benchmarked against comparable companies at the date of assessment; and (c) No terminal growth rate was applied across both scenarios. Based on the assessment performed by management in the previous financial year, the Group recognised an impairment loss of USD3,500,000 (equivalent to approximately RM14,511,000) on investment in EWPPC based on the recoverable amount. Impairment of investment in associates The movements for allowance for impairment losses on investment in associates during the financial year are as follows: Group 2022 2021 RM’000 RM’000 At 1 January 14,606 - Impairment loss recognised 39,537 14,511 Effect of exchange rate changes 990 95 At 31 December 55,133 14,606 Annual Report 2022 Wah Seong Corporation Berhad 155
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