227 NOTES TO THE FINANCIAL STATEMENTS (CONT’D) For the financial year ended 31 January 2023 ACCOUNTABILITY (FINANCIAL STATEMENTS) 5. Critical accounting estimates and judgements (continued) (f) Recoverable amounts of investment in subsidiaries The Company reviews its investment in subsidiaries for impairment indicators in accordance with the accounting policy stated in Note 2.20. If an impairment indicator exists, the recoverable amount for the investment will be ascertained based on its value-in-use (“VIU”). For VIU calculations, the future cash flows from these subsidiaries are discounted by an appropriate discount rate. Significant judgements are used to estimate the future cash flows and discount rates applied in computing the recoverable amounts of the investments. In making these estimates, management has relied on past performance and its expectations of future cash flows from these subsidiaries. The discount rates applied reflects specific risks relating to the relevant industry and geographical location of the underlying cash flows. Based on the above, the Company has recognised an impairment charge of RM33 million (2022: RM3 million) (Note 9) on its investment in subsidiaries during the financial year. As at 31 January 2023, the carrying amount of investment in subsidiaries amounted to RM4,516 million (2022: RM2,710 million) (Note 19). (g) Critical judgement over interest rate benchmark reform In calculating the change in fair value attributable to the hedged risk of floating-rate debt, the Group has made the following assumptions that reflect its current expectations: • The floating-rate debt will move to SOFR during 2023 and the spread will be similar to the spread included in the interest rate swaps used as the hedging instrument. • No other changes to the terms of the floating-rate debt are anticipated. • The interest rate swaps will not be derecognised. Given that the critical terms are assumed to continue to match, the change in fair value of the hedged risk is the same as the change in fair value of the hedging instrument. Therefore, no hedge ineffectiveness is recognised as a result of the expected transition of the IBOR reform. (h) Impairment of solar plant under construction Each solar plant is deemed to be a single CGU as the Group manages each solar plant separately. The Group reviews these CGUs at each reporting date for impairment indicators in accordance with the accounting policy stated in Note 2.20. If there is an impairment indicator, the recoverable amount for the solar plant will be ascertained based on the higher of the fair value less costs of disposal and its value-in-use. For value-in-use calculations, the future cash flows are based on contracted cash flows and estimates of uncontracted cash flows over the tenure of the power purchase agreement for each solar plant discounted by an appropriate discount rate. The impairment testing for each CGU requires management’s estimates and judgement to derive future cash flows based on key assumptions such as carbon credit revenue, commissioning date and impact of change of law on power generation revenue. The discount rate used is based on industry average that varies over time. The Group has evaluated the carrying amounts of solar plant under construction against their recoverable amounts and recorded an impairment charge to the carrying value of solar plant under construction of RM117 million. The key assumptions and basis used to determine the recoverable amounts of the solar plant under construction are disclosed in Note 16(g).
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