FINANCIAL STATEMENTS
2. BASIS OF PREPARATION (cont'd)
2.4 Adoption of Amendments/Improvements to MFRS (cont'd)
Initial application for the above standards did not have any material impacts to the financial statements of the Group and of the Company upon adoption except for:
MFRS 16 Leases
MFRS 16 supersedes MFRS 117 Leases, IC Interpretation 4 Determining whether an Arrangement contains a Lease, IC Interpretation 115 Operating Leases-Incentives and IC Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases.
Lessor accounting under MFRS 16 is substantially unchanged from MFRS 117. Lessors will continue to classify leases as either operating or finance leases using similar principles as in MFRS 117. Therefore, MFRS 16 does not have an impact for leases where the Company is the lessor.
The Group adopted MFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. Under this method, the Group is not required to reassess whether a contract is, or contains a lease at 1 January 2019. Instead, the Group applied the standard only to contracts that were previously identified as leases applying MFRS 117 and IC Interpretation 4, and the cumulative effect of initially applying this standard is adjusted to the opening balance of the retained profits without the need to restate the comparative information.
The effect of adopting MFRS 16 on 1 January 2019 resulted in the increase of the Group’s assets and liabilities as at that date as follows:
Statements of Financial Position
RM ASSETS
Non-current assets
Right-of-use assets 1,737,623
LIABILITIES
Non-current liabilities
Lease liabilities 767,040
Current liabilities
Lease liabilities 970,583
1,737,623
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2. BASIS OF PREPARATION (cont'd)
2.4 Adoption of Amendments/Improvements to MFRS (cont'd) MFRS 16 Leases (cont'd)
Upon adoption of MFRS 16, the Group applied a single recognition and measurement approach for all leases where leases will be recognised as right-of-use asset and corresponding lease liability except for short-term leases and leases of low-value assets where the lease rental payments are recognised as an expense.
• Leases previously classified as finance leases
Leases which were previously classified as finance leases under MFRS 117 continue to be treated as such without any changes upon adoption of MFRS 16 on 1 January 2019.
• Leases previously accounted for as operating leases
The Group recognised right-of-use asset and lease liability for the lease previously classified as operating lease, except for short-term leases and leases of low-value assets. The right-of-use asset were recognised based on the carrying amount as if the standard had always been applied, apart from the use of incremental borrowing rate at the date of initial application. The right-of-use asset was recognised based on the amount equal to the lease liability, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liability was recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application.
The Group also applied the available practical expedients wherein it:
- Used a single discount rate to a portfolio of leases with reasonably similar characteristics;
- Relied on its assessment of whether leases are onerous immediately before the date of initial application;
- Applied the short-term leases exemptions to leases with lease term that ends within 12 months of the date of initial application;
- Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application; and
- Used hindsight in determining the lease term where the contract contained options to extend or terminate the lease.
2.5 Standards Issued But Not Yet Effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s and the Company’s financial statements are disclosed below. The Group and the Company intend to adopt these new and amended standards and interpretations, if applicable, when they become effective.
Effective for annual periods beginning on or after 1 January 2020 Amendments to References to the Conceptual Framework in MFRS Standards Amendments to MFRS 3 Business Combinations: Definition of a Business
Amendments to MFRS 101 Presentation of Financial Statements and MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Material
Amendments to MFRS 9, MFRS 139 and MFRS 7 Interest Rate Benchmark Reform Effective for annual periods beginning on or after 1 June 2020
Amendments to MFRS 16 Leases: Covid-19 - Related Rent Concessions
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N O T E S T O T H E
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2. BASIS OF PREPARATION (cont'd)
2.5 Standards Issued But Not Yet Effective (cont'd)
Effective for annual periods beginning on or after 1 January 2021 MFRS 17 Insurance Contracts
Effective for annual periods beginning on or after 1 January 2022
Amendments to MFRS 3 Business Combinations: Reference to the Conceptual Framework
Amendments to MFRS 116 Property, Plant and Equipment: Property, Plant and Equipment – Proceeds before Intended Use
Amendments to MFRS 137 Provisions, Contingent Liabilities and Contingent Assets: Onerous Contracts – Cost of Fulfilling a Contract
Annual Improvements to MFRS Standards 2018 – 2020
Effective for annual periods beginning on or after 1 January 2023
Amendments to MFRS 101 Presentation of Financial Statement: Classification of Liabilities as Current or Non-current
Effective date yet to be confirmed
Amendments to MFRS 10 Consolidated Financial Statements and MFRS 128 Investments in Associates and Joint Ventures - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The existing MFRS 4 and Amendments to MFRS 4 will be withdrawn upon the adoption of the new MFRS 17 which will take effect on or after 1 January 2021.
The directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group and of the Company in future periods.
2.6 Significant Accounting Estimates and Judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
2.6.1 Judgements made in applying accounting policies
There are no significant areas of critical judgement in applying accounting policies that would have a significant effect on the amount recognised in the financial statements.
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3 1 M A R C H 2 0 2 0 ( C O N T ’ D ) 2. BASIS OF PREPARATION (cont'd)
2.6 Significant Accounting Estimates and Judgements (cont'd) 2.6.2 Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial period are discussed below:
(i) Useful lives of depreciable assets
Plant and machinery are depreciated on a straight-line basis over their estimated useful lives.
Management estimates the useful lives of the plant and machinery to be within 5 to 50 years. Changes in the expected level of usage and technological developments could impact the economic useful lives and residual values of the plant and machinery. Therefore, future depreciation charges could be revised.
(ii) Impairment of property, plant and equipment and intangible assets
The Group performs an impairment review as and when there are impairment indicators to ensure that the carrying amount of the property, plant and equipment and intangible assets do not exceed their recoverable amount. The recoverable amount represents the present value of the estimated future cash flows expected to arise from the cash generating units to which the assets belongs. Therefore, in arriving at the recoverable amount, management exercises judgement in estimating the future cash flows, growth rate, product life cycle and discount rate.
The provision for impairment loss on property, plant and equipment and intangible assets is disclosed in Notes 4 and 6 to the financial statements.
(iii) Inventories
The management reviews for slow-moving and obsolete inventories. This review requires judgements and estimates. Possible changes in these estimates could result in revision to the valuation of inventories.
The inventories written-down to their net realisable value are disclosed in Note 9 to the financial statements.
(iv) Provision for expected credit loss (“ECL”) of receivables
The Group uses a provision matrix to calculate ECL for receivables. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns.
The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forward- looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
The assessment of the correlation between historical observed default rates, forecast economic conditions and expected credit losses is a significant estimate. The amount of expected credit losses 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 provision for expected credit loss is disclosed in Note 8 to the financial statements.
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