STATEMENT ON DIRECTORS’ RESPONSIBILITY
at 31 December 2012
4. Plantation development expenditure - Group
Plantation development expenditure consists of the following:
Oil palm plantation
RM
Teak tree plantation
RM
Rubber tree plantation
RM Total
RM Cost
At 1 January 2011 211,871,578) 18,892,146) 1,546,863) 232,310,587)
Additions 11,199,228) 736,745) -) 11,935,973)
Write-offs (Note 19) ( 203,139) -) -) ( 203,139)
At 31 December 2011/1 January 2012 222,867,667) 19,628,891) 1,546,863) 244,043,421)
Additions 16,260,870) 767,251) -) 17,028,121)
At 31 December 2012 239,128,537) 20,396,142) 1,546,863) 261,071,542)
Depreciation and impairment loss At 1 January 2011
Accumulated depreciation -) -) -) -)
Accumulated impairment loss 3,514,145) 4,150,000) 766,974) 8,431,119)
3,514,145) 4,150,000) 766,974) 8,431,119) Reversal of impairment loss (Note 19) -) -) ( 766,974) ( 766,974)
Depreciation for the year (Note 19) -) -) 220,980) 220,980)
3,514,145) 4,150,000) 220,980) 7,885,125) Notes to the Financial Statements
4. Plantation development expenditure - Group continued ...
Oil palm plantation
RM
Teak tree plantation
RM
Rubber tree plantation
RM
Total RM Depreciation and impairment loss continued
...
At 31 December 2011/1 January 2012
Accumulated depreciation - - 220,980 220,980
Accumulated impairment loss 3,514,145 4,150,000 - 7,664,145
3,514,145 4,150,000 220,980 7,885,125
Impairment loss (Note 19) 778,502 15,400,354 - 16,178,856
Depreciation for the year (Note 19) - - 220,980 220,980
At 31 December 2012 4,292,647 19,550,354 441,960 24,284,961
Carrying amounts
At 1 January 2011 208,357,433 14,742,146 779,889 223,879,468
At 31 December 2011/1 January 2012 219,353,522 15,478,891 1,325,883 236,158,296
At 31 December 2012 234,835,890 845,788 1,104,903 236,786,581
4.1 Plantation development expenditure incurred during the year includes:-
Note
2012 RM
2011 RM
Depreciation of property, plant and equipment 3 2,067,249 1,563,780
Personnel expenses
- Contributions to state plans 227,083 188,473
- Wages, salaries and others 2,158,442 1,729,813
Included in plantation development expenditure is a leasehold land with carrying amount of RM9,147,358 (2011: RM9,147,358) charged to a bank for banking facilities granted to a subsidiary (see Note 16).
4.2 Impairment loss and subsequent reversal
Plantation development expenditure is tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may no longer be recoverable.
4.2.1 Teak plantation
In earlier years, the Group recognised an impairment loss of RM4,150,000 on its teak tree plantation.
The recoverable amount was estimated based on its value in use, by estimating the projected cash flows from growing the trees to maturity and discounting them to their net present value. The value in use calculation was based on the following key assumptions:-
• Cash flows are projected based on assessment of current teak prices, the age and girth growth of teak stands based on available information; and
• A pre-tax discount rate of 7.60% per annum, being 1% per annum above the base lending rate prevailing at that date was applied in discounting the projected cash flows.
Notes to the Financial Statements
4. Plantation development expenditure - Group continued ...
4.2 Impairment loss and subsequent reversal continued ...
4.2.1 Teak plantation continued ...
In the year under review, following a change in management’s intention in regard to the teak plantation, the Group has put the trees up for sale en-bloc and will be re-designating the land for other uses. As a result, the value in use calculation, which was used previously, is no longer valid.
The recoverable amount of teak plantation is now measured based on the estimated fair value less costs to sell of the teak trees. The fair value less costs to sell calculation is based on the following key assumptions:-
• Selling price of RM120/metric tonne; and
• 50% recovery of the existing estimated saleable logs volume.
Following the reassessment, an impairment loss of RM15,400,354 has been recognised in the year ended 31 December 2012 as other operating expenses in the statement of comprehensive income (see Note 19).
4.2.2 Oil palm plantation
The Group had recognised an impairment loss of RM3,514,145 on its oil palm plantation in earlier years.
The impairment loss was made following the Penan participants in a trust arrangement entering into the oil palm plantation of a subsidiary and disrupting its activities (see Note 3.2). In the year under review, due to the inability to harvest fresh fruit bunches from the said estate and disturbances in two (2) other estates, the Group has assessed the recoverable amount of these estates.
The recoverable amount of the estates are estimated based on their values in use, on the assumption that the Group can reclaim the estates and resume its harvesting activities in 2014. The value in use calculation was based on the following key assumptions:-
• Current selling price of fresh fruit bunches being used throughout the forecast and projection years;
and
• A pre-tax discount rate of 12% - 16% per annum, 16% being the discount rate incorporating additional risk premium applied for the estate in dispute with the Penan participants.
The values assigned to the key assumptions represent management’s assessment of current trends in the oil palm plantation in Sarawak and are based on both external and internal sources (historical data). Any subsequent changes in the market conditions or to decisions on the harvesting levels may have a material impact on the assets’ values as the future cash flows may differ from these estimates.
Following the assessment, the Group has estimated that the net recoverable amounts to be higher than the carrying amounts as at 31 December 2012 and thus, other than the impairment loss of RM3,514,145 recognised in the earlier years, no impairment is necessary.
In addition, the Group foresees a lack of progress in the development of two plantations in its subsidiaries in near future. In view thereof, the entire plantation development expenditure has been tested for impairment. Following the test, the carrying amount of the plantation development expenditure has been assessed to be no longer recoverable. As a result, an impairment loss of RM778,502 has been recognised as other operating expenses in the statement of comprehensive income (see Note 19).
4.2.3 Rubber plantation
The Group recognised an impairment loss of RM766,974 on its rubber tree plantation in the year ended 31 December 2009. The plantation was assessed to have been stated in excess of its recoverable amount, which was determined principally by calculating its value in use that involved estimating the cash flows from the subsequent extraction of the rubber trees. However, in 2011, the rubber tree plantation was leased to a third party to extract latex for 5 years.
Based on the assessment in 2011, the recoverable amount was determined to be higher than the carrying amount, and hence, the impairment loss of RM766,974 previously recognised has been reversed.
Notes to the Financial Statements