FGV Annual Report 2012

44 Felda Global Ventures Holdings Berhad 4 FINANCIAL RISK MANAGEMENT (continued) (c) Fair value estimation The fair value of financial instruments that are not traded in an active market (for example, foreign currency forward contracts) is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Instruments included in level 2 comprise foreign currency forward contracts. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. Instruments included in level 3 comprise LLA liability. The following table present the changes in level 3 instruments during the financial year: 2012 2011 RM’000 RM’000 LLA liability 1 January – – Fair value at inception of LLA (Note 42) 5,842,694 – Fair value changes charged to profit or loss 210,178 – Repayment during the year (388,103) – 31 December 5,664,769 – 5 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Estimates and judgments are continually evaluated by Directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (i) LLA liability The fair value of the LLA liability is measured using a discounted cash flow calculation using cash flow projections based on financial budgets approved by the Directors covering a 99 year period. As a result of the fair value assessment, the Group has recognised a LLA liability of RM5,664,769,000. The key assumptions and the sensitivity analysis are as disclosed in Note 42 to the financial statements. (ii) Goodwill The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units (“CGU”) to which the goodwill is allocated. Estimating the recoverable amount requires management to make an estimate of the expected future cash flows from the CGU and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The recoverable amounts of CGUs were determined based on the higher of fair value less cost to sell or value in use calculations. As a result of these impairment assessments, the Group did not recognise any impairment. The key assumptions and the sensitivity analysis are as disclosed in Note 20 to the financial statements. (iii) Intangible assets other than goodwill, property, plant and equipment and biological assets. The Group tests intangible assets other than goodwill, property, plant and equipment and biological assets for impairment if there is any objective evidence of impairment. Management have assessed that certain intangible assets other than goodwill, property, plant and equipment and biological assets may be potentially impaired or the existing impairment may be reversed. The recoverable amounts of these assets were determined based on the higher of fair value less cost to sell or value in use calculations. As a result of the assessment, the Group has recognised an impairment of RM36,616,000 against its property, plant and equipment and biological assets, accelerated depreciation of RM8,656,000 against its’biological assets and reversal of impairment of RM39,375,000 against its intangible assets other than goodwill and property, plant and equipment. The key assumptions and the sensitivity analysis are as disclosed in Notes 18, 20, 21 and 28 to the financial statements. Notes to the Financial Statements for the financial year ended 31 December 2012