FGV Annual Report 2013

Felda Global Ventures Holdings Berhad 268 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2013 24 INTERESTS IN JOINT VENTURES (Cont’d.) Impairment loss on investment in joint ventures (a) Felda Iffco Sdn. Bhd. (“FISB”) At 31 December 2013, the Group’s investment in a joint venture, FISB was tested for impairment due to continuing losses incurred, which is a reassessment of impairment testing performed in 2012. Investment in FISB is included within Downstream segment. The impairment assessment requires an estimation of the recoverable amount of the investment in FISB. The recoverable amount of the investment in FISB was computed using fair value less cost to sell (2012: fair value less cost to sell) method based on cash flow projections of the various CGUs within FISB Group, expected to be attributable to the equity holder. The key assumptions used to determine the recoverable amount of investment in FISB are as follows: 2013 2012 - Gross margin 1.3% - 11.5% 1.6% - 9.5% - Terminal value growth rate 2.5% - 5% 3% - 5% - Discount rate 11% - 16% 9% - 16% As a result of the impairment assessment, the Group recognised an impairment loss of RM43,657,000 (2012: RM10,300,000) which is recorded in profit or loss against the investment in joint venture. Based on sensitivity analysis performed by the Group, the impact of 1% increase in the discount rate used, which is a key assumption will result in additional impairment loss of approximately RM12,281,000 (2012: RM27,286,000). A 1% decrease in the terminal value growth rate will result in additional impairment loss of approximately RM7,741,000 (2012: RM22,781,000). (b) Trurich Resources Sdn. Bhd. (“Trurich”) At 31 December 2013, the Group’s investment in a joint venture, Trurich was tested for impairment due to losses incurred. The impairment assessment requires an estimation of the recoverable amount of the investment in Trurich. The recoverable amount of the investment in Trurich was computed using fair value less cost to sell method based on nine (9) years plus terminal value (2012: twenty five years) cash flow projections in accordance with one palm oil plantation cycle expected to be attributable to the equity holder. The key assumptions used to determine the recoverable amount of investment in Trurich are as follows: 2013 2012 Gross margin 10% - 62% 29% - 46% Terminal growth rate 4.5% - Discount rate 15% 10% As a result of the impairment assessment, no impairment was recognised (2012: Nil) as the recoverable amount of the CGU exceeds the carrying amount. Management believes that there is no reasonably possible change in any of the above key assumptions which would cause the carrying amount of the CGU to exceed the recoverable amount.