FGV Annual Report 2014

21 Intangible Assets (continued) (a) Impairment test for goodwill (continued) (i) Sugar business operations in Seberang Prai, Malaysia The goodwill relates to the acquisition of the sugar business by the Group and is allocated to MSM Prai Berhad (previously known as Malayan Sugar Manufacturing Company Berhad). This represents the lowest level at which goodwill is monitored for internal management purposes. The recoverable amount of the CGU is determined based on a fair value less cost to sell basis (Level 3 fair value computation) using cash flows projections based on financial budgets approved by the Directors covering a three-year period and applying a terminal value growth rate multiple using longer-term sustainable growth rates. The key assumptions used for the CGU’s fair value less cost to sell calculation are: 2014 2013 Gross margin 19%-22% 18%-19% Terminal value growth rate 1% 1% Discount rate 10% 10% (i) Gross margin The basis used to determine the value assigned to the budgeted gross margin is the average gross margin achieved in the year immediately before the budgeted year, adjusted for market and economic conditions, which includes expectations of raw sugar pricing and expected efficiency improvements. (ii) Terminal value growth rate The terminal growth rate used is based on long-term growth rates in the sugar industry in Malaysia. (iii) Discount rate Discount rate used, which is post-tax, reflects specific industry risks relating to the sugar business. The Group’s review includes an impact assessment of changes in key assumptions. Based on the sensitivity analysis performed, the Directors concluded that no reasonable change in any of the base case assumptions would cause the carrying amount of the CGU to exceed the recoverable amount. (ii) Palm upstream operations in Malaysia Goodwill of RM627,265,000 for palm upstream operations in Malaysia comprise of RM500,027,000 for APL (Note 22(b)(iii)) and RM127,238,000 for PUP (Note 22(c)(i)). The Group’s estates in Malaysia are combined for the purposes of goodwill impairment testing as they represent the lowest level within the Group at which goodwill is monitored for internal management purpose. Felda Global Ventures Holdings Berhad pg 234 NOTES TO THE FINANCIAL STATEMENTS For The Financial Year Ended 31 December 2014