FGV Annual Report 2016

ANNUAL INTEGRATED REPORT 2016 215 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016 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 95 year period. As a result of the fair value assessment, the Group has recognised a LLA liability of RM4,407,564,000 (2015: RM4,627,195,000). The key assumptions and the sensitivity analysis are as disclosed in Note 47 to the financial statements. (ii) Accounting for bearer plants The Group changed its accounting policy for bearer plants from capital maintenance method to amortisation method. The change in accounting policy had been applied retrospectively in accordance with FRS 108 "Accounting Policies, Changes in Accounting Estimates and Errors". Accordingly, prior year adjustments had been made as if the new accounting policy had always been applied from the beginning. The impacts of the change in the policy include an increase in property, plant and equipment ("PPE") from RM7,039,041,000 to RM10,073,774,000 and retained earnings from RM1,197,452,000 to RM1,659,769,000 as at 31 December 2016. In addition, the impact on the results for the financial year ended 31 December 2016 was a higher profit by RM63,087,000 due to the reversal of direct replanting costs previously expensed off in the income statement offset by depreciation charge for the cost of bearer plants capitalised in PPE. In establishing the planting costs to be capitalised, management had used data collated from the accounting system and records. Where limited information such as actual breakdown of costs incurred for certain areas was available, average cost per hectarage estimates had been used. Refer to Note 58 to the financial statements. (iii) Fraud losses in a subsidiary of a joint venture During the financial year, stock losses of TL71,960,000 (RM91,320,000) and overstatements of receivables of TL11,480,000 (RM14,560,000) had been identified by the Group due to the manipulation of financial statements perpetrated by previous management of Felda Iffco Gida Sanayi ("FIGS"), a subsidiary of Felda Iffco Sdn. Bhd., a joint venture of the Group which arose from overstatements of inventories and receivables in FIGS, from the beginning financial year 2011 to 2016, which were considered as deliberate misrepresentation of facts and fraud. The impact of fraud relating to current financial year of RM16,123,000 had been included in the Group's share of results from joint ventures for the current financial year, while the impact of errors relating to the fraud perpetrated in prior financial years amounting to RM10,380,000 and RM26,439,000 had been adjusted against the results for the financial year ended 31 December 2015 and periods prior to 1 January 2015 respectively. Refer to Note 58 to the financial statements. (iv) 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 CGUs 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 ("VIU") calculations. The fair value less cost to sell or VIU is the net present value of the projected future cash flows derived from the CGU discounted at an appropriate discount rate. Projected cash flows are estimates made based on historical and industry trends, general market and economic conditions and other available information.