FGV Annual Report 2016

FELDA GLOBAL VENTURES HOLDINGS BERHAD 216 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016 5 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED) (iv) Goodwill (continued) As a result of these impairment assessments, the Group did not recognise any impairment loss (2015: impairment charge on goodwill of RM12,770,000) during the financial year. The key assumptions and the sensitivity analysis are as disclosed in Note 21 to the financial statements. (v) Impairment of non-financial assets The Group tests its non-financial assets for impairment if there is any objective evidence of impairment. Management have assessed that certain non-financial 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 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. As a result of the assessment, the Group has recognised a net impairment of RM102,154,000 (2015: net reversal of impairment of RM114,778,000) against certain property, plant and equipment, intangible assets (other than goodwill) and prepaid lease payments. The key assumptions and the sensitivity analysis are as disclosed in Notes 19 and 21 to the financial statements. In addition, the Company also tests its investment in a subsidiary in China for impairment as the subsidiary recorded losses during the financial year. The recoverable amount was determined based on fair value less cost to sell, which is the net present value of the projected future cash flows derived from the CGU discounted at 13%. The key assumptions and results of the impairment assessment are disclosed in Notes 19 and 22(d) to the financial statements. (vi) Deferred tax assets Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. This involves judgment regarding the future financial performance of the particular entity in which the deferred tax asset has been recognised. As at 31 December 2016, the Group has deferred tax assets of RM219,088,000 (2015: RM202,848,000) in respect of unused tax losses of certain loss making subsidiaries of the Group. The taxable profit projections for the loss making subsidiaries include the effects of cost management plans and increase in productions to improve the performance of the businesses. Other key assumptions, in particular, average revenue growth rates between 5% to 19% were applied with contribution margins projected based on industry trends. In evaluating whether it is probable that future taxable profits will be available in future periods, all available evidence was considered, including approved budgets and business plans, continuous effective cost management plans and analysis of historical operating results. These forecasts are consistent with those prepared and used internally for business planning and impairment testing purposes. (vii) Purchase price allocation for acquisition of Yapidmas group of companies Purchase prices related to business combinations and asset acquisitions are allocated to the underlying acquired assets and liabilities based on their estimated fair value at the time of acquisition. The determination of fair value requires the Group to make assumptions, estimates and judgments regarding future events, including the determination of fair values of bearer plants and other assets using key assumptions including CPO price, FFB price, estate costs, and average FFB yield. The allocation process is inherently subjective and impacts the amount assigned to individually identifiable assets and liabilities. As a result, the purchase price allocation impacts the Group's reported assets and liabilities, future net earnings due to the impact on future depreciation and amortisation expense and impairment tests. The effects of the acquisition of Yapidmas group is presented in Note 22(b)(i) to the financial statements.