FGV Annual Report 2016

FELDA GLOBAL VENTURES HOLDINGS BERHAD 334 FINANCIAL REPORT NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2016 57 CONTINGENT LIABILITIES (CONTINUED) (viii) On 15 July 2016, a writ of Summons and application for injunction was served by Jiang Xin Shipping Co. Ltd ("the Plaintiff") on FGV Trading Sdn. Bhd ("the Defendant"). The Plaintiff's claim against the Defendant arises out of an alleged breach of a letter of indemnity given by the Defendant to the Plaintiff which was issued to facilitate discharge of 10,000 metric tonnes of RBD Palm Olein to Ruchi Soya Industries Limited at New Mangalore, India. The Plaintiff claims that as a result of the alleged breach, they suffered losses and damage by the arrest of the vessels "Yue You 902" and "GNC Concord 1" by OCBC Bank, Singapore, who were the holders of the original bills of lading. The Plaintiff seeks principally, the payment of costs, expenses, damages and expenses on an indemnity basis arising out of or in connection with the arrests of the abovementioned vessels in Singapore and South Africa respectively, including the Plaintiff's costs incurred in legal proceedings in China, Singapore, the UK and South Africa, together with all consequential orders and interest. The Plaintiff's application for injunction was dismissed by the court on 19 August 2016. The full trial of this matter was held on 3 and 4 January 2017, with 4 witnesses called to give oral evidence. The Defendant's main arguments in court focused on a technical point which relates to the wordings of the letter of indemnity, which in the Defendant's view, rendered the letter of indemnity inapplicable as against the Defendant. The Plaintiff sought to rely on the relief of rectification of the letter of indemnity, to provide for an interpretation of the same not based on the wordings of the said letter, but rather on mutual intention. Written and oral submissions were subsequently tendered to the court. This matter is currently fixed for decision and clarification on 26 April 2017. The Directors are of the view that given the uncertain nature of the claim in terms of the quantum claimed by the Plaintiff and strengthened by legal advice that there is an arguable case in the Defendant's favour, therefore no provision to be made in the financial statements for the financial year ended 31 December 2016. The remaining claims are not material to be disclosed in the financial statements and deemed remote by the Directors. 58 RESTATEMENT AND EFFECTS OF CHANGE IN ACCOUNTING POLICY (a) Change in accounting policy During the financial year, the Group changed its accounting policy for bearer plants from capital maintenance method to amortisation method to be in line with the accounting requirements of FRS 116 – Property, Plant and Equipment (see Note 2(i)). The change in accounting policy has been applied retrospectively and has resulted in: (i) the reclassification of bearer plants from biological assets to property, plant and equipment; and (ii) the capitalisation and subsequent depreciation of bearer plants including the tax effect. (b) Prior periods' errors arising from fraud losses During the financial year, the Group discovered fraud losses in Felda Iffo Gida Sanayi ("FIGS"), Turkey, a subsidiary of Felda Iffco Sdn. Bhd., a joint venture of the Group, which arose from overstatements of inventories and receivables in FIGS. Stock losses of TL71,960,000 (RM91,320,000) and overstatements of receivables of TL11,480,000 (RM14,564,000) had been identified by the Group due to the manipulation of financial statements perpetrated by previous management of FIGS from the beginning financial year 2011 to 2016, which were considered as deliberate misrepresentation of facts and fraud. Of the total losses of RM105,884,000, the Group's share of the losses amounted to RM52,942,000. 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 financial year ended 31 December 2015 of RM10,380,000 and for the periods prior to 1 January 2015 of 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.