notes to the financial statements
for the financial year ended 31 December 2014 (Continued)
3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated by the Directors and are based on historical experience and other factors, including expectations of future events
that are believed to be reasonable under the current circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. 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 outlined below.
(a)
Impairment of goodwill
The Group tests goodwill for impairment annually in accordance with the accounting policy in 2.12 (a) and whenever events or changes in circumstances
indicate that the goodwill may be impaired. For the purposes of assessing impairment, goodwill is allocated to cash-generating units that are expected to
benefit from the synergies of the business combination in which the goodwill arose. Judgement is required in the estimation of the present value of future cash
flows generated by the cash-generating units or groups of cash-generating units, which involves uncertainties and are significantly affected by assumptions
used and judgement made regarding estimates of future cash flows and discount rates. Changes in assumptions could affect the results of the Group’s test for
impairment of goodwill. Further details of the carrying amount and the key assumptions applied in the impairment assessment of goodwill are given in Note 13.
(b)
Construction contracts
The Group recognises contract revenue based on the stage of completion method. The stage of completion is measured by reference to the contract costs
incurred-to-date to the estimated total contract costs for the contract. When it is probable that the estimated total contract costs will exceed the total contract
revenue, the expected loss is recognised as an expense immediately.
Judgement is required in the estimation of stage of completion, the extent of the contract costs incurred, as well as the recoverability of the construction
contracts. The Group evaluates the estimates made using past experience.
(c)
Impairment of non-financial assets
The Group assesses whether there is any indication that non-financial assets are impaired at the end of each reporting period. Impairment is measured by
comparing the carrying amount of an asset with its recoverable amount. Recoverable amount is measured at the higher of the fair value less cost to sell for
that asset and its value-in-use. The value-in-use is the net present value of the projected future cash flows to be derived from that asset. Projected future
cash flows are calculated based on historical sector and industry trends, general market and economic conditions, changes in technology and other available
information. Changes to any of these assumptions would affect the amount of impairment.
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Wah Seong Corporation Berhad • Annual Report 2014
