SCC Holdings Berhad Annual Report 2019

notes to the financial statement 31 december 2019 (cont’d) 49 SCC Holdings Berhad | Annual Report 2019 2. Basis of Preparation (CONT’D) (c) Significant accounting judgements, estimates and assumptions (cont’d) Key sources of estimation uncertainty (cont’d) Inventories valuation Inventories are measured at the lower of cost and net realisable value. The Group estimates the net realisable value of inventories based on an assessment of expected sales prices. Demand levels and pricing competition could change from time to time. If such factors result in an adverse effect on the Group’s products, the Group might be required to reduce the value of its inventories. Details of inventories are disclosed in Note 9 to the financial statements. Provision for expected credit loss of financial assets at amortised cost The Group review the recoverability of its receivables at each reporting date to assess whether an impairment loss should be recognised. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, existing market conditions at the end of each reporting period. The Group uses a provision matrix to calculate expected credit loss for trade and other receivables. The provision rates are based on number of days past due. The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed, if any. The assessment of the correlation between historical observed default rates, forecast economic conditions and expected credit loss is a significant estimate. Information about the expected credit loss is disclosed in Note 31(b)(i) to the financial statements. Determination of transaction prices The Group is required to determine the transaction price in respect of each of its contracts with customers. In making such judgment the Group assesses the impact of any variable consideration in the contract, due to discounts or penalties, the existence of any significant financing component and any non-cash consideration in the contract. In determining the impact of variable consideration, the Group uses the expected value method, whereby the transaction price is determined by reference to the sum of probability-weighted amounts in a range of possible consideration amounts. There is no significant financing as the period between the transfer of control of good or service to a customer and the payment date is always less than one year, and no non-cash consideration noted in the contracts with customers.