MISC Annual Report 2018

NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS HIGHLIGHTS OF THE YEAR OUR BUSINESS OUR LEADERSHIP OUR PERFORMANCE OUR COMMITMENT TO SUSTAINABILITY OUR GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION 50 TH ANNUAL GENERAL MEETING 279 MISC BERHAD ANNUAL REPORT 2018 278 13. SHIPS, OFFSHORE FLOATING ASSETS AND OTHER PROPERTY, PLANT AND EQUIPMENT (CONT'D.) (a) The net carrying amounts of ships pledged as security for borrowings (Note 19(c)) are as follows: Group 2018 RM'000 2017 RM'000 Ships 6,761,553 3,290,183 (b) The volatility of charter hire rates, expired charter contracts or contracts that approaching the expiry date were identified as indications that the carrying amount of certain ships may be impaired. The Group and the Corporation have performed a review of the recoverable amount of their ships, offshore floating assets and other property, plant and equipment during the financial year. The review led to the recognition of net impairment losses of RM75,222,000 (2017: RM642,298,000) and RM49,802,000 (2017: RM227,431,000) for the Group and the Corporation respectively, as disclosed in Note 5(a). The recoverable amount was based on the higher of fair value less costs of disposal or value-in-use, and determined at the cash-generating- unit (“CGU”) of each asset. Recoverable amount determined from value-in-use ("VIU") The Group's recoverable amount for impaired ships of RM467,500,000 (2017: RM119,696,000) was determined from the value-in-use calculations using cash flow projections discounted at rate ranging from 7.6% to 10.5% (2017: 7.1% to 10.3%). Impairment losses of RM49,802,000 (2017: RM69,997,000) and RM49,802,000 (2017: RMNil) for the Group and the Corporation respectively were recognised using this basis. Recoverable amount determined from fair value less costs of disposal The fair values of certain ships and offshore floating assets were determined based on valuation performed by independent valuers based on comparable ships and offshore floating assets. The fair value measurement was categorised as Level 3 fair value as defined in Note 2.3(x). Impairment of RM25,420,000 (2017: RM572,301,000) and RMNil (2017: RM227,431,000) for the Group and the Corporation respectively were recognised using this basis. (c) Included in additions to the ships, offshore floating assets and other property, plant and equipment of the Group is finance cost capitalised during the year of RM5,404,000 (2017: RMNil) 14. PREPAID LEASE PAYMENTS ON LAND AND BUILDINGS Group Corporation 2018 RM'000 2017 RM'000 2018 RM'000 2017 RM'000 At 1 January 220,128 227,752 3,775 4,305 Amortisation for the year (Note 5) (7,216) (7,223) (121) (129) Currency translation differences 76 (401) 76 (401) At 31 December 212,988 220,128 3,730 3,775 Analysed as: Leasehold land 209,258 216,353 - - Leasehold buildings 3,730 3,775 3,730 3,775 212,988 220,128 3,730 3,775 Included in leasehold land of the Group is the carrying value of a long term leasehold and foreshore land of a subsidiary of RM209,258,000 (2017: RM216,353,000) which cannot be disposed off, charged or subleased without the prior consent of the Johor State Government.