Excel Force MSC Berhad Annual Report 2015

NOTES TO THE FINANCIAL STATEMENTS 31 December 2015 (cont’d) E X C E L F O R C E M S C B E R H A D • A N N U A L R E P O R T 2 0 1 5 66 6. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) 6.2 Critical judgements made in applying accounting policies The following are judgements made by management in the process of applying the accounting policies of the Group that have the most significant effect on the amounts recognised in the financial statements. (a) Classification of leasehold land The Group has assessed and classified leasehold land of the Group as finance leases based on the extent to which risks and rewards incidental to ownership of the land resides with the Group arising from the lease term. Consequently, the Group has classified the unamortised upfront payment for leasehold land as a finance lease in accordance with MFRS 117 Leases. (b) Classification of non-current bank borrowings Term loan agreements entered into by the Group include repayment on demand clauses at the discretion of the financial institutions. The Group believes that in the absence of a default being committed by the Group, these financial institutions are not entitled to exercise their rights to demand for repayment. Accordingly, the carrying amount of the term loans have been classified between current and non-current liabilities based on their repayment period. (c) Contingent liabilities The determination and treatment of contingent liabilities is based on the Directors’ and management’s view of the expected outcome of the contingencies for matters in the ordinary course of business. 6.3 Key sources of estimation uncertainty The following are key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. (a) Useful lives of property, plant and equipment The Group estimates the useful lives of property, plant and equipment at the time the assets are acquired based on historical experience, the expected usage, wear and tear of the assets and technical obsolescence arising from changes in the market demands or service output of the assets. The estimated useful lives of property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to changes in the factors mentioned above. Changes in these factors could impact the useful lives and the residual values of the assets; therefore future depreciation charges could be revised. (b) Impairment of product development costs The Group reviews the carrying amounts of product development costs as at the end of the reporting period to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amount or value in use is estimated. Determining the value in use of product development costs requires the determination of future cash flows expected to be generated from the continued use, and ultimate disposition of such assets. Any resulting impairment loss could have a material adverse impact on the Group’s financial position and results of operations.