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 68 6. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) 6.3 Key sources of estimation uncertainty (continued) (g) Write down for obsolete or slow moving inventories The Group writes down its obsolete or slow moving inventories based on an assessment of their estimatednet sellingprice. Inventories arewrittendownwhenevents or changes incircumstances indicate that the carrying amounts may not be recoverable. Management specifically analyse sales trend and current economic trends when making a judgement to evaluate the adequacy of the write down for obsolete or slow moving inventories. Where expectations differ from the original estimates, the differences would impact the carrying amount of inventories. (h) Impairment of investments in subsidiaries and amounts owing by subsidiaries The Directors review the investments in subsidiaries for impairment when there is an indication of impairment and assesses the impairment of receivables on the amounts owing by subsidiaries when the receivables are long outstanding. The recoverable amount of the investments in subsidiaries and the amounts owing by subsidiaries are assessed by reference to the value in use of the subsidiaries. The value in use is the net present value of the projected future cash flows derived from the business operations of the subsidiaries discounted at an appropriate discount rate. For such discounted cash flow method, it involves the use of estimated future results and a set of assumptions to reflect their income and cash flows. Judgement has also been used to determine the discount rate for the cash flows and the future growth of the businesses of the subsidiaries. (i) Fair value measurement The financial and non-financial assets and liabilities that are measured subsequent to initial recognition at fair value are grouped into Level 1 to Level 3 based on the degree to which the fair value inputs are observable. (i) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; (ii) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and (iii) Level 3 fair value measurements are those derived from inputs for the asset or liability that are not based on observable market data (unobservable inputs). The classification of an item into the above levels is based on the lowest level of the inputs used in the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur. The Group measures its financial instruments at fair value as disclosed in Note 32 to the financial statements.