EXCEL FORCE MSC BERHAD Annual Report 2019

EXCEL FORCE MSC BERHAD - ANNUAL REPORT 2019 82 notes to the financial statements 31 december 2019 (cont’d) 7. Product Development Costs Group Company 2019 2018 2019 2018 RM RM RM RM Cost At 1 January 26,736,416 23,973,983 23,152,933 20,661,911 Additions 2,681,130 2,762,433 2,392,715 2,491,022 At 31 December 29,417,546 26,736,416 25,545,648 23,152,933 Accumulated amortisation At 1 January 15,646,404 13,542,805 13,433,764 11,852,497 Charge for the financial year 2,453,044 2,103,599 1,876,429 1,581,267 At 31 December 18,099,448 15,646,404 15,310,193 13,433,764 Carrying amount At 31 December 11,318,098 11,090,012 10,235,455 9,719,169 (a) Product development costs comprise salaries of personnel involved in the development and design of products prior to the commencement of commercial production. (b) The Group reviews the carrying amounts of product development costs as at the end of each reporting period to determine whether there is any indication of impairment. If any such indications exist, the recoverable amount of the cash-generating unit (“CGU”) is determined based on its value in use. The value in use was determined by discounting the future cash flows expected to be generated from the continuing use of the CGU based on the financial budgets prepared by the management covering a period of five (5) years. The key assumptions used in the value in use calculations are as follows: (i) The anticipated average annual revenue growth rates used in the cash flow budgets and plans of the CGU at 5% (2018: 2% to 6%) per annum from year 2020 to 2024. (ii) Profit margins were projected based on the historical profit margin achieved or pre-determined profit margin for the products. (iii) A pre-tax discount rate of 4.80% (2018: 4.80%) per annum has been applied in determining the recoverable amount of the CGU. The discount rate was estimated based on the Group’s weighted average cost of capital plus a reasonable risk premium. Based on the assessment, the Directors are of the view that no impairment loss is required as the recoverable amount of the CGU is higher than its carrying amount. (c) Sensitivity to changes in assumptions The management believes that there is no reasonable possible change in any key assumption that would cause the CGU carrying amount to exceed its recoverable amount.