EXCEL FORCE MSC BERHAD Annual Report 2020

EXCEL FORCE MSC BERHAD - ANNUAL REPORT 2020 62 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2020 (CONT’D) 2. BASIS OF PREPARATION (CONT’D) (c) Significant accounting judgements, estimates and assumptions (Cont’d) Key sources of estimation uncertainty The 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 reporting period are set out below: Useful lives of property, plant and equipment and right-of-use (“ROU”) assets The Group regularly reviews the estimated useful lives of property, plant and equipment and ROU assets based on factors such as business plan and strategies, expected level of usage and future technological developments. Future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned above. A reduction in the estimated useful lives of property, plant and equipment and ROU assets would increase the recorded depreciation and decrease the value of property, plant and equipment and ROU assets. The carrying amount at the reporting date for property, plant and equipment and ROU assets are disclosed in Notes 4 and 6 respectively. Product development costs The Group capitalises product development costs for a project in accordance with the accounting policy. Initial capitalisation of product development costs is based on management’s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. In determining the amounts to be capitalised, management makes assumptions regarding the expected future cash generations of the project, discount rates to be applied and the expected period of benefits. The carrying amount at the reporting date for product development costs is disclosed in Note 7. Amortisation of product development costs Changes in the expected level of usage and technological development could impact the economic useful lives, therefore future amortisation charges could be revised. Impairment of product development costs The Group reviews the carrying amounts of product development costs at the end of each reporting period to determine whether there is any indication of impairment. If any such indication exists, the 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. Significant judgement is made in the estimation of the present value of future cash flows generated by product development costs, which involves uncertainties and is significantly affected by assumptions used and judgement made regarding estimates of future cash flows and discount rates. Changes in assumptions could significantly affect the results of the Group’s assessment for impairment of product development costs. Further details on the assessment for impairment of product development costs are disclosed in Note 7.