EXCEL FORCE MSC BERHAD Annual Report 2020

EXCEL FORCE MSC BERHAD - ANNUAL REPORT 2020 85 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2020 (CONT’D) 7. PRODUCT DEVELOPMENT COSTS Group Company 2020 2019 2020 2019 RM RM RM RM Cost At 1 January 29,417,546 26,736,416 25,545,648 23,152,933 Additions 3,136,620 2,681,130 2,803,118 2,392,715 At 31 December 32,554,166 29,417,546 28,348,766 25,545,648 Accumulated amortisation At 1 January 18,099,448 15,646,404 15,310,193 13,433,764 Charge for the financial year 2,523,242 2,453,044 2,103,308 1,876,429 At 31 December 20,622,690 18,099,448 17,413,501 15,310,193 Carrying amount At 31 December 11,931,476 11,318,098 10,935,265 10,235,455 (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 amount 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 flowbudgets and plans of the CGU at 4% (2019: 5%) per annum from years 2021 to 2025. (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% (2019: 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.