80 EXCEL FORCE MSC BERHAD Notes to the Financial Statements (cont’d) 6. PRODUCT DEVELOPMENT COSTS Group Company 2021 2020 2021 2020 RM RM RM RM Cost At 1 January 32,554,166 29,417,546 28,348,766 25,545,648 Additions 2,953,584 3,136,620 2,043,016 2,803,118 At 31 December 35,507,750 32,554,166 30,391,782 28,348,766 Accumulated amortisation At 1 January 20,622,690 18,099,448 17,413,501 15,310,193 Charge for the financial year 2,710,519 2,523,242 2,319,300 2,103,308 At 31 December 23,333,209 20,622,690 19,732,801 17,413,501 Carrying amount At 31 December 12,174,541 11,931,476 10,658,981 10,935,265 (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 and the Company review the carrying amount of product development costs 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 projections of the CGU at 5% (2020: 4%) per annum from years 2022 to 2026. (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% (2020: 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.
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