200901023978 (867077-X) Kimlun Corporation Berhad (Incorporated in Malaysia) 3. Significant accounting judgements and estimates (cont'd) 3.2 Key sources of estimation uncertainty (cont'd) (e) Provision for expected credit loss of trade and other receivables (cont'd) (f) Provision for defect liability costs (g) Write down of land held for development The net realisable value of the parcel of land was determined with reference to the valuation performed by an independent registered valuer. The valuer used the comparison method of valuation to arrive at the market value of the parcel of land. The Group measures its land held for development at lower of cost or net realisable value. Under the comparison method, the market value of a land is estimated based on comparable transactions. This approach is based upon the principle of substitution under which a potential buyer would not pay more for the land than it would cost to buy a comparable substitute property. The land is valued by reference to transactions of similar lands in its surrounding area with adjustments made for differences in location, terrain, size and shape of the land, tenure, title restrictions, if any and other relevant characteristics. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group's historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The Group recognises provision for defect liability costs in respect of construction projects. In determining the provision, the Group has made assumptions and estimations in relation to defect liability rates and the expected timing of these costs. The carrying amount of the provision for defect liability costs as at 31 December 2022 was RM11,541,000 (2021: RM16,737,000) as disclosed in Note 26. If the estimated defect liability rates used in the computation of provision for defect liability costs differ by 1% (2021: 1%) with all other assumptions remain constant, the Group's provision for defect liability costs will vary by RM115,000 (2021: RM167,000). - 53 - NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2022 Annual Report 2022 118
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