MKH Annual Report 2020

109 MKH BERHAD 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONT’D) (c) Significant accounting estimates and judgements (Cont’d) (viii) Impairment loss on receivables (Note 20) - the Group accounts for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. The Group uses a simplified approach for measuring the loss allowance at an amount equal to lifetime expected credit loss (“ECL”) for trade receivables, contract assets and lease receivables. (ix) Inventories (Note 22) - the saleability of inventories are reviewed by management on a periodic basis. This review involves comparison of the carrying value of the inventory items with the respective net realisable value. The purpose is to ascertain whether a write down to net realisable value is required to be made. (x) Provision of post-employment benefit obligations (Note 29) - the provision is determined using actuarial valuation prepared by an independent actuary. The actuarial valuation involved making assumptions about discount rate, future salary increase, mortality rates, resignation rate and normal retirement age. As such, this estimated provision amount is subject to significant uncertainty. (xi) Revenue and cost recognition for intangible asset model (Note 12) - a subsidiary, which adopts the intangible asset model has recognised a construction margin of 7% in the construction of commuter station. Income and expenses associated with the said construction are recognised based on percentage of completionmethod. The estimatedmargin is based on relative comparison with general industry trend although actual margins may differ due to location, materials and other pricing considerations. (xii) Liquidated damages in relation to the construction of KTM Komuter Station (Note 36) - significant judgement is required in determining the potential liquidated damages. This judgement involves the understanding of relevant case facts, past experience and updates on the legal assessment status from time to time. Should it be probable that an outflow of resources will be required to settle the obligation, a provision may be required. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by the Group, unless otherwise stated. (a) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2020