PRG Holdings Berhad Annual Report 2017

• Annual Report 2017 101 6. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated by the management of the Group and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The management makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have a material impact to the Group’s results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below. (a) Recognition of property development revenue, costs estimates and profit recognition Property development revenue, property development costs and the profit recognition thereof involve significant judgements in estimating the saleability, selling prices and estimated completion costs of the development. In estimating saleability and selling prices, the Group considers the number of units sold to-date, the current economic condition and the market selling prices. In estimating the total costs to complete, the Group considers the completeness and accuracy of its costs estimation, including its obligations to contract variations, claims and cost contingencies. The total costs to complete including, sub-contractors’ costs, can vary with market conditions and may also be incorrectly forecasted due to unforeseen events during development. (b) Revenue recognition of manufacturing division Sale of goods in manufacturing division is recognised as revenue when the significant risks and rewards of ownership of the goods have been transferred to the Group’s customers in manufacturing division and where the Group retains no continuing managerial involvement over the goods, which coincides with the delivery of goods and acceptance by customers. Management identified revenue of manufacturing division as one of the key performance indicators of the Group which could create an incentive for management to record revenue inappropriately to meet targets or expectations and because the large transaction volume increases the possibility of errors in recognising revenue. (c) Recoverability of trade receivables Management recognises allowances for impairment losses on trade receivables based on specific known facts or circumstances or customers’ abilities to pay. The determination of whether trade receivables are recoverable involves significant management judgement and inherent subjectivity given uncertainty regarding the ability of the trade receivables to settle their debts. Management focused on the risk that the impairment losses on trade receivables may be understated and hence, further impairment losses may be required. (d) Adequacy of write-down of inventories to net realisable value Write-down of inventories to net realisable value was mainly based on management’s estimates, which had been derived from expectation of current market prices and future demand. Management focused on the risk that the carrying amount of inventories may not be stated at the lower of cost and net realisable value, the determination of which requires the management to exercise significant judgement in estimating the net realisable value of the inventories. In estimating the net realisable value of the inventories, the management considers the current economic trends, inventories’ ageing and changes in customer preference of the respective inventories. N O T E S T O T H E F I N A N C I A L S T A T E M E N T S 3 1 D E C E M B E R 2 0 1 7 ( C O N T ’ D )