PRG Holdings Berhad Annual Report 2019

ANNUAL REPORT 2019 111 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 cont’d 5. ADOPTION OF NEW MFRSs AND AMENDMENTS TO MFRSs (continued) 5.2 New MFRSs that have been issued, but only effective for annual periods beginning on or after 1 January 2020 (continued) Financial reporting updates (continued) The Group anticipates an increase in lease liabilities and corresponding right-of-use assets arising from the reassessment of the lease term of existing leasing arrangements due to this final agenda decision. The Group is in the process of implementing the requirements of this final agenda decision and the impact upon adoption is expected to be recognised during the financial year ending 31 December 2020. 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 determining the satisfaction of performance obligations, transaction price allocation and costs in applying the input method to recognise revenue over time. The Group identifies performance obligations that are distinct and material, which is judgmental in the context of contract. Transaction prices were determined based on estimated margins prior to its allocation to the identified performance obligation. The Group also estimated total contract costs in applying the input method to recognise revenue over time. 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) Recoverability of trade receivables The determination of whether trade receivables are recoverable involves significant management judgement in determining the probability of default by trade receivables and appropriate forward-looking information. (c) Impairment on goodwill The Group assesses the adequacy of impairment on goodwill on an annual basis. The recoverable amount of the cash-generating units (“CGUs”) was determined based on value-in-use calculations which require significant management judgement and estimates about the future results and the key assumptions applied to cash flow projections of the CGUs. (d) Valuation of biological assets In measuring the fair value of biological assets, significant management judgement and estimates were required in determining the market price of teak timbers and the discount rate used in the discounted cash flow model.