83 Annual Report 2025 NOTES TO THE FINANCIAL STATEMENTS 30 JUNE 2025 (CONT’D) 5. PRODUCT DEVELOPMENT COSTS (CONT’D) (a) Product development costs comprise salaries of personnel involved in the development and design of products prior to the commencement of commercial production. The amortisation charges are recognised in Statements of Profit or Loss under “cost of sales” line items. Additional development costs with finite useful lives are amortised over a period of 5 to 10 years. Certain development costs are not amortised as these assets are not available for use and are still under development as at the end of the financial year end. (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 budgets and plans of the CGU at 6% to 47% (2024: 3% to 52%) per annum from years 2026 to 2030 (2024: 2025 to 2029). (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 8.70% (2024: 8.24%) 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. (d) Material accounting policy information Internally generated intangible assets - research and development costs Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the Group and the Company can demonstrate: • the technical feasibility of completing the intangible asset so that the asset will be available for use or sale; • its intention to complete and its ability and intention to use or sell the asset; • how the asset will generate future economic benefits; • the availability of resources to complete; and • the ability to measure reliably the expenditure during development. The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. When no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred. Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Capitalised development expenditures are amortised over the periods the Group expected to benefit from selling the products developed. The amortisation expenses recognised in profit or loss on a straight-line basis and included within the cost of sales.
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