ENRA Group Berhad Annual Report 2018

120 E N R A G R O U P B E R H A D ( 2 3 6 8 0 0 - T ) NOTES TO THE FINANCIAL STATEMENTS 31 March 2018 cont’d 41. FINANCIAL INSTRUMENTS (Cont’d) (d) Determination of fair value (Cont’d) Methods and assumptions used to estimate fair value (Cont’d) The fair values of financial assets and financial liabilities are determined as follows: (Cont’d) (iii) Contingent consideration for business acquisition The fair value of contingent consideration for business acquisition is estimated by discounting the expected future cash flows at cost of borrowings of the subsidiaries. At the end of the reporting period, these amounts are carried at amortised costs and the carrying amounts approximate to their fair values. (iv) Short term funds The fair values of short term funds are determined by reference to the exchange quoted market bid prices at the close of the business at the end of each reporting period. (v) Forward foreign currency selling contracts Forward foreign currency selling contracts are valued using a valuation technique with market observable inputs. The most frequently applied valuation techniques include forward pricing model, using present value calculation. The model incorporates various inputs including foreign exchange spot and forward rates. (e) Fair value hierarchy Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the end of the reporting period. In respect of borrowings, the market rate of interest is determined by reference to similar borrowing arrangements. Level 3 fair value measurements are those derived from inputs for the asset or liability that are not based on observable market data (unobservable inputs). The significant unobservable input used in determining the fair value measurement of Level 3 financial instruments as well as the relationship between key unobservable inputs and fair value, is detailed in the table below: Financial instruments Valuation technique used Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value Financial liabilities Contingent consideration for business acquisition Discounted cash flows method Discount rate (5.8%) The higher the discount rate, the lower the fair value of the liabilities would be.