NOTES TO THE FINANCIAL STATEMENTS (CONT’D) FRONTKEN CORPORATION BERHAD 200401012517 (651020-T) ANNUAL REPORT 2025 118 15. GOODWILL ON CONSOLIDATION (CONT’D) The recoverable amounts of the CGUs are determined using the value in use approach, and this is derived from the present value of the future cash flows from each CGU computed based on the projections of financial forecast covering a period of 5 years. The key assumptions used in the determination of the recoverable amounts are as follows: 2025 2024 % % Budgeted gross margin 13 to 58 18 to 62 Growth rates - Year 1 3 to 5 3 to 5 - Year 2 to 5 3 to 5 3 to 5 Pre-tax discount rates 14 to 21 14 to 19 (i) Budgeted gross margin Management determines budgeted gross margin based on past performance and its expectations of market development. (ii) Growth rates The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. These calculations use pre-tax cash flow projections based on financial budgets approved by management and extrapolated cash flows for a five-year period based on growth rates consistent with the long-term average growth rate for the industry. (iii) Discount rates Management estimates discount rate using pre-tax rate that reflect current market assessments of the time value of money and the risk specific to the CGU. The rate used to discount the forecasted cash flows reflects specific risks and expected returns relating to the industry. (iv) Terminal value Terminal value is based on zero growth of projected present value of particular subsidiaries from year 2030 until infinity. The values assigned to the key assumptions represent management’s assessment of future trends in the CGUs and are based on both external sources and internal historical data. The management believes that there is no reasonable change in the above key assumptions which would cause the carrying amount of the goodwill to exceed its recoverable amounts.
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