ANNUAL REPORT 2025 157 NOTES TO THE FINANCIAL STATEMENTS 200901023978 (867077-X) Kimlun Corporation Berhad (Incorporated in Malaysia) 3. Significant accounting judgements and estimates (cont'd) 3.2 Key sources of estimation uncertainty (cont'd) (c) Provision for expected credit loss of trade and other receivables (d) Provision for defect liability costs The Group recognises a provision for defect liability costs in respect of construction projects. In determining the provision, the Group has made assumptions and estimations in relation to defect liability rates and the expected timing of these costs. The carrying amount of the provision for defect liability costs as at 31 December 2025 was RM23,044,216 (2024: RM15,000,000) as disclosed in Note 27. If the estimated defect liability rates used in the computation of provision for defect liability costs differ by 1% (2024: 1%) with all other assumptions remain constant, the Group's provision for defect liability costs will vary by RM10,176,000 (2024: RM8,900,000). The provision matrix is initially based on the Group's historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience with forwardlooking information. For instance, if forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over the next year which can lead to an increased number of defaults in the construction and property development sectors, the historical default rates are adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The Group uses a provision matrix to calculate ECLs for trade and others receivables. The provision rates are based on days past due for groupings of various customer segments that have similar loss patterns (i.e., by geography, product type, customer type and rating, and coverage by letters of credit and other forms of credit insurance). The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group's historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. - 37 -
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