MKH Annual Report 2019

106 A N N U A L R E P O R T 2 0 1 9 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONT’D) (a) Statement of compliance (Cont’d) Impact of initial application of MFRS 15 Revenue from Contract with Customers (Cont’d) Under MFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in MFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by MFRS 15. The directors have applied full retrospective method of transition to MFRS 15 and the application of MFRS 15 has no material impact on the Group’s and the Company’s financial statements. Impact of initial application of MFRS 141 Agriculture and Amendments to MFRS 116 and MFRS 141 Agriculture: Bearer Plants MFRS 141 prescribes the accounting treatment, financial statements presentation and disclosures related to agricultural activity. It requires measurement of fair value less costs to sell, from initial recognition of biological assets up to the point of harvest. The amendments to MFRS 141 on 2 September 2014 introduces a new category for biological asset, i.e. the bearer plants. A bearer plant is accounted for in the same way as self-constructed items of property, plant and equipment. Bearer plants are measured either at cost or revalued amounts, less accumulated depreciation and impairment losses in accordance with MFRS 116 - Property, Plant and Equipment . Agricultural produce growing on bearer plants continue to be measured at fair value less costs to sell in accordance with MFRS 141, with fair value changes recognised in profit or loss as the produce grows. The Group currently adopts the capitalisation and amortisation model on its bearer plants (previously termed as biological assets) whereby the expenditure on new planting was capitalised as biological assets at cost. Replanting of same crops expenditure was charged to the profit or loss in the financial year in which the expenditure was incurred. Upon the adoption of the MFRS, bearer plants (both new planting and replanting) will be accounted for in the same way as self-constructed items of property, plant and equipment. Expenditure on new planting and replanting of bearer plants are capitalised at cost and depreciated on a straight-line basis over the economic useful lives of 20 years for its oil palm trees. The bearer plants will be classified as property, plant and equipment. The bearer plants will be assessed for indicator of impairment and if indication exists, an impairment test will be performed in accordance with MFRS 136 - Impairment of Assets . The biological assets of the Group comprise fresh fruit bunches (“FFB”) prior to harvest. The valuation model adopted by the Group considers the present value of the net cash flows expected to be generated from the sale of FFB. To arrive at the fair value of FFB, the management considered the oil content of the unripe FFB and derived the assumption that the net cash flow to be generated from FFB prior to more than 15 days to harvest to be negligible, therefore quantity of unripe FFB on bearer plant of up to 15 days prior to harvest was used for valuation purpose. Costs to sell, which include harvesting and transport cost, are deducted in arriving at the net cash flow to be generated. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2019