167 ANNUAL REPORT 2025 MST GOLF GROUP BERHAD Report on the Audit of the Financial Statements (cont’d) Key Audit Matters (cont’d) Inventories valuation The risk As at 31 December 2025, the total inventories of the Group amounted to RM131,753,000 representing 54% and 39% of current assets and total assets respectively. The disclosure for inventories of the Group are included in Note 9 to the financial statements which are subject to a risk that the inventories might become slow-moving or obsolete and rendering them not saleable or can only be sold for selling prices that are less than the carrying value. Judgement is required to access the appropriate level of provision for items which may be ultimately sold below cost. Our response Our audit procedures included, amongst others: - obtained an understanding and reviewed the internal control over the process of the inventories recognition; - attended and observed the inventory counts at selected outlets and performed inventory roll-forward procedures when the inventory counts were performed before financial year end; - performed costing and net realisable value test to ensure that inventories were correctly valued and stated at lower of cost or net realisable value at the reporting date; and - assessed the adequacy of allowance of stock loss and slow-moving inventories by reference to the historical data on sampling basis and discussion with management. Impairment of property, plant and equipment and right-of-use assets The risk The Group primarily operates retail stores in Malaysia, Singapore and Indonesia. The Group recognised property, plant and equipment and right-of-use assets with carrying amounts of RM49,097,000 and RM43,977,000 representing 50% and 45% respectively of total non-current assets of the Group as at 31 December 2025. On an annual basis, management is required to assess for indications of impairment to determine if impairment assessment should be carried out. Having considered the loss-making performance of certain stores, management performed impairment testing with respective assets of those loss-making stores. The impairment testing requires management to make assumptions in the underlying cash flow forecast and projections. The assumptions include expectations for gross margin, growth rate and discount rates, as well as the overall market and economic conditions in the markets. In view of the significance of the amount and the level of judgement exercised by management, we consider this as a key audit matter. The disclosure of property, plant and equipment and right-of-use assets of the Group are included in Notes 3 and 4 respectively to the financial statements.
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