My EG Services Berhad Annual Report 2019

ANNUAL REPORT 2019 115 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL PERIOD ENDED 31 DECEMBER 2019 (CONT’D) FINANCIAL STATEMENTS 5. SIGNIFICANT ACCOUNTING POLICIES 5.1 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Key Sources of Estimation Uncertainty Management believes that there are no key assumptions made concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year other than as disclosed below:- (a) Depreciation of Property and Equipment The estimates for the residual values, useful lives and related depreciation charges for the property and equipment are based on commercial factors which could change significantly as a result of technical innovations and competitors’ actions in response to the market conditions. The Group anticipates that the residual values of its property and equipment will be insignificant. As a result, residual values are not being taken into consideration for the computation of the depreciable amount. Changes in the expected level of usage and technological development could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. The carrying amount of property and equipment as at the reporting date is disclosed in Note 9 to the financial statements. (b) Impairment of Goodwill The assessment of whether goodwill is impaired requires an estimation of the value in use of the cash-generating unit to which the goodwill is allocated. Estimating a value in use amount requires management to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill as at the reporting date is disclosed in Note 14 to the financial statements. (c) Impairment of Property and Equipment, Investment Properties and Right-of-use Assets The Group determines whether an item of its property and equipment, investment properties and right-of-use assets is impaired by evaluating the extent to which the recoverable amount of the asset is less than its carrying amount. This evaluation is subject to changes such as market performance, economic and political situation of the country. A variety of methods is used to determine the recoverable amount, such as valuation reports and discounted cash flows. For discounted cash flows, significant judgement is required in the estimation of the present value of future cash flows generated by the assets, which involve uncertainties and are significantly affected by assumptions used and judgements made regarding estimates of future cash flows and discount rates. The carrying amounts of property and equipment, investment properties and right-of-use assets as at the reporting date are disclosed in Notes 9, 10 and 11 to the financial statements. (d) Impairment of Trade and Financing Receivables The Group uses the simplified approach to estimate a lifetime expected credit loss allowance for all trade and financing receivables. The Group develops the expected loss rates based on the payment profiles of past sales and the corresponding historical credit losses, and adjusts for qualitative and quantitative reasonable and supportable forward-looking information. If the expectation is different from the estimation, such difference will impact the carrying values of trade and financing receivables. The carrying amounts of trade and financing receivables as at the reporting date are disclosed in Notes 18 and 16 to the financial statements respectively. For impaired loans, advances and financing (“loan(s)”) which are individually assessed, judgement by management is required in the estimation of the amount and timing of future cash flows in the determination of impairment losses. In estimating these cash flows, judgements are made about the realisable value of collateral pledged and the borrower’s financial position. These estimations are based on assumptions and the actual results may differ from these, hence, resulting in changes to impairment losses recognised.