EXCEL FORCE MSC BERHAD 63 Notes to the Financial Statements (Cont’d) 2. Basis of Preparation (Cont’d) (c) Significant accounting judgements, estimates and assumptions (Cont’d) Key sources of estimation uncertainty (Cont’d) Provision for expected credit losses of financial assets at amortised cost The Group and the Company uses a provision matrix to calculate expected credit loss for trade and other receivables and amount due from subsidiary companies. The provision rates are based on number of days past due. The provision matrix is initially based on the Group’s and the Company’s historical observed default rates. The Group and the Company will calibrate the matrix to adjust the historical credit loss experience. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The assessment of the correlation between historical observed default rates, forecast economic conditions and expected credit loss is a significant estimate. The Group’s and the Company’s historical credit loss experience and forecast of economic conditions may not be representative of customer’s actual default in the future. Information about the expected credit loss on the Group’s and the Company’s trade receivables is disclosed in Note 13. Discount rate used in leases Where the interest rate implicit in the lease cannot be readily determined, the Group and the Company use the incremental borrowing rate to measure the lease liabilities. The incremental borrowing rate is the interest rate that the Group and the Company would have to pay to borrow over a similar term, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Therefore, the incremental borrowing rate requires estimation, particularly when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease. The Group and the Company estimate the incremental borrowing rate using observable inputs when available and is required to make certain entity-specific estimates. Income taxes Judgement is involved in determining the provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group and the Company recognise liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these tax matters is different from the amounts that were initially recognised, such differences will impact the income tax and/or deferred tax provisions in the period in which such determination is made. As at 30 June 2023, the Group and the Company have tax recoverable of RM574,712 (31.12.2021: RM37,026 and 1.1.2021: RMNil) and RM494,829 (31.12.2021: RMNil and 1.1.2021: RMNil) respectively and tax payables of RMNil (31.12.2021: RM341,741 and 1.1.2021: RM1,235,211) and RMNil (31.12.2021: RM341,741 and 1.1.2021: RM1,235,005) respectively. 3. Significant Accounting Policies The Group and the Company apply the significant accounting policies set out below, consistently throughout all periods presented in the financial statements unless otherwise stated. (a) Basis of consolidation (i) Subsidiary companies Subsidiary companies are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiary companies are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
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