14. SHIPS, OFFSHORE FLOATING ASSETS AND OTHER PROPERTY, PLANT AND EQUIPMENT (CONT'D.) (a) The net carrying amounts of ships pledged as security for borrowings (Note 20(c)) are as follows: Group 2021 2020 RM’000 RM’000 Ships in operation 9,213,803 8,991,447 (b) The volatility of charter hire rates, expired charter contracts or contracts that are approaching the expiry date were identified as indications that the carrying amount of certain ships may be impaired. The Marine & Heavy Engineering segment’s continues to be loss-making during the financial year indicating potential impairment of its other property, plant and equipment and right-of-use assets. In the previous financial year, the Marine & Heavy Engineering segment was impacted by the COVID-19 pandemic and depressed oil price environment where most oil and gas companies were expected to postpone their upstream projects and reduce capital expenditure. The Group and the Corporation have performed a review of the recoverable amount of their ships, other property, plant and equipment and right-of-use assets during the financial year. The review led to the recognition of net impairment losses of RM111,910,000 (2020: RM321,160,000) and RM52,774,000 (2020: RM10,444,000) for the Group and the Corporation respectively, as disclosed in Note 5(a). The recoverable amount was based on the higher of fair value less costs of disposal or value-in-use, and determined at the CGU of each asset. Recoverable amount determined from value-in-use (“VIU”) The key assumptions used in the value-in-use calculations are as follows: (i) Ships The value-in-use for certain ships were calculated using cash flow projections for the remaining lease period and useful life and discounted at rates of 6.15% and 6.29% (2020: 6.88% and 7.40%). The recoverable amount of a ship amounting to RM250,746,000 as at the end of the current financial year was determined from the VIU calculations using cash flow projections discounted at 6.29% was lower than its carrying value. Accordingly, an impairment loss of RM5,430,000 was recognised in the current financial year. (ii) Other property, plant and equipment and right-of-use assets The Group’s recoverable amount for impaired other property, plant and equipment and right-of-use assets of RM1,753,818,000 (2020: RM1,765,170,000) as at the end of current financial year was determined from VIU calculations using cash flow projections discounted at rates of 8.46% and 10.13% (2020: 10.50% and 11.00%). Impairment losses of RM Nil (2020: RM300,000,000) and RM10,000,000 (2020: RM Nil) were recognised from Marine & Heavy Engineering segment and Others segment, respectively, during the financial year using this basis. 14. SHIPS, OFFSHORE FLOATING ASSETS AND OTHER PROPERTY, PLANT AND EQUIPMENT (CONT'D.) Recoverable amount determined from fair value less costs of disposal The fair values of certain ships and other property, plant and equipment were determined based on valuation performed by independent valuers based on comparable ships and other property, plant and equipment. Impairment of ships amounting to RM87,470,000 (2020: RM21,160,000) and RM52,774,000 (2020: RM10,444,000) for the Group and Corporation respectively were recognised using this basis. Other property, plant and equipment of the Marine & Heavy Engineering segment amounting to RM9,010,000 (2020: RM Nil) were impaired using this basis. Fair value measurement and VIU were categorised as Level 3 fair value as defined in Note 2.3(z). (c) Included in additions to the ships under construction and project-in-progress of the Group is finance costs capitalised during the year of RM42,438,000 (2020: RM73,655,000), including general borrowing costs. 15. PREPAID LEASE PAYMENTS ON LAND AND BUILDINGS Group Corporation 2021 2020 2021 2020 RM’000 RM’000 RM’000 RM’000 At 1 January 212,534 219,843 3,516 3,566 Amortisation for the year (Note 5) (7,135) (7,359) (99) (100) Currency translation differences 126 50 126 50 At 31 December 205,525 212,534 3,543 3,516 Analysed as: Leasehold land 201,982 209,018 – – Leasehold buildings 3,543 3,516 3,543 3,516 205,525 212,534 3,543 3,516 Included in leasehold land of the Group is the carrying value of a long term leasehold and foreshore land of a subsidiary of RM201,982,000 (2020: RM209,018,000) which cannot be disposed off, charged or subleased without the prior consent of the Johor State Government. NOTES TO THE FINANCIAL STATEMENTS 31 December 2021 NOTES TO THE FINANCIAL STATEMENTS 31 December 2021 MISC Berhad 370 Integrated Annual Report 2021 MISC Berhad Integrated Annual Report 2021 371 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
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