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3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS cont’d
3.2 Key sources of estimation and uncertainty
WCT Berhad (66538-K)
annual report 2011
The key assumptions concerning the future and other key sources of estimation and uncertainty at the statements
of financial position, that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed below:
(a) Construction contracts and property development
The Group recognises construction contracts and property development revenue and expenses in the
income statements by using the stage of completion method. The stage of completion is determined by
the proportion that construction contracts and property development costs incurred for work performed
to date bear to the estimated total construction contracts and property development costs, respectively or
by reference to percentage of physical stage of completion.
Significant judgement is required in determining the stage of completion, the extent of the construction
contracts and property development costs incurred, the estimated total construction contracts and property
development revenue and costs, the percentage of physical completion, as well as the recoverability of the
construction contracts and development projects. In making the judgement, the Directors evaluate based
on past experience and by relying on the work of specialists.
The carrying amounts of the Group's construction contracts and property development activities are
disclosed in Note 13(b) and Note 5(b) respectively.
(b) Deferred tax assets
Deferred tax assets are recognised for all unused tax losses and unabsorbed capital allowances to the extent
that it is probable that taxable profit will be available against which the losses and capital allowances can
be utilised. Significant management judgement is required to determine the amount of deferred tax assets
that can be recognised, based upon the likely timing and level of future taxable profits together with future
tax planning strategies.
(c) Impairment of investments
The Directors determine whether the carrying amounts of its investments are impaired at statements of
financial position. This involves measuring the recoverable amounts which include fair value less costs to
sell and valuation techniques. Valuation techniques include amongst others, discounted cash flows analysis
and in some cases, based on published analysts' reports and current market indicators and estimates that
provide reasonable approximations to the detailed computation.
For the investment with the indication of impairment, the management perform discounted cash flow
analysis. The discount rates and growth rates used reflect, amongst others, the maturity of the business
development cycle as well as the industry growth potential. The discount rates applied to the respective
cash flow projections range between 5% to 7% (2010: 5% to 7%). The growth rates used to forecast the
projected cash flows for the following financial year approximate the performances of the respective
investments based on the latest available management accounts.
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2011
cont’d