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Notes to the Financial Statements (cont’d)
For the financial year ended 31 December 2011
3. Significant accounting judgments and estimates (cont’d)
3.2 Key sources of estimation uncertainty (cont’d)
(b) Amortisation and impairment of mining rights, mining assets, deferred mine development expenditure and
deferred exploration and evaluation expenditure
These require estimates and assumptions on the quantity of economically recoverable ore reserves and resources,
expected future costs and expenses to produce the metal or minerals, effective interest rates, expected future prices
used in the impairment test for mining rights, mining assets, deferred mine development and mine exploration
expenditures. The estimate of the quantity of economically recoverable ore reserves and resources is also used
for the amortisation of mining rights, mining assets, deferred development and exploration expenditures. Actual
outcomes could differ from these estimates and assumptions. The carrying amount at reporting date for mining
rights is disclosed in Note 17 and that for mining assets, deferred mine development expenditure and deferred
exploration and evaluation expenditure in Note 21.
(c) Impairment loss on investment in subsidiaries and associates and jointly controlled entity
The Group has subsidiaries and associates and jointly controlled entity which are principally involved in exploration
and mining of various minerals and metals. The impairment assessments were based on the projected value of the
estimated quantity of economically recoverable reserves and resources. These require estimates and assumptions
on the quantity of economically recoverable reserves and resources, expected future costs and expenses to produce
the minerals and metals, effective interest rates, weighted average cost of capital, expected commencement date for
commercial production and future prices used. Actual outcomes could differ from these estimates and assumptions.
The carrying amount at reporting date for investment in subsidiaries and associates and jointly controlled entity is
disclosed in Note 18 and 19.
(d) Provision for mine rehabilitation and restoration costs
Provision for mine rehabilitation and restoration costs are provided based on the present value of the estimated
future expenditure to be incurred. Significant management judgement and estimation is required in determining the
discount rate and the expenditure to be incurred subsequent to the cessation of production of each mine property.
Where expectations differ from the original estimates, the differences will impact the carrying amount of provision
for mine rehabilitation and restoration costs. The carrying amount of provision for mine rehabilitation and restoration
costs at reporting date is disclosed in Note 27.
(e) Deferred tax assets
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Significant management judgement is required to determine the
amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits
together with future tax planning strategies.
Assumptions about generation of future taxable profits depend on management’s estimates of future cash flows.
These depend on estimates of future production and sales volume, operating costs, capital expenditure, dividends
and other capital management transactions. Judgement is also required about application of income tax legislation.
These judgements and assumptions are subject to risks and uncertainty, hence there is a possibility that changes
in circumstances will alter expectations, which may impact the amount of deferred tax assets recognised in the
statements of financial position and the amount of unrecognised tax losses and unrecognised temporary differences.
The carrying value of deferred tax assets of the Group and the Company at 31 December 2011 were RM17,950,000
(2010: RM11,083,000) and RM3,316,000 (2010: RM1,256,000) respectively and the unrecognised tax losses of the
Group at 31 December 2011 was RM53,335,000 (2010: RM84,566,000).
MALAYSIA SMELTING CORPORATION (43072-A) • ANNUAL REPORT 2011 105