Change - S P Setia Berhad

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84 Annual report 2008 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2008 1. SIGNIFICANT ACCOUNTING POLICIES (cont’d) (d) Significant accounting judgements and estimates (cont’d) (ii) Key sources of estimation uncertainty (cont’d) Provision for stock obsolescence and inventories write down Inventories are stated at the lower of cost and net realisable value. The Group estimates the net realisable value of inventories based on an assessment of committed sales prices. Inventories are reviewed on a regular basis and the Group will make a provision for excess or obsolete inventories based primarily on historical trends and management estimates of expected and future product demand and related pricing. The carrying amounts of the Group’s inventories as at 31 October 2008 were RM29,630,000 (2007 : RM19,320,000). Demand levels, technological advances and pricing competition could change from time to time. If such factors result in an adverse effect on the Group’s products, the Group might be required to reduce the value of its inventories and additional provisions for slow moving inventories may be required. Allowance for doubtful debts The collectibility of receivables is assessed on an ongoing basis. An allowance for doubtful debts is made for any receivables considered to be doubtful of collection. The carrying amounts of the Group’s and Company’s trade and other receivables as at 31 October 2008 were RM313,403,000 and RM1,600,977,000 (2007 : RM331,690,000 and RM1,312,588,000), respectively. The allowance for doubtful debts is made based on a review of all outstanding amounts as at the balance sheet date. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the creditworthiness and the past collection history of each customer. If the financial condition of customers of the Group were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Income taxes Significant judgement is involved in determining the capital allowances and deductibility of certain expenses during the estimation of the provision for income tax. 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 matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amounts of the Group’s and the Company’s tax assets as at 31 October 2008 were RM37,969,000 and RM10,862,000 (2007 : RM45,576,000 and RM10,962,000), respectively. The carrying amounts of the Group’s tax liabilities as at 31 October 2008 were RM10,668,000 (2007 : RM23,365,000). Deferred tax assets Deferred tax assets are recognised for deductible temporary differences and unutilised tax losses to the extent that it is probable that taxable profit will be available in future against which the deductible temporary differences and tax losses 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. The carrying amounts of the Group’s recognised and unrecognised deferred tax assets as at 31 October 2008 were RM14,520,000 (2007 : RM21,926,000) and RM11,229,000 (2007 : RM11,555,000), respectively.
85 S P <strong>Setia</strong> <strong>Berhad</strong> Group NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2008 1. SIGNIFICANT ACCOUNTING POLICIES (cont’d) (e) Subsidiary companies A subsidiary company is an entity controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible, are considered when assessing whether the Company has the power to govern the financial and operating policies of another entity. In the Company’s separate financial statements, investment in subsidiary companies are stated at cost less impairment losses. Impairment losses are charged to the income statement. On disposal, the difference between the net disposal proceeds and the carrying amounts of the subsidiary company disposed of is taken to the income statement. (f) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and of all its subsidiary companies and jointly controlled entities (see note 1(h) below) made up to the end of the financial year. The consolidated financial statements are prepared using uniform accounting policies for like transactions in similar circumstances. All intra-group balances, transactions, income and expenses are eliminated in full on consolidation and the consolidated financial statements reflect external transactions only. All subsidiary companies and jointly controlled entities are consolidated on the purchase method of accounting from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases except for Syarikat Kemajuan Jerai Sdn Bhd and Wawasan Indera Sdn Bhd which are consolidated on the merger method of accounting in accordance with the provisions of Malaysian Accounting Standard No. 2. The Group has chosen to adopt the provisions of FRS 3 – Business Combinations prospectively, as permitted under the transitional provisions of FRS 3. Accordingly, the effects of the merger method of accounting under Malaysian Accounting Standard No. 2 have been retained. Under the purchase method of accounting, the cost of an acquisition is measured as the aggregate of the fair values of the assets given, liabilities incurred or assumed and equity instruments issued at the date of exchange, plus any costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed are measured at their fair values at the acquisition date. The excess of the acquisition cost over the fair values of the identifiable assets, liabilities, contingent liabilities acquired is retained in the balance sheet as goodwill, while the shortfall is immediately credited to the consolidated income statement. The goodwill is accounted for in accordance with the accounting policy set out in (v)(i) below. Goodwill arising on the acquisition of subsidiary companies is presented separately in the balance sheet. After initial recognition, goodwill is measured at cost less accumulated impairment losses, if any. Goodwill is tested for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying values may be impaired. Minority interests represent the portion of the profit or loss and net assets of subsidiary companies not held by the Group.
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