Financial Statements - Mewah Group

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MEWAH INTERNATIONAL INC. ANNUAL REPORT 2011 Notes to the Financial Statements For the financial year ended 31 December 2011 2. Significant accounting policies (continued) 2.22 Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents include cash on hand, deposits with financial institutions which are subject to an insignificant risk of change in value, and bank overdrafts. Bank overdrafts are presented as current borrowings on the statement of financial position. 2.23 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new ordinary shares are deducted against the share premium account. 2.24 Dividends to Company’s shareholders Dividends to the Company’s shareholders are recognised when dividends are approved for payment. 3. Critical accounting estimates, assumptions and judgements Estimates, assumptions and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Fair value of derivative financial instruments The Group is exposed to fluctuations in the prices of agri-commodities it deals in, including crude palm oil and palm oil products. The Group minimises the risk arising from such fluctuations by entering into commodities forward contracts and futures contracts. As the Group has not adopted hedge accounting, the fair value changes on these derivative financial instruments are recognised in the profit or loss when the changes arise. The Group’s commodities forward contracts are not traded in an active market. The Group uses a variety of methods, such as making references to the prices listed on Malaysian Palm Oil Board, other similar products and other exchanges, and makes assumptions that are based on market conditions existing at each statement of financial position date. Quoted market prices or dealer quotes are used to estimate the fair value. As at 31 December 2011, if the commodities prices increase or decrease by 5% and other variables remain constant, the Group’s profit after tax would have been US$6,457,000 lower or higher respectively, arising as a result of the changes in the fair value of the commodities forward contracts and futures contracts. 74
Building Capabilities Notes to the Financial Statements For the financial year ended 31 December 2011 3. Critical accounting estimates, assumptions and judgements (continued) (b) Impairment of loans and receivables Management reviews its loans and receivables for objective evidence of impairment on a regular basis. Significant financial difficulties of the debtor, the probability that the debtor will enter bankruptcy, and default or significant delay in payments are considered objective evidence that a receivable is impaired. In determining this, management makes judgement as to whether there is observable data indicating that there has been a significant change in the payment ability of the debtor, or whether there have been significant changes with adverse effect in the technological, market, economic or legal environment in which the debtor operates in. Where there is objective evidence of impairment, management makes judgements as to whether an impairment loss should be recorded as an expense. In determining this, management uses estimates based on historical loss experience for assets with similar credit risk characteristics. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between the estimated loss and actual loss experience. If the net present values of estimated cash flows increase or decrease by 5% from management’s estimates for all past due loans and receivables, the Group’s allowance for impairment will decrease or increase by US$1,062,000 or US$3,693,000 and correspondingly to profit or loss. (c) Estimated impairment of non-financial assets Goodwill is tested for impairment annually and whenever there is an indication that the goodwill may be impaired. Intangible assets, property, plant and equipment and investments in subsidiaries and associates are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired. The recoverable amounts of these assets and where applicable, CGU, have been determined based on value-in-use calculations. These calculations require the use of estimates such as expected cash flows resulting from operating margin and expenses, discounting rate and growth rate (Note 21). If the management’s estimated operating margin used in the value-in-use calculation for this CGU at 31 December 2011 is decreased by 5%, the carrying value of goodwill for this CGU would have been decreased, requiring additional impairment of US$410,000. If the management’s estimated pre-tax discount rate applied to the discounted cash flows at 31 December 2011 is increased by 5%, the carrying value of goodwill for this CGU would have been decreased, requiring additional impairment of US$78,000. If the management’s estimated growth rate applied to the discounted cash flows at 31 December 2011 is decreased by 5%, the carrying value of goodwill for this CGU would have been decreased, requiring additional impairment of US$36,000. 75
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Financial Statements - Mewah Group

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