Annual Report 2012 - IOI Group

NOTES TO THEFINANCIAL STATEMENTS4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)4.3 Key sources of estimation uncertaintyThe key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting periodthat have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the nextfinancial year are discussed below:4.3.1 Impairment of goodwill on consolidationThe Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of thevalue-in-use of the Cash-generating Units (“CGU”) to which goodwill is allocated. Estimating a value-in-use amountrequires management to make an estimate of the expected future cash flows from the CGU and also to choose asuitable discount rate in order to calculate the present value of those cash flows. Further details are disclosed in Note18 to the financial statements.4.3.2 Property developmentThe Group recognises property development revenue and expenses in profit or loss by using the “percentage ofcompletion” method. The stage of completion is determined by the proportion of property development costs incurredfor work performed up to the reporting period over the estimated total property development costs.Significant judgements are required in determining the stage of completion, the extent of the property developmentcosts incurred, the estimated total property development revenue and costs, as well as the recoverability of thedevelopment projects. In making the judgements, the Group evaluates based on past experience and by relying on thework of specialists.A 10% difference in the estimated total development revenue or costs would result in approximately 0.54% variancein the Group’s revenue and 0.30% variance in the Group’s cost of sales.4.3.3 Deferred tax assetsDeferred tax assets are recognised for all deductible temporary differences, unutilised tax losses and unabsorbedcapital allowances to the extent that it is probable that taxable profit will be available against which the unutilised taxlosses and unabsorbed capital allowances can be utilised. Significant management judgement is required to determinethe amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxableprofits together with future tax planning strategies.4.3.4 Fair values of borrowingsThe fair values of borrowings are estimated by discounting future contractual cash flows at the current market interestrates available to the Group for similar financial instruments.4.3.5 Write down for obsolete or slow moving inventoriesThe Group writes down its obsolete or slow moving inventories based on an assessment of their estimated net sellingprice. Inventories are written down when events or changes in circumstances indicate that the carrying amounts maynot be recoverable. The management specifically analyses sales trend and current economic trends when making ajudgement to evaluate the adequacy of the write down for obsolete or slow moving inventories. Where expectationsdiffer from the original estimates, the differences will impact the carrying amounts of inventories.4.3.6 Valuation of investment propertiesThe fair value of investment property is arrived at by reference to market evidence of transaction prices for similarproperty and is performed by registered independent valuers having an appropriate recognised professionalqualification and recent experience in the location and category of the property being valued.130IOI CORPORATION BERHADAnnual Report 2012