Annual Report 2012 - IOI Group

18. GOODWILL ON CONSOLIDATIONGroup2012RM’0002011RM’000At beginning of financial year 511,994 513,830Less: Written off – (273)Less: Disposal of product lines (Note 18.1) – (1,563)At end of financial year 511,994 511,994The goodwill recognised on the acquisitions in the previous years was attributable mainly to the skills and technical talents of theacquired business’s work force and the synergies expected to be achieved from integrating the company into the Group’s existingbusiness.For the purpose of impairment testing, goodwill is allocated to the Group’s Cash-generating Units (“CGUs”) identified according tothe operating segments as follows:Group2012RM’0002011RM’000Plantation 93,025 93,025Property 83,004 83,004Resource-based manufacturing 335,965 335,965511,994 511,994Goodwill is tested for impairment on an annual basis by comparing the carrying amount with the recoverable amount of the CGUsbased on value-in-use. Value-in-use is determined by discounting the future cash flows to be generated from the continuing useof the CGUs based on the following assumptions:i. Cash flows are projected based on the management’s most recent three-year business plan and extrapolated to period of ten(10) years (the average economic useful lives of the assets) for all companies with the exception of plantation companies. Forplantation companies, cash flows are projected for a period of twenty-five (25) years (the average life cycle of oil palm trees).ii.iii.iv.Discount rates used for cash flows discounting purpose is the Group’s weighted average cost of capital. The average discountrate applied for cash flow projections is 10.61%.Growth rate for the plantation segment are determined based on the management’s estimate of commodity prices, palmyields, oil extraction rates and also cost of productions whilst growth rates of other segments are determined based on theindustry trends and past performances of the segments.Profit margins are projected based on the industry trends, historical profit margin achieved or pre-determined profit marginfor property projects.The management is not aware of any reasonably possible change in the above key assumptions that would cause the carryingamounts of the CGUs to materially exceed their recoverable amounts.Annual Report 2012IOI CORPORATION BERHAD 173