cont'd - KNM Steel Sdn Bhd

KNM GROUP BERHAD I Annual Report 201255Notes to the Financial Statements (cont’d)1. Basis of preparation (Cont’d)(a)Statement of compliance (cont’d)MFRS 10, Consolidated Financial StatementsMFRS 10, Consolidated Financial Statements introduces a new single control model to determiningwhich investees should be consolidated. MFRS 10 supersedes MFRS 127, Consolidated and SeparateFinancial Statements and IC Interpretation 112, Consolidation – Special Purpose Entities. There are threeelements to the definition of control in MFRS 10: (i) power by investor over an investee, (ii) exposure,or rights, to variable returns from investor’s involvement with the investee, and (iii) investor’s ability toaffect those returns through its power over the investee.The Group is currently assessing the relevance and financial impact of adopting MFRS 10.MFRS 11, Joint ArrangementsMFRS 11, Joint Arrangements establishes the principles for classification and accounting for jointarrangements and supersedes MFRS 131, Interests in Joint Ventures. Under MFRS 11, a jointarrangement may be classified as joint venture or joint operation. Interest in joint venture will be accountedfor using the equity method whilst interest in joint operation will be accounted for using the applicableMFRS relating to the underlying assets, liabilities, income and expense items arising from the jointoperations.The Group is currently assessing the relevance and financial impact of adopting MFRS 11.MFRS 13, Fair Value MeasurementMFRS 13, Fair Value Measurement establishes the principles for fair value measurement and replacesthe existing guidance in different MFRS.The Group is currently assessing the relevance and financial impact of adopting MFRS 13.The initial application of other standards, amendments and interpretations is not expected to have anymaterial financial impacts to the current and prior periods financial statements upon their first adoption.(b)Basis of measurementThe financial statements of the Group and of the Company have been prepared on the historical costbasis except as disclosed in the notes to the financial statements and on the assumption that the Groupand the Company are going concerns.i) As of that date, the current liabilities of the Group exceeded its current assets by RM360,912,000ii)As disclosed in Note 16 to the financial statements, the Company and certain subsidiaries fellshort of certain prescribed financial covenant ratios as required by the lending institutions.The above mentioned financial covenants are computed based on the audited financial statementsfor the year ended 31 December 2012. Subsequent to year end, the Company and certainsubsidiaries had sought and received the written indulgences from the affected lending institutions.The Directors recognise the liquidity exposure of the Group and of the Company and is currentlyengaging the various financial institutions to restructure and refinance the Group’s and theCompany’s existing loans and borrowings. The Directors are of the view that the Group and theCompany will succeed in the restructuring and refinancing exercise. In addition, the Directors areof the view that the Group and the Company will continue to achieve future profitable operationsand the continued support from shareholders and creditors.For these reasons, the Group and the Company continue to adopt the going concern basis ofaccounting in preparing the financial statements.Accordingly, the financial statements of the Group and the Company do not include any adjustmentsrelating to the recoverability of recorded assets amount, additional amount of liabilities andclassification of assets and liabilities from non-current to current should the going concern basisof preparation of financial statements be inappropriate.