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KNM GROUP BERHAD I Annual Report 201275Notes to the Financial Statements (cont’d)4. Intangible assets (Cont’d)OtherintangibleNote Goodwill assets TotalGroup RM’000 RM’000 RM’000Carrying amountsAt 1 January 2011 36.1 788,350 620,858 1,409,208At 31 December 2011/1 January 2012 36.1 787,883 594,641 1,382,524At 31 December 2012 743,975 559,670 1,303,6454.1 GoodwillNote 4.1 Note 4.2The goodwill recognised on the acquisition is attributable mainly to the skills and technical talent of theacquired business’s work force and the synergies expected to be achieved from integrating the companiesinto the Group’s existing oil, gas and petrochemical industry.4.2 Other intangible assetsOther intangible assets comprise technology including patents and software, customers related intangiblesincluding customer contracts and supply agreement and marketing related intangibles includingtradenames. These intangible assets with finite useful lives are amortised over their useful lives rangingfrom 1 to 20 years while the others with infinite useful lives are tested for impairment annually or shorterif there is an indication of impairment.4.3 Amortisation and impairment chargeAmortisation of technology and customers related intangible assets is included in other operating expensesin the profit or loss.4.4 Impairment lossThe Brazil operations unit has in April 2013 executed a new business strategy and alliances with a localpartner in pursuing the process equipment supplies to oil, gas and petrochemical industries. The decisionwas made after having evaluated that the ability of the Brazil operating unit is not expected to generatesufficient sales order on its own which is the operating model inherited since KNM Group acquired theBrazil operation entities in 2008. Accordingly, the goodwill of RM29,557,000, which was attributed to theskills and technical talent of the business acquired in 2008 has been fully impaired during the year.4.5 Impairment testing for cash-generating units containing goodwillFor the purpose of impairment testing, goodwill is allocated to the Group’s geographical unit whichrepresents lowest level within the Group at which the goodwill is monitored for internal managementpurpose.
76KNM GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)4. Intangible assets (Cont’d)4.5 Impairment testing for cash-generating units containing goodwill (cont’d)The aggregate carrying amounts of goodwill allocated to each unit are as follow:Group31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Australia unit 6,672 6,672 6,672Germany unit 737,303 749,557 747,023Brazil unit – 31,654 34,655Total 743,975 787,883 788,350The recoverable amounts of the cash-generating units were based on value in use calculations. Thesecalculations use pre-tax cash flow projections based on financial budgets approved by managementcovering a five-year period. Cash flows beyond the five-year period are extrapolated using the estimatedgrowth rates of not higher than the inflation rate or zero subsequent growth rate of the respective unitabove.Value in use was determined by discounting the future cash flows generated from the continuing use ofthe unit and was based on the following key assumptions:(i)(ii)The basis of determination of the budgeted gross margins is based on the estimated achievablemargin of on-going projects and the estimated margins of new projects to be incepted for thebudgeted years.The pre-tax discount rate used is as follows:2012 2011Germany unit 10% 10%Australia unit 12% 12%Brazil unit – 22%The values assigned to the key assumptions represent management’s assessment of future trends inthe industry and are based on both external sources and internal sources (historical data).5. Interests in subsidiariesCompany31.12.2012 31.12.2011 1.1.2011RM’000 RM’000 RM’000Unquoted shares - at cost 518,796 518,796 38,796Less: Impairment loss (100) – –Amount due from subsidiaries 1,142,727 1,092,537 1,092,5371,661,423 1,611,333 1,131,333The amount due from subsidiaries relates to advances which are unsecured, non- repayable and interest freeThe entire non-repayable advances are recognised as the Company’s interest in subsidiaries.Details of the subsidiaries are shown in Note 31 to the financial statements.
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