O TTO M ARINE L IMITED - Microsoft Internet Explorer - SGX

14 Goodwill
OTTO MARINE LIMITED AND ITS SUBSIDIARIES
Cost:
At January 1, 2005 and December 31, 2005 ........................................ —
Arising on acquisition of additional interest in a subsidiary. . . .......................... 922
At December 31, 2006 ....................................................... 922
Arising on acquisition of a subsidiary (Note 31) ..................................... 1,717
Arising on acquisition of additional interest in a subsidiary. . . .......................... 2,462
At December 31, 2007 ....................................................... 5,101
Carrying amount:
At December 31, 2007 ....................................................... 5,101
At December 31, 2006 ....................................................... 922
At December 31, 2005 ....................................................... —
The Group tests goodwill annually for impairment, or more frequently if there are indications that
goodwill might be impaired.
The goodwill relates primarily to two cash generating units (“CGU”). In determining the recoverable
amounts of the CGUs, management uses value in use for one CGU and market value for another
CGU. The value in use method is used for the first CGU as it has been controlled and actively managed
by the Company for more than one year and as such, the Company is able to reasonably estimate the
future cash flows from this CGU. The market value for the other CGU is used to assess the impairment
of goodwill in relation to this CGU as it is acquired and managed by the Company from December
2007. The management is not able to reasonably estimate the future cash flows of this CGU.
For the CGU where its recoverable amounts are determined from value in use calculations, the key
assumptions for the value in use calculations are those regarding the discount rates, growth rates and
expected changes to selling prices and direct costs during the period. Management estimates discount
rates using pre-tax rates that reflect current market assessments of the time value of money and the risks
specific to the CGUs. The growth rates are based on industry growth forecasts. Changes in selling prices
and direct costs are based on past practices and expectations of future changes in the market.
The Group prepares cash flow forecasts derived from the expected project revenue based on the
completion date as estimated by management for the next five years.
The rate used to discount the forecast cash flows from the CGU is 12% per annum.
A1-22
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