continued - The Lion Group

5. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in Note 3, management is required
to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the version affects only that period, or in the period
of the revision and future periods if the version affects both current and future periods.
Critical Accounting Estimates and Assumptions
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at
the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year:
(i) Depreciation of Property, Plant and Equipment
The cost of the plant and machinery relating to manufacturing of hot rolled coils and cold rolled coils is
depreciated on a straight-line basis over the assets’ useful lives. Management estimates the useful lives of
these plant and machinery to be within 15 years to 30 years and residual value to be 5%. Changes in the
expected level of usage and technological developments could impact the economic useful lives and the
residual values of these assets, which may cause a material adjustment to future depreciation charges.
(ii) Estimated Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation
on the value-in-use of the cash-generating units (“CGU”) to which goodwill is allocated. Estimating a valuein-use
amount requires management to make an estimate of the expected future cash flows of the CGU
and also to choose a suitable discount rate in order to calculate the present value of those cash flows.
(iii) Estimated Impairment of Tangible Assets
When there is an indication that the carrying amount of an asset may be impaired, the asset’s recoverable
amount, being the higher of its fair value less costs to sell and its value-in-use, will be assessed. The
assessment of recoverable amount involves various methodologies.
Fair value of an asset is estimated by reference to net assets of the investee or based on prevailing market
value determined by professional valuers.
In determining the value-in-use of an asset, being the future economic benefits to be expected from its
continued use and ultimate disposal, the Group makes estimates and assumptions that require significant
judgements and estimates. While the Group believes these estimates and assumptions to be reasonable
and appropriate, changes in these estimates and assumptions of value-in-use could impact on the Group’s
financial position and results.
(iv) Deferred Tax Assets
Deferred tax assets are recognised for all unused tax losses and unabsorbed capital allowances to the extent
that it is probable that taxable profit will be available against which the losses and capital allowances can
be utilised. Significant management judgement is required to determine the amount of deferred tax assets
that can be recognised, based upon the likely timing and level of future taxable profits together with future
tax planning strategies. Details of deferred tax assets are disclosed in Note 22.
(v) Inventories
Significant judgement is required in determining the quality, grades and density of the raw materials existing
at the end of the financial year. In forming judgement, the Group relies on past experience and on the work
of an expert in measuring the raw materials. Details of inventories are disclosed in Note 23.
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