181 F INANC IAL Statements Sect ion 05 Annual Report 2022 NOTES TO THE F INANC I AL STATEMENTS For the year ended 31 December 2022 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the reporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. (a) Critical judgement in applying the accounting policies There were no other critical judgements made by the management in the process of applying the Group’s and the Company’s accounting policies that may have significant effects on the amounts recognised in the financial statements, except as stated below: (i) Reimbursement of expenses receivable from Johor State Government During the financial year, RanhillSAJ, a subsidiary of the Company, submitted a reimbursement request to the Johor State Government (“JSG”) and recognised other income of RM45,405,000 (2021: RM22,176,000), being reimbursable expenses incurred relating to shortfall of raw water supply for year 2021 and 2022 (2021: 2020), (Note 8 and Note 24). In determining the basis for recognising this other income, management has taken into consideration of terms and conditions stated in the Water Supply Agreement entered with JSG on 9 July 2009, letter of acknowledgement of reimbursement request from Johor State Economic Planning Division dated 29 December 2021 and 15 February 2023 and legal opinions obtained from solicitors. Management has exercised judgement on the recoverability and timing of collection of claims made by RanhillSAJ. (ii) Deferred tax assets Deferred tax assets are recognised for unabsorbed capital allowances, tax losses, investment allowance and other deductible temporary differences to the extent that it is probable that taxable profit will be available against which the capital allowances, tax losses and other deductible temporary differences 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, expected extension of period for utilisation of investment allowance together with future tax planning strategies. Further details are disclosed in Note 19. (iii) Service concession assets and service concession obligation During the previous financial year, Pengurusan Aset Air Berhad (“PAAB”) has granted RanhillSAJ, a subsidiary of the Company, moratorium of partial lease payable for Operating Period 5 from 1 January 2022 to 31 December 2023 via its letter dated 31 December 2021. Based on the said letter, the moratorium amount is payable after 45 years. Management has determined that no liability is to be recognised on the moratorium amount as of the end of reporting period based on the judgement that the liability is contingent upon renewal of water service license by the Ministry of Environment and Water (currently known as the Ministry of Natural Resources, Environment and Climate Change (“NRECC”)) every three years for future Operating Periods. Accordingly, in determining the carrying amounts of service concession assets and service concession obligations as disclosed in Notes 15 and 34 respectively, the management has considered moratorium of lease payment amounting to RM22.5 million in respect of the previous financial year and the expected moratorium for the financial year ended 31 December 2022 and financial year ending 31 December 2023 to be in proportion to the moratorium received in previous financial year.
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