183 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 (contd.) (b) Key source of estimation uncertainty (contd.) (ii) Impairment of service license and goodwill Service license and goodwill are tested for impairment annually and at other times when such indicators exist. This requires an estimation of the value in use of the cash-generating units to which intangibles are allocated. When value in use calculations are undertaken, management estimates the expected future cash flows from the asset or cashgenerating unit and determines a suitable discount rate and terminal growth rate in order to calculate the present value of those cash flows. Further details of the carrying values and the key assumptions applied in the impairment assessment of intangibles are disclosed in Note 16. (iii) Provision for expected credit loss of financial assets at amortised cost The Group uses a provision matrix to calculate ECLs for trade and other receivables. The provision rates are based on number of days past due. The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix to adjust the historical credit loss experience. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analysed. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. Information about the ECLs on the Group’s financial assets at amortised cost is disclosed in Note 24. (iv) Defined benefit plan The cost of defined benefit pension plans and other post employment medical benefits as well as the present value of the pension obligation is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return of assets, future salary increases, mortality rates and future pension increases. All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management has derived the applicable interest rates from high quality corporate bonds in Malaysia with an AA rating. The bonds have been selected based on the expected duration of the defined benefit obligation and taking into consideration the yield curve respectively. The mortality and disability rates are based on publicly available mortality tables for Malaysia. Future salary increase is increased based on expected future inflation rates for Malaysia. Further details about the assumptions used are as stated in Note 30. (v) Recognition of service contract revenue over time The Group recognises service contract revenue by reference to the stage of completion of the contract activity at the reporting date, when the outcome of a service contract can be estimated reliably. The stage of completion is measured by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. Significant assumptions are required to estimate the total contract costs and the recoverable variation works that will affect the stage of completion. In making these estimates, management relied on past experience and the work of specialists. The carrying amounts of assets and liabilities arising from services contracts at the reporting date are disclosed in Note 25.
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