195 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 16. INTANGIBLES (Contd.) Goodwill The goodwill’s cash generating unit (“CGU”) is in respect of environment segment and engineering service segment as follows: Group 2022 RM’000 2021 RM’000 Environment 11,151 11,151 Engineering services (Note 20) 88,100 89,474 99,251 100,625 In prior year, the Group recognised a provisional goodwill of RM89,474,000 arising from acquisition of subsidiaries for engineering services segment as disclosed in Note 20 as the Group has undertaken a purchase price allocation (“PPA”) exercise to determine the identifiable assets and liabilities, and to identify and measure intangible assets. The goodwill on acquisition has been finalised in current financial year at RM88,100,000. The differences arising have been adjusted accordingly upon the completion of the PPA exercise in current year instead of retrospectively as the impact is not material to the Group. Service license Service license represents cost of service license issued to a subsidiary, RanhillSAJ to treat raw water, supply and distribute treated water to the consumers of the State of Johor. The service license, under environment segment, is not amortised but assessed for impairment at each reporting date or more frequently, when indicators of impairment are identified. Impairment test of service license and goodwill The recoverable amounts of CGUs from environment segment and engineering services segment are determined based on value-in-use calculations, using pre-tax cash flow projections based on financial budgets approved by the directors for a period consistent with the operating period under the license for environment segment and a period of 3 years (2021: 3 years) for engineering services segment. The key assumptions used in the value-in-use calculations are as follows: Environment Engineering Services 2022 % 2021 % 2022 % 2021 % Growth rate (i) 2.1 2.1 2.1 2.1 Pre-tax discount rate (ii) 14.5 12.6 13.2-17.2 13.4-14.2 (i) Projected terminal growth rate used to extrapolate cash flows beyond the projection period (ii) Pre-tax discount rate applied to cash flows projections The directors have determined the growth rate considering the long-term inflation rate which does not exceed the long term average growth rate for the CGU. The discount rates used are pre-tax and reflect their specific risk relating to the segments. Sensitivity to changes in assumptions Management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of the CGU to materially exceed its recoverable amount.
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