Sample Disclosure – Note On Goodwill (27 September 2009)

INTANGIBLE ASSET – GOODWILL

Note On Goodwill

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For the purpose of impairment testing, goodwill is allocated to the subsidiary which represents the lowest level within the Group at which the goodwill is monitored for internal management purpose.

During the financial year, the Group has recognised impairment loss on goodwill on consolidation of RM30,000 (2008 – Nil) due to the deterioration of the financial position and financial performance of a subsidiary in property development segment.

The balance of the goodwill on consolidation of RM500,000 (2008 – RM530,000) is related to the manufacturing segment and the recoverable amount is determined based on the value-in-use calculations. The calculations performed are based on the pre-tax cash flow projections derived from financial budgets approved by the Directors covering the coming 5 financial years. This method of calculations is consistent with that adopted in the previous financial year. The key assumptions used in the calculations are as follows:-

(a) Sales growth rate of 10% for the first two financial years from the 2010 budget, which is the base year for the cash flows projections, and 12% for the subsequent financial years.

(b) Discount rate of 10%, being the estimated weighted average cost of capital of the Company.

(c) Terminal value representing the projected carrying amount of the net assets of the manufacturing segment as at the end of Year 5.

The Directors determined budgeted gross margin and results based on past performance and its expectations of market development. The discount rate used are pre-tax and reflect specific risks relating to the relevant segments. Based on the recoverable amount determined, goodwill on consolidation related to the manufacturing segment is not impaired for the current financial year. With regard to the assessment of value in use, the Directors believe that no reasonably possible change in any of the above key assumptions would cause the carrying value of the unit to be materially different from its recoverable amount.

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