Page 114 - S P Setia Annual Report 2016
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112   S P Setia Berhad Group
                Annual Report 2016

          Notes To The Financial Statements

          For The Financial Year Ended 31 December 2016

              (c)   Significant accounting judgements and estimates (cont’d.)

                   (i)   Critical judgement made in applying accounting policies

                       The following are judgements made by management in the process of applying the Group’s accounting policies that have
                       the most significant effect on amounts recognised in the financial statements:

                       Classification between investment properties and owner-occupied properties

                       The Group determines whether a property qualifies as an investment property, and has developed certain criteria based on
                       FRS 140 Investment Property in making that judgement.

                       In making its judgement, the Group considers whether a property generates cash flows largely independently of other
                       assets held by the Group. Owner-occupied properties generate cash flows that are attributable not only to the property,
                       but also to other assets used in the production or supply process.
                       Some properties comprise a portion that is held to earn rental or for capital appreciation and another portion that is held
                       for use in the production or supply of goods and services or for administrative purposes.
                       If these portions could be sold separately (or leased out separately under a finance lease), the Group accounts for the
                       portions separately.

                       If the portions could not be sold separately, the property is accounted for as an investment property only if an insignificant
                       portion is held for use in the production and supply of goods and services or for administrative purposes.

                       Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property
                       does not qualify as an investment property.

                   (ii)   Key sources of estimation uncertainty

                       The key assumptions concerning the future and other key sources associated with estimation uncertainty at the reporting
                       date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the
                       next financial period are discussed below:

                       Depreciation and useful life of property, plant and equipment and investment properties

                       Property, plant and equipment and investment properties are depreciated on a straight-line basis to write off their costs to
                       their residual values over their estimated useful lives. Management estimates the useful lives of these assets to be within
                       3 to 99 years for property, plant and equipment and 10 to 99 years for investment properties.
                       The carrying amounts of the Group’s and the Company’s property, plant and equipment and investment properties as at
                       31 December 2016 are disclosed in Notes 2 and 3 to the financial statements.

                       Changes in the expected level of usage, physical wear and tear and technological development could impact the economic
                       useful lives and the residual values of these assets, and therefore future depreciation charges could be revised.

                       Allowance for stock obsolescence and inventories write down
                       Inventories are stated at the lower of cost and net realisable value. The Group estimates the net realisable value of inventories
                       based on an assessment of expected sales prices.
                       Inventories are reviewed on a regular basis and the Group will make an allowance for excess or obsolete inventories based
                       primarily on historical trends and management estimates of expected and future product demand and related pricing.

                       The carrying amounts of the Group’s inventories as at 31 December 2016 are disclosed in Note 13 to the financial statements.
                       Demand levels, technological advances and pricing competition could change from time to time. If such factors result in an
                       adverse effect on the Group’s products, the Group might be required to reduce the value of its inventories and additional
                       allowances for slow moving inventories may be required.
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