annual report 2014
I
Notes to the Financial Statements
31 December 2014 (Cont’d)
79
6.
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (cont’d)
6.2 Critical judgements made in applying accounting policies (Cont’d)
(a)
Deferred tax on undistributed earnings (Cont’d)
According to the Arrangement Between Mainland China and Hong Kong Special Administrative Region for
the Avoidance of Double Taxation on Income and Prevention of Tax Evasion (“Arrangement for Avoidance
of Double Taxation”), withholding tax on dividend to a Hong Kong company, which owns directly at least
25% of the capital of the subsidiary in PRC, is 5%, whereas in any other case, 10% of the dividend.
During the financial year, the Directors have reconsidered the above tax exposure in the light of the
dividend policy and accordingly, have estimated the deferred tax liabilities in respect of the temporary
differences associated with the share of net assets of PRC subsidiaries and tax base of cost of investment
in the subsidiaries based on the prevailing applicable withholding tax rate of 5%.
(b)
Land use rights
The Group has assessed and classified land use rights of the Group as finance leases based on the
extent to which risks and rewards incidental to ownership of the land resides with the Group arising
from the lease term. Consequently, the Group has classified the unamortised upfront payment for land
use rights as finance leases in accordance with MFRS 117
Leases
. For clarity purpose, the Group has
presented the related leased assets under a separate line item - “Land use rights” in the statements of
financial position.
(c)
Change of functional currency
The Company changed its functional currency from RM to RMB from 1 January 2014 prospectively as
the Board is of the opinion that RMB is the currency that most faithfully represents the economic effect of
the underlying transactions, events and conditions of the Company. Accordingly, the Company translated
all statement of financial position and statement of profit or loss items into RMB using the exchange
rate at the date of change (1 January 2014). The resulting translated amounts for non-monetary items
are treated at their historical cost.
6.3 Key sources of estimation uncertainty
The following are key assumptions concerning the future and other key sources of estimation uncertainty at
the end of each reporting period that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year.
(a)
Impairment of property, plant and equipment
The Group determines whether property, plant and equipment are impaired at the end of each reporting
period. If an indication of impairment exists, the recoverable amount is estimated. Recoverable amount
of an asset or cash generating unit (‘CGU’) is the higher of its fair value less cost to sell and its value in
use.
Estimating a value in use requires management to make an estimate of the expected future cash flows to
be derived from continuing use of the asset and from its ultimate disposal, expectations about possible
variations in the amount, timing of those cash flows, the time value of money, price for inherent uncertainty
risk and other relevant factors.
