3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) 3.2 Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities and the reported amounts of revenue and expenses within the next financial year are discussed below: Construction contracts The Group has significant ongoing construction contracts as at 30 September 2024 that are non-cancellable. For these contracts, revenue is recognised over time by reference to the Group’s progress towards completion of the contract. The measure of progress is determined based on the proportion of contract costs incurred to date to the estimated total contract costs (“input method”). Management has to estimate the total contract costs to complete, which are used in the input method to determine the Group’s recognition of construction revenue. A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. Significant assumptions are used to estimate the total contract sum and the total contract costs which affect the accuracy of revenue recognition based on the percentage-of-completion and completeness of provision for onerous contracts recognised. In making these estimates, management has relied on past experience and the work of specialists. If the remaining estimated contract costs were increase by 0.3% (2023: 0.3%) from management’s estimates, the Group’s profit or loss before income tax will decrease or increase by approximately $1,089,000 (2023: $1,180,000). Significant judgement is also used to estimate variations or claims recognised as contract revenue and provision for liquidated damages that will affect the revenue and profit margins recognised from construction contracts. In making the judgement, the Group evaluates and places reliance on past experience, contractual obligations, estimates from quantity surveyors and value of work performed as determined by the architects. Customers have a right to claim for liquidated damages under the contractual terms of the contracts if contractual obligations, including completion of the project by a specific date, are not fulfilled. Due to COVID-19 pandemic, certain projects were completed after the contractual completion date. Management evaluated the probability of liquidated damages claims from customers by considering whether extension of time would be reasonably granted by its customers. The determination of the probability of claims are based on the circumstances and relevant events that were known to management at the date of these financial statements. If the provision for liquidated damages were increase by 15% (2023: 15%) from management’s estimates, the Group’s loss before income tax will increase by approximately $2,100,000 (2023: $1,350,000). Impairment of investments in subsidiaries, associates and joint ventures Management follows the guidance of SFRS(I) 1-36 Impairment of Assets (“SFRS(I) 1-36”), in determining whether investments in subsidiaries, associates and joint ventures are impaired. This requires assumption to be made regarding the duration and extent to which the recoverable amount of an investment is less than its carrying amount, the financial health, and near-term business outlook of the investments including factors such as industry and sector performance, changes in technology and operational and financing cash flows. Investment in subsidiaries, associates and joint ventures are tested for impairment whenever there is indication that these assets may be impaired. The recoverable amounts of these assets and where applicable, cash-generating units (“CGU”) have been determined based on higher of value-in-use calculations and fair value less cost of disposal. The determination of recoverable amounts involved estimating the present value of future cash flows of the associates, the fair value of the associates’ business and estimated disposal costs. The Company’s carrying amount of investments in subsidiaries as at 30 September 2024 was $21,139,000 (2023: $21,139,000) (Note 13). The Company’s carrying amount of investments in associates as at 30 September 2024 was $7,123,000 (2023: $7,123,000) (Note 14). The Group’s carrying amounts of investments in associates and joint ventures as at 30 September 2024 were $26,480,000 (2023: $46,105,000) and $4,453,000 (2023: $6,181,000) respectively (Notes 14 and 15). 86 KEONG HONG HOLDINGS LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2024
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