NOTES TO THE FINANCIAL STATEMENTS
FOR THE FInAncIAL yEAR EnDED 30 JunE 2016
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GOODWILL (CONT’D)
The recoverable amounts for the above CGUs have been determined based on value in use calculations using
cash flow projections from financial budgets approved by management covering a 5 year period. Cash flows
beyond the five-year period are forecasted to be constant at the level of cash flows in year five. The rates do not
exceeds the average long-term growth rate for the relevant markets. The pre-tax discount rate applied to the
cash flow projections are as follows:
Repair & redecoration/
Coating & paintings/
Landscaping works/
Leasing services/
Commercial interior
designs
2016
2015
Pre-tax discount rates
8.85% – 11.58%
10.33%
The calculations of value in use for the above CGU are most sensitive to the following assumptions:
Budgeted gross margins – Gross margins are based on the past trend and are expected to be consistent over
the budget period. The forecast prepared were based on the past performance, current market and economic
condition as at the time of preparation and reporting date;
Budgeted revenue – Revenue is computed based on secured order book and potential contracts; and
Pre-tax discount rates – Discount rates represent the current market assessment of the risks specific to the
CGU, regarding the time value of money and individual risks of the underlying assets which have not been
incorporated in the cash flow estimates. The discount rate calculation is based on the financial structure of the
Group, the industry environment and the economic conditions within which the Group operates and derived
from its weighted average cost of capital (WACC) which takes into account both debt and cost of equity. The
cost of debt is based on the average Singapore’s bank prime lending rate. The cost of equity is derived from
the minimum acceptable return on investment required by shareholders. The risk factors are considered in the
computation of beta.
An impairment loss of $Nil (2015: $578,000) was recognised to the coatings & paintings CGU to write down the
carrying amount of goodwill to its recoverable amount. The impairment loss has been recognised in profit or
loss under the line item “Other operating expenses”.
Sensitivity to changes in assumptions
With regards to the assessment of value in use for the repair & redecoration, coatings & paintings, landscaping
works and commercial interior design segments, management believes that no reasonably possible changes
in any of the above key assumptions would cause the carrying values of the CGUs to materially exceed its
recoverable amounts.
For the leasing services segment, the estimated recoverable exceeds its carrying amount by approximately
$730,000 as at 30 June 2016. A decrease in the yearly budgeted gross margin by 3% would result in the
recoverable amount of the leasing services segment CGU being equal to its carrying amount.
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ISOTEAM LTD.
ANNUAL REPORT 2016
