Annual Report 2015
FINANCIAL SECTION
139
5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
(continued)
(c) Estimated useful lives and impairment of property, plant and equipment
Property, plant and equipment are long-lived but may be subject to technical obsolescence. The annual
depreciation charges are affected by the estimated useful lives that the Group allocates to each type of
property, plant and equipment. Management performs annual reviews to assess the appropriateness of the
estimated useful lives. Such reviews take into account the technological changes, prospective economic
utilisation and physical condition of the assets concerned.
Management also regularly reviews whether there are any indications of impairment and will recognise an
impairment loss if the carrying amount of an asset is higher than its recoverable amount which is the greater
of its net selling price or its value in use. In determining the value in use, management assesses the present
value of the estimated future cash flows expected to arise from the continuing use of the asset and from its
disposal at the end of its useful life. Estimates and judgements are applied in determining these future cash
flows and the discount rate. Management estimates the future cash flows based on certain assumptions, such
as market competition and development and the expected growth in business.
(d) Impairment of assets
The Group tests annually whether goodwill has suffered any impairment according to their recoverable
amounts determined by the cash-generating units based on value in use calculations. These calculations
require the use of estimates which are subject to change of economic environment in future. Details are set
out in note 20.
The Group determines whether interests in joint ventures and associated companies are impaired by regularly
review whether there are any indications of impairment based on value in use calculations. In determining the
value in use, management assesses the present value of estimated future cash flows expected to arise from
their businesses. Estimates and judgements are applied in determining these future cash flows and discount
rate.
Management has carried out impairment assessments on the interests in Tharisa plc (“Tharisa”), an associated
company of the Group, and Hyva I B.V. (“Hyva”), a joint venture of the Group, by using the discounted cash
flow method. The estimated cash flows used in the assessment are based on assumptions, such as revenue
growth, unit price, proved and probable mining reserve, production cost, production capacity and discount
rate, with reference to the business plan and prevailing market conditions. Based on the assessments,
management is of the view that there is no impairment of the Group’s interests in Tharisa and Hyva as at 30
June 2015.
The Group determines whether an available-for-sale financial asset is impaired by evaluating the duration or
extent to which the fair value of an investment is less than its cost.
The Group assesses whether there is objective evidence as stated in note 3(j) that deposits, loans and
receivables are impaired. It recognises impairment based on estimates of the extent and timing of future
cash flows using applicable discount rates. The final outcome of the recoverability and cash flows of these
receivables will impact the amount of impairment required.
(e) Financial guarantees and tax indemnity
The Group assesses at the end of each reporting period the liabilities under insurance contracts, using current
estimates of future cash flows.
In respect of the financial guarantee contracts provided to property purchasers, the Group considers the net
realisable value of the relevant properties against their outstanding mortgage principal and interest.
