TUNG LOK RESTAURANTS (2000) LTD / Annual Report
2016
60
Notes to the financial statements
For the financial year ended 31 March 2016
3.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in Note 2, management is required to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
Critical judgements in applying the Company’s accounting policies
There are no critical judgements made by management at the end of the reporting period that have a significant effect
on the amounts recognised in the financial statements.
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 within
the next financial year are discussed below.
(a)
Impairment of investments in subsidiaries
Determining whether investments in subsidiaries are impaired requires an estimation of the value in use of these
subsidiaries. The value in use calculation requires the management to estimate the future cash flows expected
from the cash-generating unit and an appropriate discount rate in order to calculate the present value of the
future cash flows. Management has evaluated the recoverable amount of those investments based on such
estimates. The carrying amounts of these investments at the end of the reporting period are stated in Note 16 to
the financial statements.
The key assumptions used in value in use calculation are as follows:
(i)
Discount rate of 9.0% to 11.5%
(ii)
Sales growth rate of 1% to 28%
If the estimated discount rate used in the calculation had increased by 0.5%, the carrying amount of investment
in subsidiaries would have been $54,000 lower. If the estimated sales growth rate had dropped by 0.5%, the
carrying amount of investment in subsidiaries would have been $57,000 lower.
(b)
Impairment of property, plant and equipment
Determining whether property, plant and equipment is impaired requires an estimation of the value in use. The
value in use calculation requires the management to estimate future cash flows and a suitable discount rate in
order to calculate the present value of the cash flows. The carrying amount of property, plant and equipment
at the end of the reporting period is $12,051,572 (2015: $13,955,352) as set out in Note 20 to the financial
statements.
The key assumptions are disclosed in Note 20. If the estimated discount rate used in the calculation had been
0.5% higher, the carrying amount of property, plant and equipment would have been $15,000 lower. If the
estimated sales growth rate had been 0.5% lower than management’s estimate, the carrying amount of property,
plant and equipment would have been $77,000 lower.
