FRENCKEN GROUP LIMITED
ANNUAL REPORT 2015
71
NOTES TO FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015 (CONT’D)
3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT’D)
(b) Critical judgements in applying the entity’s accounting policies
The following are the critical judgements, apart from those involving estimations that management has made in
the process of applying the Group’s and the Company’s accounting policies and which have the significant effect
on the amounts recognised in the financial statements.
(i) Impairment of financial assets, available-for-sale
As disclosed in Note 16, unquoted equity investment classified as financial assets, available-for-sale amounts
to $4,132,000 (2014 : $4,372,000). As at 31 December 2015, an impairment loss of $240,000 (2014 :
$535,000) is recognised during the financial year as disclosed in Note 16. In making this judgement, the
Group has considered, among other factors, a significant decline and the financial health and short-term
business outlook of the investee.
(ii) Impairment of investments in subsidiaries and financial assets
The Group and the Company follow the guidance FRS 36 and FRS 39 in determining whether investments
in subsidiaries or financial assets are impaired. This determination requires the assumption made regarding
the duration and extent to which the fair value of an investment or a financial asset is less than its costs and
the financial health of and near-term business outlook for the investment or financial asset, including factors
such as industry and sector performance, changes in technology and operational and financing cash flow.
Management’s assessment for impairment of investments in subsidiaries is based on the fair value less cost
to sell or the estimation of value-in-use of the cash-generating unit (“CGU”) by forecasting the expected
future cash flows for a period of up to 5 years, using a suitable discount rate in order to calculate the
present value of those cash flows. Based on the review, an impairment loss of $7,950,000 (2014 : $Nil) is
recognised during the year. The carrying amount of investment in subsidiaries as at 31 December 2015 was
$127,229,000 (2014 : $135,001,000).
(iii) Determination of functional currency
The Group measures foreign currency transactions in the respective functional currencies of the Company
and its subsidiaries. In determining the functional currency of the entities in the Group, judgment is required
in determining the currency that mainly influences sales prices for goods and services and of the country
whose competitive forces and regulations mainly determines the sales prices of its goods and services. The
functional currencies of the entities in the Group are determined based on management’s assessment of the
economic environment in which the entities operate and the entities’ process of determining sales prices.
4 RELATED PARTY TRANSACTIONS
A related party is defined as follows:
(a) A person or a close member of that person’s family is related to the Group and Company if the person: (i) has
control or joint control over the Company; (ii) has significant influence over the Company; or (iii) is a member of
the key management personnel of the Group or Company or of parent of the Company.
(b) An entity is related to the Group and the Company if any of the following conditions apply: (i) the entity and the
Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary
is related to the others); (ii) one entity is an associate of the other entity (or an associate of a member of the
group of which the other entity is a member); (iii) the entity is a post-employment benefit plan for the benefit
of employees of either the Company or an entity related to the Company. If the Company is itself such a plan,
the sponsoring employers are also related to the Company; (iv) the entity is controlled or jointly controlled by a
person identified in (a); (v) a person identified in (a)(i) has significant influence over the entity or is a member of
the key management personnel of the entity (or of a parent of the entity).
