FRENCKEN GROUP LIMITED
ANNUAL REPORT 2015
91
NOTES TO FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015 (CONT’D)
17 INTANGIBLE ASSETS (CONT’D)
(a) Goodwill on consolidation (Cont’d)
Key assumptions used for value-in-use calculations:
Mechatronics
IMS
%
%
Gross margin
(1)
14.4 to 21.8
14.9 to 28.4
Growth rate
(2)
-
0.0 to 10.0
Discount rate
(3)
2.9 to 4.4
4.4 to 5.1
(1)
Forecasted gross margin
(2)
Weighted average growth rate used to extrapolate cash flows beyond the forecast period
(3)
Pre-tax discount rate applied to the pre-tax cash flow projections
These assumptions were used for the analysis of each CGU within the business segment. Management determined
forecasted gross margin based on past performance and its expectations for market development. The weighted
average growth rates used were consistent with forecast used and industry knowledge. The discount rates used
were pre-tax and reflect specific risks relating to the relevant segments.
Management believes that any reasonably possible change in the key assumptions on which the CGU’s recoverable
amount is based would not cause the carrying amount to exceed its recoverable amount.
In the last financial year, an impairment loss on goodwill amounting to $179,000 relating to a subsidiary within
the Mechatronics division, has been recognised in the income statement for the financial year because the
recoverable amount is lower than the carrying value of which the recoverable amount is determined based on
the value-in-use calculations.
(b) Deferred development costs
Deferred development costs relate to the cost capitalised by its subsidiaries for developing certain products.
Amortisation of the deferred development costs begin when the development is completed and are amortised
on the expected units of production basis or over the estimated useful life of 5 to 11.5 years.
During the year, management performed a review of the recoverable amount for the deferred development
costs and an impairment loss of $2,288,000 (2014 : $Nil) has been recognised in the income statement due to
challenges in marketing the product.
(c) Patents
Patents relate to certain design and specification of stepper motors and filter devices for micro filtration of oil.
Patents are amortised over their estimated useful life of 5 years.
(d) Intellectual properties
Intellectual properties mainly pertain to the intellectual property related to the current miniature stepper motor
product offerings and the intellectual property related miniature stepper motor products under in-process
research and development. These intellectual properties have finite useful lives, and are amortised on a straight-
line basis over their estimated useful lives of 5 years.
The amortisation expense has been included in the line item “cost of sales” in income statement.