78 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023 5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements are continually evaluated by Directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Management has considered the impact of climate change, specifically on labour situation and El-Nino and La-Nina weather conditions together with their impact on the forecasted fresh fruit bunches yield during the preparation of the financial statements. The estimates and assumptions 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: (i) LLA liability The fair value of the LLA liability is measured using a discounted cash flow calculation using cash flow projections covering a 88 year period. The cash flow projection is approved by the LLA Steering Committee based on the 2024 approved financial budgets by the Directors plus the projection for the remaining period reflective of the forecasted operational results. As a result of the fair value assessment, the Group has recognised a LLA liability of RM3,513,813,000 (2022: RM3,680,354,000). Fair value changes for the LLA liability has been measured based on assumptions made on discount rate, crude palm oil prices, palm kernel prices, average yield of fresh fruit bunches and mature and immature estate costs. As at 31 December 2023, the Group adopted the most recent estimated changes in arriving at the fair value. The key assumptions incorporating the most recent developments in respect of yield and costs due to labour consideration and risks associated with the environmental (specifically in respect of the “El-Nino” and “La-Nina” conditions), social and governance (“ESG”) factors and other parameters such as commodity prices have been considered. The key assumptions and the sensitivity analysis are as disclosed in Note 45 to the financial statements. (ii) Goodwill relating to sugar business and palm upstream operations in Malaysia The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable amount of the cash generating units (“CGU”) to which the goodwill is allocated. Estimating the recoverable amount requires management to make an estimate of the expected future cash flows from the CGUs and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The recoverable amounts of CGUs were determined based on the higher of fair value less cost to sell or value in use (“VIU”) calculations. The fair value less cost to sell or VIU is the net present value of the projected future cash flows derived from the CGU discounted at an appropriate discount rate. Projected cash flows are estimates made based on historical and industry trends, general market and economic conditions and other available information. As a result of the impairment assessment, the Group did not recognise any impairment loss (2022: Nil) for goodwill relating to sugar business and palm upstream operations in Malaysia during the financial year. The key assumptions and the sensitivity analysis are as disclosed in Note 22(a) to the financial statements. (iii) Impairment of non-financial assets The Group tests its non-financial assets for impairment if there is any objective evidence of impairment. Management have assessed that certain non-financial assets may be potentially impaired or the existing impairment may be reversed. The recoverable amounts of these assets were determined based on the higher of fair value less cost to sell or VIU calculations. The fair value less cost to sell or VIU is the net present value of the projected future cash flows derived from the CGU discounted at an appropriate discount rate. Projected cash flows are estimates made based on historical and industry trends, general market and economic conditions and other available information, including recent developments in respect of commodity prices, yield and costs due to labour shortage issues and risk associated with ESG factors.
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