Annual Report (Complete) - MYCRON Steel Berhad

Notes to the Financial Statements
30 June 2010
(continued)
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
(e)
Taxation
Significant judgement is required in determining the provision for income taxes. These are transactions and calculations
for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities
for tax based on estimates of assessment of the tax liability due. Differences which may arise from the final tax outcome
and the amounts that were initially recorded will result in changes to the income tax and deferred tax provisions, where
applicable, in the period in which such determination is made.
(f)
Deferred tax assets
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against
which the temporary differences can be utilised. This involves judgement regarding the future financial performance of the
particular entity in which the deferred tax asset has been recognised.
4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group’s overall financial risk management objectives are to ensure that the Group creates value and maximises returns to its
shareholders.
Financial risk management is carried out through risk reviews, internal control systems, benchmarking the industry’s best practices
and adherence to Group’s financial risk management policies.
The main risks arising from the financial instruments of the Group are credit risk, interest rate risk, market risk, foreign currency
exchange risk and liquidity and cash flow risk. The management of the Group monitors the financial position closely with an
objective to minimise potential adverse effects on the financial performance of the Group. The Directors review and approve
policies from managing each of these risks and they are summarised below. These policies have remained unchanged during
the financial year.
(a)
Credit risk
Credit risk arises when sales are made and services are rendered on deferred credit terms and when surplus cash is invested.
The Group has credit policies in place to manage the credit risk exposure. The risk is managed through the application of the
Group’s extensive credit management procedures which includes the application of credit evaluation, credit approvals
and adherence to credit limits, credit periods, regular monitoring and follow up procedures.
The Group does not have any significant exposure to any individual customer or counterparty nor does the Group have any
major concentration of credit risk related to any financial instruments.
Concentration of credit risk with respect to trade receivable is limited due to the Group’s nature of business which is
predominantly cash based. The Group’s historical experience in collection of trade receivables falls within the recorded
allowances. Due to these factors, no additional credit risk beyond amounts allowed for collection losses is inherent in the
Group’s trade receivables.
With regards to surplus cash, the Group invests its cash assets safely and profitably by depositing them with licensed financial
institutions.
The Group considers the risk of material loss from the non-performance on the part of a financial counter-party to be
negligible.
(b)
Interest rate risk
The Group and Company’s income and operating cash flows are substantially independent of changes in market interest
rates. Interest rate exposure arises mainly from the Group’s borrowings and deposits with licensed bank.
The Group manages its interest rate exposure by maintaining a prudent mix of fixed and floating rate borrowings.
It is the policy of the Group not to trade in interest rate swap agreements.
(c)
Market risk
The Group’s exposure to market risk arises mainly from changes in steel raw materials and finished goods prices. The
management of the Group monitors the sales of finished goods and procurement of its raw materials closely to minimise
the impact of market risk on the Group.
(d)
Foreign currency exchange risk
The Group is exposed to foreign currency exchange risk as a result of transactions denominated in foreign currencies
entered into by the Group.
pg 63 | Mycron Steel Berhad