3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (CONTINUED) 3.2 Key sources of estimation uncertainty (Continued) Construction contracts (Continued) Significant judgement is also required to estimate variations or claims recognised as contract revenue and provisions for liquidated damages (“LD”), which affect the revenue and profit margins recognised from construction contracts. In making these judgements, the Group evaluates and places reliance on past experience, contractual obligations, estimates from quantity surveyors and the value of work performed as determined by the architects. Customers have a right to claim LD under the contractual terms if contractual obligations, including completion of the project by a specified date, are not fulfilled. Due to the COVID-19 pandemic, certain projects were completed after the contractual completion date. Management assessed the probability of LD claims from customers by considering whether an extension of time would be reasonably granted by customers. The assessment of the probability of claims is based on the circumstances and relevant events known to management as at the reporting date. If the provision for LD were to increase by 15% (2024: 15%), the Group’s profit/(loss) before income tax would (decrease)/increase by approximately $1,847,000 (2024: $2,100,000). Impairment of investments in subsidiaries, associates and joint ventures Management follows the guidance of SFRS(I) 1-36 Impairment of Assets (“SFRS(I) 1-36”), in determining whether investments in subsidiaries, associates and joint ventures are impaired. This requires assumption to be made regarding the duration and extent to which the recoverable amount of an investment is less than its carrying amount, the financial health, and near-term business outlook of the investments including factors such as industry and sector performance, changes in technology and operational and financing cash flows. Investment in subsidiaries, associates and joint ventures are tested for impairment whenever there is indication that these assets may be impaired. The recoverable amounts of these assets and where applicable, cash-generating units (“CGU”) have been determined based on higher of value-in-use calculations and fair value less cost of disposal. The determination of recoverable amounts involved estimating the present value of future cash flows of the associates, the fair value of the associates’ business and estimated disposal costs. The Company’s carrying amount of investments in subsidiaries as at 30 September 2025 was $21,139,000 (2024: $21,139,000) (Note 12). The Company’s carrying amount of investments in associates as at 30 September 2025 was $7,123,000 (2024: $7,123,000) (Note 13). The Group’s carrying amounts of investments in associates and joint ventures as at 30 September 2025 were $20,899,000 (2024: $26,480,000) and $4,507,000 (2024: $4,453,000) respectively (Notes 13 and 14). Loss allowance on trade and other receivables, retention sum and contract assets Trade receivables, retention sum and contract assets Expected credit loss model is initially based on the Group’s historical observed default rates. The Group will calibrate the model to adjust historical credit loss experience with industry future outlook. At end of each financial year, historical default rates are updated and change in the industry future outlook is reassessed. The Group also evaluates expected credit loss on credit-impaired receivables separately at each reporting period. The aggregate carrying amount of the Group’s trade receivables, retention sum and contract assets as at 30 September 2025 was $43,333,000 (2024: $51,783,000). The Group’s credit risk exposure is set out in Note 34 to the financial statements. Non-trade receivables from subsidiaries, associates and joint ventures Management determines whether there is significant increase in credit risk of these subsidiaries, associates and joint ventures since initial recognition. Management assesses the financial performances of subsidiaries, associates and joint ventures to meet the contractual cash flows obligation. The carrying amount of the Company’s non-trade receivables from subsidiaries and associates as at 30 September 2025 were disclosed in Notes 12, 13 and 17 respectively. The carrying amount of the Group’s non-trade receivables from associates and joint ventures as at 30 September 2025 were disclosed in Notes 12, 13 and 17 respectively. ANNUAL REPORT 2025 KEONG HONG HOLDINGS LIMITED 86 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2025
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