Annual and transition report of foreign private issuers pursuant to Section 13 or 15(d)

Critical Accounting Estimates and Judgments

v3.19.2
Critical Accounting Estimates and Judgments
12 Months Ended
Jan. 31, 2019
Critical Accounting Estimates And Judgments  
Critical Accounting Estimates and Judgments

4 Critical Accounting Estimates and Judgments

 

The directors make estimates and judgements during the preparation of these financial statements regarding assumptions about current and future events affecting transactions and balances.

 

These estimates and judgements are based on the best information available at the time of preparing the financial statements, however as additional information is known then the actual results may differ from the estimates.

 

The significant estimates and judgements made have been described below.

 

  Key estimates - inventory

 

Each item on inventory is reviewed on an annual basis to determine whether it is being carried at higher than its net realisable value. During the period, management have written down inventory based on best estimate of the net realisable value, although until the time that inventory is sold this is an estimate.

 

  Key estimates - fair value of financial instruments

 

The Group has certain financial assets and liabilities which are measured at fair value. Where fair value has not been able to be determined based on quoted price, a valuation model has been used. The inputs to these models are observable, where possible, however these techniques involve significant estimates and therefore fair value of the instruments could be affected by changes in these assumptions and inputs.

 

  Key estimates - impairment of brands

 

In accordance with IAS 36 Impairment of Assets, the Group is required to estimate the recoverable amount of indefinite-lived brand assets at each reporting period.

Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by their value in use or fair value less cost to sell.

 

In calculating the fair value less costs to sell, certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of:

 

  - growth in brand revenues
  - market royalty rate
  - the selection of discount rates to reflect the risks involved, and
  - long-term growth rates

 

Changing the assumptions selected by management, in particular the growth rate, discount rate and market royalty rate assumption used, could significantly affect the Group’s impairment evaluation and hence results.

 

The Group’s review includes the key assumptions related to sensitivity in the model. Further details are provided in note 15 to the consolidated financial statements.

 

  Key estimates - impairment of goodwill

 

In accordance with IAS 36 Impairment of Assets, the Group is required to estimate the recoverable amount of goodwill at each reporting period.

 

Impairment testing is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate and using a terminal value to incorporate expectations of growth thereafter.

 

In calculating the net present value of the future cash flows, certain assumptions are required to be made in respect of highly uncertain matters including management’s expectations of:

 

  - growth in EBITDA future cash flows;
  - timing and quantum of future capital expenditure;
  - long-term growth rates; and
  - the selection of discount rates to reflect the risks involved.

 

Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect the Group’s impairment evaluation and hence results.

 

The Group’s review includes the key assumptions related to sensitivity in the cash flow projections. Further details are provided in note15(c) to the consolidated financial statements.

 

  Key judgments - taxes

 

Deferred tax assets

 

Determining income tax provisions and the recognition of deferred tax assets including carried forward income tax involves judgment on the tax treatment of certain transactions. Deferred tax is recognised on tax losses not yet used and on temporary differences where it is probable that there will be taxable revenue against which these can be offset. Management has made judgments as to the probability of future taxable income being generated against which tax losses will be available for offset based on budgets, current and future expected economic conditions.