UNBOUNCE - EXAMPLE PAGE-REPORT-ENTERPRISE DOCUMENT-KINGSPAN - Flipbook - Page 141
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2021 (continued)
1
Statement of Accounting Policies (continued)
The areas where key estimates and
judgements were made by management
and are material to the Group’s reported
results or net asset position, are
as following:
value is below cost for a particular item
of inventory. Damaged, slow-moving or
obsolete inventory are typical examples
of such evidence. This is an area
of estimation.
Impairment (Note 9)
Leases (Note 16)
The Group is required to review assets for
objective evidence of impairment.
It does this on the basis of a review of the
budget and rolling 5 year forecasts (4 year
strategic plan, as approved by the Board,
plus year 5 forecasted by management),
which by their nature are based on a series
of assumptions and estimates.
The Group has performed impairment
tests on those cash generating units which
contain goodwill, and on any assets where
there are indicators of impairment. The key
assumptions associated with these reviews
are detailed in Note 9. The Group also
considered the potential impact of climate
change. This is an area of estimation
and judgement.
The Group has applied judgement to
determine the lease term of contracts that
include termination and extension options.
If the Group is reasonably certain to
exercise such options, the relevant amount
of right of use assets and lease liabilities
are recognised.
Guarantees & warranties (Note 20)
Certain products carry formal guarantees
of satisfactory functional and aesthetic
performance of varying periods following
their purchase. Local management
evaluate the constructive or legal
obligation arising from customer feedback
and assess the requirement to provide for
any probable outflow of economic benefit
arising from a settlement. This is an area
of estimation and judgement.
Recoverability of trade receivables
(Note 14)
The Group provides credit to customers
and as a result there is an associated risk
that the customer may not be able to pay
outstanding balances.
Under IFRS 9 the Group uses an allowance
matrix to measure Expected Credit Loss
(ECL) of trade receivables from customers.
Loss rates are calculated using a “roll rate”
method based on the probability of a
receivable progressing through successive
chains of non-payment to write-off. The
rates are calculated at a business unit
level which reflects the risks associated
with geographic region, age, mix of
customer relationship and type of product
purchased. This is an area of estimation.
Valuation of inventory (Note 13)
Inventories are measured at the lower of
cost and net realisable value. The Group’s
policy is to hold inventories at original cost
and create an inventory provision where
evidence exists that indicates net realisable
The Group has also applied judgement in
determining the incremental borrowing
rates (IBR). The incremental borrowing
rate is the rate of interest that a lessee
would expect to incur on funds borrowed
over a similar term and security to obtain a
comparable value to the right of use asset
in the relevant economic environment.
The Group estimates the IBR using
observable inputs (such as market interest
rates) when available and makes certain
entity-specific estimates (such as country
risk and entity specific credit rating)
as required.
Business Combinations (Note 22)
Business combinations are accounted
for using the acquisition method which
requires that the assets and liabilities
assumed are recorded at their respective
fair values at the date of acquisition. The
application of this method requires certain
estimates and assumptions relating, in
particular, to the determination of the fair
values of the acquired assets and liabilities
assumed at the date of acquisition.
For intangible assets acquired, the Group
bases valuations on expected future cash
flows. This method employs a discounted
cash flow analysis using the present value
of the estimated cash flows expected to
be generated from these intangible assets
using appropriate discount rates and
revenue forecasts. The period of expected
cash flows is based on the expected useful
life of the intangible asset acquired.
Measurement of deferred contingent
consideration and put option liabilities
related to business combinations require
assumptions to be made regarding profit
forecasts and discount rates used to arrive
at the net present value of the potential
obligations. The Group has considered
all available information in arriving at
the estimate of liabilities associated
with deferred contingent consideration
Kingspan Group plc Annual Report & Financial Statements 2021
obligations. This is an area of estimation
and judgement.
Income taxes (Note 7)
The Group is subject to income tax
in numerous jurisdictions. Significant
judgement is required in determining the
worldwide provision for income taxes.
There are many transactions for which the
ultimate tax determination is uncertain.
The Group recognises liabilities based on
estimates of whether additional taxes
will be due. Once it has been concluded
that a liability needs to be recognised, the
liability is measured based on the tax laws
that have been enacted or substantially
enacted at the end of the reporting period.
The amount shown for current taxation
includes an estimate for uncertain tax
treatments where the group considers it
probable that uncertain tax treatments
will not be accepted by tax authorities
and the estimate is measured using either
the most likely amount method or the
expected value method, as appropriate,
prescribed by IFRIC 23. Where the final tax
outcome of these matters is different from
the amounts that were initially estimated,
such differences will impact the income tax
and deferred tax provisions in the period in
which such determination is made.
Deferred tax assets are recognised to
the extent that it is probable that future
taxable profit will be available against
which the unused tax losses and unused
tax credits can be utilised. The Group
estimates the most probable amount of
future taxable profits, using assumptions
consistent with those employed in
impairment calculations, and taking into
consideration applicable tax legislation in
the relevant jurisdiction. These calculations
also require the use of estimates.
Deferred Contingent Consideration
(Note 18)
Measurement of put option liabilities
require assumptions to be made regarding
profit forecasts and discount rates used
to arrive at the net present value of the
potential obligations. The Group has
considered all available information
in arriving at the estimate of liabilities
associated with put option obligations.
This is an area of estimation.
Financial Statements
