Annual Report 2019

NOTESTOTHE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2019 83 The United Laboratories International Holdings Limited Annual Report 2019 4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY (Continued) Critical judgments in applying accounting policies (Continued) Deferred taxation on investment properties For the purposes of measuring deferred tax liabilities arising from investment properties that are measured using the fair value model, the directors of the Company have reviewed the Group’s investment property portfolios and concluded that the Group’s investment properties are not held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time. Therefore, in determining the Group’s deferred taxation on investment properties, the directors of the Company have determined that the presumption that the carrying amounts of investment properties measured using the fair value model are recovered entirely through sale is not rebutted. As a result, the Group recognised deferred taxes relating to Land Appreciation Tax (“LAT”) and Enterprise Income Tax (“EIT”) on changes in fair value of such investment properties as disclosed in Note 33. Key sources of estimation uncertainty The followings are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Valuation of investment properties situated in the PRC As described in Note 19, investment properties situated in the PRC are stated at fair value by reference to valuations performed by an independent professional valuer. The valuation model is sensitive to changes in certain key assumptions including expected selling prices, construction costs, construction period, finance costs and developers’ profit, that require significant management judgement. Any changes in the market conditions will affect the fair value measurement of the investment properties of the Group. Provision of ECL for trade receivables and other receivables Trade and other receivables with credit impaired and significant balances, if any, are assessed for ECL individually. In addition, the Group uses provision matrix to calculate ECL for the trade receivables. The provision rates are based on internal credit risk as groupings of various debtors that have similar loss patterns. The provision matrix is based on the Group’s historical default rates taking into consideration forward-looking information that is reasonable and supportable available without undue costs or effort. At every reporting date, the historical observed default rates are reassessed and changes in the forward- looking information are considered. The provision of ECL is sensitive to changes in estimates. The information about the ECL and the Group’s trade and other receivables are disclosed in Note 41 and Note 25, respectively.