CERTIFICATE OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF JOHOR CORPORATION FOR THE YEAR ENDED 31 DECEMBER 2005

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2 CERTIFICATE OF THE AUDITOR GENERAL ON THE FINANCIAL STATEMENTS OF JOHOR CORPORATION FOR THE YEAR ENDED 31 DECEMBER 2005 The financial statements of Johor Corporation for the year ended have been audited by my representative. These financial statements are the responsibility of Johor Corporation s management. My responsibility is to audit and render an opinion on these financial statements. 2. The Audit has been conducted in accordance with the Audit Act 1957 and guided by approved auditing standards. The standards require the audit to be planned and performed to obtain reasonable assurance as to whether the financial statements of Johor Corporation are free of material error or omission. The audit includes examining the records on a test basis, evidence supporting the amounts and ensuring adequate disclosures in the financial statements. The audit also includes assessing the accounting principles used as well as evaluating the overall financial statement presentation. 3. In my opinion, the financial statements give a true and fair view of the financial position of Johor Corporation and the Group as at, its operation results and the cash flow for the year based on the approved accounting standards. 4. I have considered the financial statements and audit reports for all the subsidiaries not audited by me as stated in the Notes to the Financial Statements. I am satisfied that their financial statements consolidated with the financial statements of Johor Corporation are in a form and content appropriate and proper for the purposes of preparation of the consolidated financial statements. I have also received satisfactory information and explanation required for those purposes. (This is a translated version. Please refer to the original Certificate on page 60-61)

3 5. The auditors reports on the financial statements of the subsidiaries were not subject to any qualification that will affect the consolidated financial statements. (TAN SRI DATO SETIA AMBRIN BIN BUANG) Auditor General Malaysia Putrajaya 28 July 2006 (This is a translated version. Please refer to the original Certificate on page 60-61)

4 Directors Report The Directors are pleased to submit their annual report together with the audited Financial Statements of the Group and Corporation for the financial year ended. PRINCIPAL ACTIVITIES The Corporation was incorporated under the Johor Corporation Enactment (No. 4, 1968), (as amended by Enactment No. 5, 1995) as a development agency and public enterprise. The Corporation is principally engaged in palm oil business, property development and management and investment. The principal activities of the Group consist mainly of palm oil business, healthcare services, property development and management, intrapreneur ventures and investments. FINANCIAL RESULTS Group RM Million Corporation RM Million Profit Before Tax Note Tax (90) (9) HHHHHHH HHHHHHH Profit After Tax But Before Minority Interests Minority Interests (53) - HHHHHHH HHHHHHH Profit For The Year NNNNNNN NNNNNNN RESERVES AND PROVISIONS All material transfers to or from reserves and provisions during the financial year are shown in the financial statements. EMPLOYEES SHARE OPTION SCHEME ( ESOS ) Johor Corporation implemented an ESOS on 14 September 2004 for an option period of 5 years pursuant to the Trust Deed between Johor Corporation and Johor Ventures Sdn Bhd. Details of the ESOS are set out in Note 8 to the financial statements. 154 annual report 2005

5 Directors Report (Continued) DIRECTORS OF JOHOR CORPORATION The Directors who have held office during the period since the date of the last report are as follows :- YAB Dato Haji Abdul Ghani Bin Othman (Chairman) YBhg Tan Sri Dato Muhammad Ali Bin Hashim (Group Chief Executive) YBhg Tan Sri Dato Abdullah Bin Ayub YB Dato Haji Mohd Razali Bin Mahusin (Retired on 10 January 2006) YB Datin Paduka Hajah Norsiah Binti Haron (Appointed on 8 August 2005) YB Encik Yaacob Bin Hj Md Sam YB Dato Haji A Karim Bin Hj Hassan (Retired on 7 August 2005) YB Datin Paduka Zainon Binti Hj Yusof (Appointed on 11 January 2006) YBhg Tan Sri Dato Mohd Sidek Bin Hj Hassan YBhg Dato Ahmad Bin Konchong (Retired on 30 September 2005) Tuan Haji Musa Bin Muhamad (Appointed on 1 October 2005) YBhg Dato Ab Khalil Bin Ab Hamid (Retired on 31 January 2006) YBhg Datin Latifah Binti Datuk Abu Mansor (Appointed on 27 February 2006) YB Dato Ahmad Bin Abdullah (Deceased 28 September 2005) YB Datuk Dr Haris Bin Salleh STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS Before the Income Statements and Balance Sheets were made out, the Directors took reasonable steps :- (a) (b) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business, their values as shown in the accounting records of the Group and Corporation had been written down to an amount which they might be expected so to realise. At the date of this report, the Directors are not aware of any circumstances :- (a) (b) (c) which would render the amounts written off for bad debts, or the amount of the allowance for doubtful debts in the financial statements of the Group and Corporation inadequate to any substantial extent; or which would render the values attributed to the current assets in the financial statements of the Group and Corporation misleading; or which have arisen which render adherence to the existing method of valuation of assets or liabilities of the Group and Corporation misleading or inappropriate. No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which, in the opinion of the Directors, will or may substantially affect the ability of the Group or Corporation to meet their obligations when they fall due. At the date of this report, there does not exist :- (a) (b) any charge on the assets of the Group or Corporation which has arisen since the end of the financial year which secures the liability of any other person; or any contingent liability of the Group or Corporation which has arisen since the end of the financial year. annual report

6 Directors Report (Continued) STATUTORY INFORMATION ON THE FINANCIAL STATEMENTS (continued) At the date of this report, the Directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements, which would render any amount stated in the financial statements misleading. In the opinion of the Directors :- (a) (b) except as disclosed in Note 11 to the financial statements, the results of the Group s and Corporation s operations during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and except as disclosed in Note 33 to the financial statements, there has not arisen in the interval between the end of the year and the date of this report, any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of the Group and Corporation for the financial year in which this report is made. Signed on behalf of the Board of Directors DATO HAJI ABDUL GHANI BIN OTHMAN Chairman TAN SRI DATO MUHAMMAD ALI BIN HASHIM Group Chief Executive Johor Bahru 22 June 2006 (This is a translated version. Please refer to page 64) 156 annual report 2005

7 Statement By Directors We, Dato Haji Abdul Ghani Bin Othman and Tan Sri Dato Muhammad Ali Bin Hashim, two of the Directors of Johor Corporation, state that, in the opinion of the Directors, the financial statements set out on pages 159 to 240 are drawn up so as to give a true and fair view of the state of affairs of the Group and Corporation as at 31 December, 2005 and of the results and the cash flows of the Group and Corporation for the financial year ended on that date in accordance with the MASB approved accounting standards in Malaysia. Signed on behalf of the Board of Directors DATO HAJI ABDUL GHANI BIN OTHMAN Chairman TAN SRI DATO MUHAMMAD ALI BIN HASHIM Group Chief Executive Johor Bahru 22 June 2006 (This is a translated version. Please refer to page 65) annual report

8 Statutory Declaration I, Azizah Binti Abdul Rahman, being the officer primarily responsible for the financial management of Group and Johor Corporation, do solemnly and sincerely declare that the financial statements set out on pages 159 to 240 are, in my opinion, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, AZIZAH BINTI ABDUL RAHMAN Chief Financial Officer Subscribed and solemnly declared at Johor Bahru on 22 June 2006 Before me, COMMISSIONER FOR OATHS (This is a translated version. Please refer to page 66) 158 annual report 2005

9 Income Statements For The Year Ended Group Corporation Note REVENUE 4 2,672 2, Cost Of Sales (1,877) (1,717) (234) (168) GROSS PROFIT Other Operating Income Selling And Distribution Expenses (116) (95) (4) (5) Administrative Expenses (343) (309) (49) (54) Other Operating Expenses 6 (72) (98) PROFIT FROM OPERATIONS Finance Costs 10 (205) (231) (131) (182) Share Of Results Of Associates PROFIT FROM ORDINARY ACTIVITIES BEFORE TAX Tax : 12 - The Corporation And Subsidiaries (84) (120) (9) (8) - Associates (6) (5) - - (90) (125) (9) (8) PROFIT FROM ORDINARY ACTIVITIES AFTER TAX Minority Interests (53) (75) - - NET PROFIT FOR THE YEAR annual report

10 Balance Sheets As At Group Corporation Note NON CURRENT ASSETS PROPERTY, PLANT AND EQUIPMENT 13 5,179 4, LAND AND DEVELOPMENT EXPENDITURE SUBSIDIARIES ,959 1,813 ASSOCIATES LONG TERM INVESTMENTS 17 1, INTANGIBLE ASSETS DEFERRED TAX ASSETS ,421 6,591 2,587 3,064 CURRENT ASSETS PROPERTY DEVELOPMENT COSTS INVENTORIES TRADE AND OTHER RECEIVABLES , TAX RECOVERABLE SHORT TERM INVESTMENTS DEPOSITS, BANK AND CASH BALANCES ,855 1,708 1,689 1,029 CURRENT LIABILITIES TRADE AND OTHER PAYABLES BORROWINGS CURRENT TAX LIABILITIES ,493 1, NET CURRENT ASSETS , annual report 2005

11 Balance Sheets As At (continued) Group Corporation Note LESS : LONG TERM LIABILITIES BORROWINGS 24 4,834 4,152 3,390 3,327 DEFERRED TAX LIABILITIES OTHER LONG TERM LIABILITIES HHHHHHHH HHHHHHHH HHHHHHH HHHHHHH 5,385 4,699 3,391 3,329 HHHHHHHH HHHHHHHH HHHHHHH HHHHHHH NET ASSETS 2,398 2, NNNNNNNN NNNNNNNN NNNNNNN NNNNNNN FINANCED BY :- CAPITAL RESERVES 27 1,166 1, RESERVES ON CONSOLIDATION CURRENCY FLUCTUATION RESERVES (56) (73) - - REVENUE RESERVES (344) (444) 158 (6) HHHHHHHH HHHHHHHH HHHHHHH HHHHHHH MINORITY INTERESTS 1,488 1, HHHHHHHH HHHHHHHH HHHHHHH HHHHHHH 2,398 2, NNNNNNNN NNNNNNNN NNNNNNN NNNNNNN annual report

12 Consolidated Statement Of Changes In Equity For The Year Ended Non-distributable Distributable Currency Capital Reserves On Fluctuation Revenue Note Reserves Consolidation Reserves Reserves Total At 1 January , (87) (488) 546 Acquisition Of Additional Interest In A Subsidiary Partial Disposal Of A Subsidiary Realisation On Disposal Of Land (31) Currency Translation Differences Current Year Revaluation Surplus (Net Of Tax) Transfer From Deferred Tax (Note 25) Reclassification (1) Net Profit Not Recognised In Income Statement Amortisation Of Reserves On Consolidation - (15) - - (15) Net Profit For The Year HHHHHHHHH HHHHHHHHH HHHHHHHHH HHHHHHHHH HHHHHHHHH At 31 December , (73 73) ( ) 677 NNNNNNN At 1 January , (73) (444) 677 Acquisition Of Additional Interest In A Subsidiary Currency Translation Differences Current Year Revaluation Surplus (Net Of Tax) Net Profit Not Recognised In Income Statement Amortisation Of Reserves On Consolidation - (25) - - (25) Net Profit For The Year HHHHHHHHH HHHHHHHHH HHHHHHHHH HHHHHHHHH HHHHHHHHH At 1, (56) (344) 910 NNNNNNN 162 annual report 2005

13 Corporation Statement Of Changes In Equity For The Year Ended Non-distributable Distributable Capital Revenue Reserves Reserves Total At 1 January (278) (194) Realised On Disposal Of Property, Plant And Equipment (26) 26 - Transfer From Deferred Tax (Note 25) 1-1 Net (Loss)/Profit Not Recognised In Income Statement (25) 26 1 Net Profit For The Year HHHHHHHH HHHHHHHH HHHHHHHH At 31 December (6) 53 NNNNNNN NNNNNNN NNNNNNN At 1 January (6) 53 Net Profit For The Year HHHHHHHH HHHHHHHH HHHHHHHH At NNNNNNN NNNNNNN NNNNNNN annual report

14 Cash Flow Statements For The Year Ended Group Corporation OPERATING ACTIVITIES Net Profit For The Year Adjustments To Reconcile Net Profit For The Year To Cash From Operations : Property, Plant And Equipment : - Gain On Disposal (46) (7) (68) (330) - Written Off Depreciation Impairment Loss Adjustment (3) (1) - - (Gain)/Loss On Disposal Of : - Subsidiaries (2) (13) (7) (6) - Partial Interests In Subsidiaries (10) Associates Other Investments (14) 1 (20) - Development Expenditure Written Off (Net Write Back )/Provision For Diminution In Value Of Investment (1) 37 (14) (59) Intangible Assets : - Amortisation Written Off Dividend Income (10) (5) (23) (27) Unrealised Loss On Exchange Differences Amortisation Of Reserve On Consolidation (25) (15) - - Amortisation Of Government Grant (16) (16) - - Interest Expense Interest Income (13) (12) (7) (6) Share Of Results Of Associates (23) (28) - - Tax Minority Interests annual report 2005

15 Cash Flow Statements For The Year Ended (continued) Group Corporation Changes In Working Capital : - Fixed Deposits Not Regarded As Cash Equivalents (42) (26) (34) (29) - Inventories (18) Property Development Cost 22 6 (17) 22 - Receivables 54 (297) (423) Payables (63) (254) (61) (38) - Associates 7 (4) Short Term Investments 6 (9) 2 (3) - Short Term Borrowings Cash From Operations (353) 123 (Decrease)/Increase Land And Development Expenditure (56) Tax Paid (103) (112) (6) - Tax Refund Tax On Dividend - (8) - - Dividend Received Interest Received Net Cash Generated From/(Used In) Operating Activities (258) 170 INVESTING ACTIVITIES Proceeds From Disposal Of Investment In : - Subsidiaries Associates Other Investments Property, Plant And Equipment : - Proceeds From Disposal Purchase (524) (279) (10) (33) Purchase Of Investments In : - Subsidiaries - - (103) (179) - Associates - - (1) (25) - Investments - - (10) (35) - Other Investments (759) (124) - - Additions Of Intangible Assets (18) (10) - - Acquisition Of Subsidiaries, Net Of Cash (29) Disposal Of Subsidiaries, Net Of Cash (53) Increase In CULS (330) Partial Addition Of Interest In Subsidiaries (47) Proceeds From Partial Disposal Of subsidiaries Net Cash (Used In)/Generated From Investing Activities (937) (314) 283 (138) annual report

16 Cash Flow Statements For The Year Ended (continued) Group Corporation FINANCING ACTIVITIES Repayment Of Term Loans And Other Long Term Borrowings (111) (444) (2) - Repayment Of Hire Purchase And Leases (10) (12) - - Drawndown Of Term Loans And Other Long Term Borrowings Interest Paid (122) (102) (46) (47) Net Cash Generated From/(Used In) Financing Activities (48) (47) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (44) 53 (23) (15) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR FOREIGN EXCHANGE DIFFERENCES 4 (2) - - CASH AND CASH EQUIVALENTS AT END OF THE YEAR CASH AND CASH EQUIVALENTS Bank And Cash Balances Fixed Deposits Fixed Deposits Subject To Restriction/Pledged (88) (44) (63) (30) Bank Overdrafts (61) (46) annual report 2005

17 1 GENERAL INFORMATION The Corporation is principally engaged in palm oil business, property development and management and investment. The principal activities of the Group consist mainly of palm oil business, healthcare services, property development and management, intrapreneur ventures and investments. Johor Corporation was incorporated under the Johor Corporation Enactment (No. 4, 1968), (as amended by Enactment No. 5, 1995). The address of the principal place of business of the Corporation is as follows :- 13th Floor, Menara Johor Corporation KOTARAYA Johor Bahru, Johor Malaysia 2 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group s activities expose it to a variety of financial risks, including foreign currency exchange risk, interest rate risk, market risk, credit risk, liquidity and cash flow risk. The Group s overall financial risk management objective is to ensure that the Group creates value for its stakeholders. The Group focuses on the unpredictability of the financial markets and seeks to minimize potential adverse effects on the financial performance of the Group. Financial risk management is carried out through risk reviews, internal control systems, a global insurance programme and adherence to Group financial risk management policies. The Board regularly reviews these risks and approves the treasury policies, which covers the management of these risks. The Group uses derivative financial instruments such as foreign exchange contracts to hedge certain exposure. It does not trade in financial instruments. The main areas of financial risks faced by the Group and the policies in respect of the major areas of treasury activities are set out as follows: i. Foreign currency exchange risk Foreign currency exchange risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group is exposed to currency risk as a result of the foreign currency transactions entered into by Subsidiaries in currencies other than their functional currency. These companies enter into forward foreign currency exchange contracts to limit their exposure on foreign currency receivables and payables, and on cash flows generated from anticipated transactions denominated in foreign currencies. Depending on the market situation, hedging is used when the Group considers it necessary. annual report

18 2 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) ii. i. Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Group s income and operating cash flows are substantially independent of changes in market interest rates. Interest rate exposure arises from the Group s borrowings and deposits, and is managed through the use of floating rate debts as well as fixed rate debts. The objectives for the mix between fixed and floating rate borrowings are set to reduce the impact of an upward change in interest rates while enabling benefits to be enjoyed if interest rates fall. The interest rate profile of loans is regularly reviewed against the prevailing market interest rates. iii. Credit risk Credit risk is the risk that one party to the financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Credit risk arises when derivative instruments are used or sales made on deferred credit terms. The Group seeks to invest cash assets safely and profitably. It also seeks to control credit risk by setting counterparty limits and ensuring that sales of products and services are made to customers with an appropriate credit history. Action is enforced for debt collection. Furthermore, sales to customer are suspended when earlier amounts are overdue by the credit term. The Group considers the risk of material loss in the event of non-performance by a financial counterparty to be unlikely. Subsidiaries involved in the sale of real property will not transfer the land titles to customers if full payment has not been made. iv. Liquidity and cash flow risk Liquidity risk is the risk that an enterprise will encounter difficulty in raising funds to meet commitments associated with financial instruments. Cashflow risk is the risk that future cash flows associated with a financial instrument will fluctuate. In the case of a floating rate debt instrument, such fluctuations result in a change in the effective interest rate of the financial instrument, usually without a corresponding change in its fair value. In the short term, the Group focuses on liquidity, gearing of financial position, funds resources for plant upgrading and expansion of existing activities. Prudent liquidity risk management implies maintaining sufficient cash flow and the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying business, the Group aims at maintaining flexibility in funding by keeping credit lines available. 168 annual report 2005

19 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following accounting policies have been used consistently in dealing with items which are considered material in relation to the financial statements. (a) Basis Of Preparation The Financial Statements of the Group and of the Corporation have been prepared under the historical cost convention except as disclosed in this summary of significant accounting policies. The financial statements comply with the MASB approved accounting standards in Malaysia. (b) Basis Of Consolidation i. Subsidiaries Subsidiaries are those companies in which the Group has power to exercise control over the financial and operating policies so as to obtain benefits from their activities. Subsidiaries are consolidated using the acquisition method of accounting. Under the acquisition method of accounting, Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The cost of an acquisition is the amount of cash paid and the fair value at the date of acquisition of other purchase consideration given by the acquirer, together with directly attributable expenses of the acquisition. At the date of acquisition, the fair values of the Subsidiaries net assets are determined and these values are reflected in the Consolidated Financial Statements. The difference between the cost of acquisition over the Group s share of the fair value of the identifiable net assets of the subsidiary acquired at the date of acquisition is reflected as goodwill or reserve on consolidation. See accounting policy Note (c) on Goodwill or Reserve On Consolidation. Minority interest is measured at the minorities share of the post acquisition fair values of the identifiable assets and liabilities of the acquiree. Separate disclosure is made of minority interest. Intragroup transactions, balances and unrealised gains on transactions are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the Financial Statements of Subsidiaries to ensure consistency of accounting policies with those of the Group. The gain or loss on disposal of a Subsidiary is the difference between net disposal proceeds and the Group s share of its net assets together with any unamortised balance of goodwill on acquisition and exchange differences which were not previously recognised in the consolidated income statement. annual report

20 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (b) Basis Of Consolidation (continued) ii. Associates Associates are enterprises in which the Group exercises significant influence, but which it does not control. Significant influence is the power to participate in the financial and operating policy decisions of the Associates but not the power to exercise control over those policies. Investments in Associates are accounted for in the consolidated Financial Statements by the equity method of accounting. Equity accounting involves recognising the Groups share of the post acquisition results of Associates in the Income Statement and its share of post acquisition movements within reserves in reserves. The cumulative post acquisition movements are adjusted against the cost of the investment and includes goodwill on acquisition (net of accumulated amortisation). Equity accounting is discontinued when the carrying amount of the investment in an Associate reaches zero, unless the Group has incurred obligations or guaranteed obligations in respect of the Associate. Unrealised gains on transactions between the Group and its Associates are eliminated to the extent of the Group s interest in the Associates; unrealised losses are also eliminated unless the transaction provides evidence on impairment of the asset transferred. Where necessary, in applying the equity method, adjustments are made to the Financial Statements of Associates to ensure consistency of accounting policies with those of the Group. (c) Goodwill Or Reserve On Consolidation Goodwill represents the excess of the cost of acquisition of Subsidiaries and Associates over the Group s share of the fair value of their identifiable net assets at the date of acquisition. Goodwill on acquisitions of Subsidiaries are included in the Balance Sheets. Goodwill on consolidation is either written off in the year of acquisition or capitalised and amortised using the straight line method to Income Statement over its estimated useful life but not exceeding 20 years. The Directors determine the estimated useful life of goodwill based on its evaluation of the respective enterprises at the time of the acquisition, considering factors such as existing market share, potential growth and other factors inherent in the acquired enterprises. At each Balance Sheet date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of the asset is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. See accounting policy Note (r) on Impairment Of Assets. The gain or loss on disposal of an entity includes the carrying amount of goodwill relating to the entity disposed of. Reserve on consolidation represents the excess of Groups share of the fair value of identifiable net assets acquired over the cost of acquisition. It is capitalised and amortised through the Income Statement over 5 years or estimated useful life, whichever is shorter. 170 annual report 2005

21 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Inventories And Properties Held For Sale i. Inventories Inventories consist of raw materials, stores, work in progress, completed shops and houses and marketable securities. Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in-first-out method or on a weighted average method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and an appropriate proportion of production overheads (based on normal operating capacity). Inventories of completed shops and houses consist of land cost, construction cost and infrastructure expenditure. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. ii. Properties Held For Sale Properties held for sale are stated at the lower of cost (or, carrying amount where the assets were previously held for long term and stated at valuation) and net realisable value. (e) Investments i. Short Term Investments Short term investments (within current assets) are carried at the lower of cost and market value, determined on an aggregate portfolio basis by category of investment. Cost is derived at on the weighted average basis. Market value is calculated by reference to stock exchange quoted selling prices at the close of business on the Balance Sheet date. Increases/decreases in the carrying amount of marketable securities are credited/charged to the Income Statement. On disposal of an investment, the difference between net disposal proceeds and its carrying amount is credited/charged to the Income Statement. ii. Long Term Investments Long term investments are shown at cost and an allowance for diminution in value is made where, in the opinion of the Directors, there is a decline other than temporary in the value of such investments. Such a decline is recognised as an expense in the period in which the decline is identified. iii. Subsidiaries And Associates Investments in Subsidiaries and Associates are stated at cost or at Directors valuation. Where an indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable amount. See accounting policy Note (r) on Impairment of Assets. annual report

22 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Property, Plant and Equipment And Depreciation Property, Plant and Equipment are stated at cost or valuation less accumulated depreciation/ amortisation and impairment loss. The land, estate development expenditure and buildings held by the Group have not been revalued since they were last revalued in the respective years as disclosed in Note 13 to the Financial Statements. All other Property, Plant and Equipment are stated at historical cost less accumulated depreciation and impairment loss. The Directors have not adopted a policy of regular revaluation of such assets except for certain Subsidiaries whereby a policy of regular revaluation of land and buildings is adopted and are appraised by independent professional valuers once in every 5 years. As permitted under the transitional provisions of International Accounting Standard No. 16 (Revised) (as adopted by MASB Standard No. 15 Property, Plant and Equipment ), these assets other than those of certain Subsidiaries as mentioned above are stated at their valuation in the respective years less accumulated depreciation. Surpluses arising on revaluation are credited to Revaluation Reserve. Any deficit arising from revaluation is charged against the Revaluation Reserve to the extent of a previous surplus held in the Revaluation Reserve for the same asset. In all other cases, a decrease in carrying amount is charged to Income Statement. i. Amortisation Leasehold land is amortised over the period of the leases ranging from 5 to 99 years for the Group and the Corporation except for leasehold land and related properties in the hotel industry. No amortisation is provided on the leasehold hotel properties with unexpired lease periods of 20 years or more. Hotel properties comprise land, hotel buildings and related plant. It is the Group s practice to maintain the residual values of all its hotel properties at amounts at least equal to their respective book values such that depreciation would be insignificant. To confirm that the residual values of the hotel properties are at least equal to the respective book values the properties are appraised by independent professional valuers at least once in every 5 years on an existing use basis. No amortisation is provided in respect of freehold land and estate development expenditure. Forest concessions are amortised in direct proportion to the acreage extracted. 172 annual report 2005

23 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (f) Property, Plant and Equipment And Depreciation (continued) ii. Depreciation All other Property, Plant and Equipment are depreciated on the straight line basis to write off the cost of the assets, or their revalued amounts, to their residual values over their estimated useful lives at the following annual rates :- Buildings 2 % - 5% Furniture and Fittings 5 % - 20 % Plant, Machinery and Motor Vehicles 5 % - 25 % Depreciation on assets under construction commences when the assets are ready for their intended use. At each Balance Sheet date, the Group assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of the asset is fully recoverable. A write down is made if the carrying amount exceeds the recoverable amount. See accounting policy Note (r) on Impairment of Assets. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in profit/(loss) from operations. On disposal of revalued assets, amounts in Revaluation Reserve relating to those assets are transferred to Retained Earnings. Repairs and maintenance are charged to the income statement during the period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset. annual report

24 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (g) Foreign Currencies i. Reporting Currency The Financial Statements are presented in Ringgit Malaysia. ii. Foreign Entities Income Statements of foreign entities are translated into Ringgit Malaysia at average exchange rates for the year and the Balance Sheets are translated at exchange rates ruling at the balance sheet date. Exchange differences arising from the retranslation of the net investment in foreign entities are taken to Currency Fluctuation Reserve in equity. On disposal of the foreign entity, such translation differences are recognised in the Income Statement as part of the gain or loss on disposal. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the Group and are translated accordingly at the exchange rate ruling at the date of the transaction. iii. Foreign Currency Transactions Foreign currency transactions in Group companies are accounted for at exchange rates prevailing at the transaction dates, unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. Foreign currency monetary assets and liabilities are translated at exchange rates prevailing at the Balance Sheet date, unless hedged by forward foreign exchange contracts, in which case the rates specified in such forward contracts are used. Exchange differences arising from the settlement of foreign currency transactions and from the translation of foreign currency monetary assets and liabilities are included in the Income Statement. iv. Closing Rates The principal closing rates used in translation of foreign currency amounts are as follows :- Foreign currency RM RM 1 US Dollar Euro Singapore Dollar Australian Dollar Great Britain Sterling Pound Papua New Guinea Kina Brunei Dollar Philippines Peso Indonesian Rupiah (h) New Planting Expenditure And Replanting Expenditure New planting expenditure incurred on land clearing and upkeep of trees to maturity is capitalised under land cost and is not amortised. Replanting expenditure is charged to the Income Statement when incurred. 174 annual report 2005

25 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Income Taxes Current tax expense is determined according to the Tax Laws of each jurisdiction in which the Group operates and include all taxes based upon the taxable profits, including witholding taxes payable by a foreign Subsidiary, Associate and real property gains taxes payable on disposal of properties. Deferred tax is recognised in full, using the liability method, on temporary differences arising between the amounts attributed to assets and liabilities for tax purposes and their carrying amounts in the Financial Statements. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences or unused tax losses can be utilised. Tax rates enacted or substantively enacted by the Balance Sheet date are used to determine deferred tax. (j) Borrowings i. Classification Borrowings are initially recognised based on the proceeds received, net of transaction costs incurred. In subsequent periods, borrowings are stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the Income Statement over the period of the borrowings. Interest, dividends, losses and gains relating to a Financial Instrument, or a component part, classified as a liability is reported within finance cost in the Income Statement. ii. Capitalisation of Borrowing Cost Borrowing costs incurred to finance the construction of Property, Plant and Equipment are capitalised as part of the cost of the asset during the period of time that is required to complete and prepare the asset for its intended use. Capitalisation of Borrowing Costs is suspended during extended periods in which active development is interrupted. Borrowing costs incurred to finance property development activities and construction contracts are accounted for in a similar manner. All other borrowing costs are expensed. (k) Government Grants Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the Income Statement over the period necessary to match them with the costs they are intended to compensate. Government grants relating to the purchase of Property, Plant and Equipment are included in non current liabilities as deferred income and are credited to the Income Statement on the straight line basis over the expected lives of the related assets. annual report

26 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (l) Other Intangible Assets Expenditure on acquired master franchise rights is stated at cost and amortised using the straight line method over a period of 10 years. Nurse training costs in the form of scholarship and other related costs are deferred during the training period. The expenditure is amortised over the bonded service period ranging from 2 to 6 years after graduation, unless the continuing benefits will not accrue. (m)revenue Recognition Revenue comprises the invoiced value for the sale of goods and services, net of sales taxes, rebates and discounts. Revenue from the sale of goods is recognised when significant risks and rewards of ownership of the goods are transferred to the buyer. Revenue from rendering of services is based on the stage of completion determined by references to services performed to date as a percentage of total services to be performed. Income from sale of industrial and development properties is recognised progressively based on stage of completion method. When forseeable losses on development projects are anticipated, full allowance for these losses is made in the Financial Statements. Interest income is recognised on a time proportion basis, taking into account the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the Group. Dividends are recognised when the Group s right to receive payment is established. (n) Trade Receivables Trade receivables are carried at invoiced amount less an allowance for doubtful debts. The allowance is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the allowance is the difference between the carrying amount and the recoverable amount. (o) Leases i. Finance Leases Leases of Property, Plant and Equipment where the Group assumes substantially all the benefits and risks of ownership are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a periodic constant rate of interest on the balance outstanding. The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element of the finance charge is charged to the income statement over the lease period. Property, Plant and Equipment acquired under finance leases is depreciated over the shorter of the estimated useful life of the asset and the lease term. 176 annual report 2005

27 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (o) Leases (continued) ii. Operating Leases Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the Income Statement on the straight line basis over the lease period. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. (p) Cash and Cash Equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits held at call with banks, other short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the Balance Sheet. (q) Financial Instruments i. Description A Financial Instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or equity instrument of another enterprise. A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange Financial Instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset to another enterprise, or to exchange Financial Instruments with another enterprise under conditions that potentially unfavourable. ii. Financial Instruments recognised on the Balance Sheet The particular recognition method adopted for Financial Instruments recognised on the Balance Sheet is disclosed in the individual policy statements associated with each item. iii. Financial Instruments not recognised on the Balance Sheet The Group is a party to Financial Instruments that comprise foreign currency forward contracts. These instruments are not recognised in the Financial Statements on inception. Foreign currency forward contracts The Group enters into foreign currency forward contracts to protect the Group from movements in exchange rates by establishing the rate at which a foreign currency asset or liability will be settled. Exchange gains and losses arising on contracts entered into as hedges of anticipated future transactions are deferred until the date of such transaction, at which time they are included in the measurement of such transactions. annual report

28 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (q) Financial Instruments (continued) iii. Financial Instruments not recognised on the Balance Sheet (continued) All other exchange gains and losses relating to hedge instruments are recognised in the Income Statement in the same period as the exchange differences on the underlying hedged items. Gains and losses on contracts that are no longer designated as hedges are included in the Income Statement. iv. Fair value estimation for disclosure purposes The fair value of publicly traded securities is based on quoted market prices at the Balance Sheet date. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate available to the Group for similar Financial Instruments. The face values for the financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values. (r) Impairment of Assets Property, Plant and Equipment and other non-current assets (other than assets arising from construction contracts and deferred tax assets), including intangible assets, are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there is separately identifiable cash flows. The impairment loss is charged to the Income Statement unless it reverses a previous revaluation in which case it is charged to the revaluation surplus. Any subsequent increase in recoverable amount is recognised in the Income Statement unless it reverses an impairment loss on a revalued asset in which case it is taken to revaluation surplus. (s) Segment Reporting Segment reporting is presented for enhanced assessment of the Group s risks and returns. Business segments provide products or services that are subject to risk and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those components operating in other economic environments. Segment revenue, expense, assets and liabilities are those amounts resulting from the operating activities of a segment that are directly attributable to the segment and the relevant portion that can be allocated on a reasonable basis to the segment. Segment revenue, expense, assets and liabilities are determined before intragroup balances and intragroup transactions are eliminated as part of the consolidation process, except to the extent that such intragroup balances and transactions are between group enterprises within a single segment. 178 annual report 2005

29 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) (t) Construction Contracts A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of design, technology and functions or ultimate purpose or use. When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs are recognised by using the stage of completion method. The stage of completion is measured by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total costs for the contract. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that is probable will be recoverable; contract costs are recognised when incurred. Irrespective whether the outcome of a construction contract can be estimated reliably, when it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as expense immediately. The aggregate of the costs incurred and the profit/loss recognised on each contract is compared against the progress billings up to the period end. Where costs incurred and recognised profits (less recognised losses) exceed progress billings, the balance is shown as amounts due from customers on construction contracts under receivables, deposits and prepayments (within current assets). Where progress billings exceed costs incurred plus recognised profits (less recognised losses), the balance is shown as amounts due to customers on construction contracts under payables (within current liabilities). (u) Employee Benefits i. Short Term Employee Benefits Wages, salaries, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the period in which the associated services are rendered by employees of the Group. ii. Defined Contribution Plans A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees benefits relating to employee service in the current and prior periods. The Group s contributions to defined contribution plans are charged to the Income Statement in the period to which they relate. Once the contributions have been paid, the Group has no further payment obligations. annual report