KENANGA ANNUAL REPORT 2019

206 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 17. INTANGIBLE ASSETS (CONT’D.) (f) Impairment test on intangible assets (cont’d.) Merchant banking licence - Merchant banking licence which is allocated to the Bank’s stockbroking and investment banking CGUs represents contribution to BNM for a licence to carry on merchant banking business to transform the Bank from a Universal Broker into an Investment Bank. Fund management contracts - Intangible asset relating to fund management contracts arising from the acquisition of one of the Bank’s subsidiary operations is allocated to the unit trust and asset management (investment management) CGU. Trading and clearing rights - The value of trading and clearing rights issued by Bursa Malaysia Derivatives Berhad which is allocated to the futures broking CGU. All of the above intangible assets have an indefinite useful life and an annual impairment review has been carried out on all the intangible assets with an indefinite useful life in accordance with MFRS 136 Impairment of Assets and MFRS 138 Intangible Assets . Key assumptions used in value-in-use calculations For annual impairment testing purposes, the recoverable amounts of the CGUs, which are reportable business segments, are determined based on their value-in-use. The value-in-use is computed by discounting the future cash flows of the unit, which is based on financial budget and projections approved by the Board. The following describes key assumptions on which management has based its cash flow projections to undertake impairment testing of intangible assets: (i) Cash flow projections and growth rates Cash flow projections for the first to third year are based on the most recent three years financial budget and business plan approved by the Board, taking into account projected regulatory capital requirements. Cash flows for the fourth to fifth year are extrapolated using growth rates in revenue and expenses of the business. Cash flows beyond the fifth year are projected to remain constant and estimated as a terminal value by discounting future cash flows to present value. (ii) Discount rate The discount rate used is based on the business units’ pre-tax weighted average cost of capital plus an appropriate risk premium at the date of assessment at 7.06% (2018: 8.06%) per annum.