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Financial Reports &
Governance HENGYUAN REFINING COMPANY BERHAD l ANNUAL REPORT 2023 119
Other Information

NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2023

3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
(b) Deferred tax assets
Deferred tax assets are recognised for all unused tax losses, unabsorbed capital allowances and unused reinvestment
allowances to the extent that it is probable that taxable profit will be available against which these tax benefits can be
utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be
recognised, based on the likely timing and level of future taxable profits.
Assumptions about generation of future taxable profits depends on management’s estimates of future production
and sales volume, operating costs and capital expenditure. Judgement is also required about application of income
tax legislation. These judgements and assumptions are subject to risks and uncertainty hence there is a possibility that
changes in circumstances will alter expectations, which may impact the amount of deferred tax assets recognised in the
statement of financial position and the amount of unrecognised tax losses, unrecognised unabsorbed capital allowances
and unrecognised unused reinvestment allowances.
Pursuant to the Malaysia Finance Act 2021 gazetted on 31 December 2021, the time limit to carry forward unused tax
losses has been extended to ten consecutive years of assessment from seven years of assessment (“YA”), whereas the
unused reinvestment allowances claimed under paragraph 2B, Schedule 7A of the Income Tax Act 1967 can be carried
forward for seven consecutive YAs after YA 2024. Unabsorbed capital allowances can be carried forward indefinitely.
The change in the tax treatment is effective from YA 2019 and therefore all the brought forward unused tax losses from
YA 2018 will be disregarded after YA 2028 and losses incurred in YA 2022 and in YA 2023 will be disregarded after
YA 2032 and YA 2033 respectively. The reinvestment allowances claimed in YA 2022 will be disregarded after YA 2031.
In the current financial year, the Company has recognised deferred tax assets of RM138,801,000 (2022: RM290,794,000)
arising from unused tax losses, unabsorbed capital allowances and unused reinvestment allowances as it is probable that
future taxable profits will be available to offset against these tax benefits.
(c) Net realisable value of the hydrocarbon inventories
Volatility from both supply and demand side in various global and regional markets may affect the estimated net realisable
value of hydrocarbon inventories. The estimated selling prices may fluctuate due to changes in the customers’ demand
for petroleum. The Company needs to estimate the net realisable value based on the most reliable evidence at the time
the estimate is made. The Company also considers the effect of events occurring after the end of the financial year to the
extent that such events confirm conditions existed at the end of the financial year in determining the net realisable value
of the hydrocarbon inventories. These estimates require judgements given the uncertainties in the future selling prices and
selling costs of the inventories.

Based on the assessment performed, the Company has provided RM105,226,000 (2022: RM124,924,000) for inventories
write down.
(d) Valuation of derivatives
The Company has entered into various contracts for derivatives financial instruments to manage its exposure to crude oil
and petroleum product prices and foreign currency exchange rates fluctuations. Crude oil and petroleum products prices
and foreign currency exchange rates are heavily influenced by the global and regional economic conditions, political
stability, domestic and international government regulations which are beyond the control of the Company. The Company
accounts for the fair value of these derivatives based on the mark-to-market valuations performed by the external trading
counterparties. Judgements on estimates are required to establish that the mark-to-market valuation performed is within
a tolerable range reflecting the prevailing market conditions as at the reporting date. Refer to Note 19 for the details of
derivative instruments contracted by the Company.