| ANNUAL REPORT 2015
106
NOTES TO THE FINANCIAL STATEMENTS
30 June 2015 (cont’d)
4. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
4.4 Property, plant and equipment and depreciation (cont’d)
The residual values, useful lives and depreciation method are reviewed at the end of each reporting period to ensure
that the amount, method and period of depreciation are consistent with previous estimates and the expected pattern of
consumption of the future economic benefits embodied in the items of property, plant and equipment. If expectations
differ from previous estimates, the changes are accounted for as a change in an accounting estimate.
The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no future
economic benefits are expected from its use or disposal. The difference between the net disposal proceeds, if any, and
the carrying amount is included in profit or loss.
4.5 Leases and hire purchase
(a) Finance leases and hire purchase
Assets acquired under finance leases and hire purchase which transfer substantially all the risks and rewards of
ownership to the Group are recognised initially at amounts equal to the fair value of the leased assets or, if lower,
the present value of minimum lease payments, each determined at the inception of the lease. The discount rate
used in calculating the present value of the minimum lease payments is the interest rate implicit in the leases, if
this is practicable to determine; if not, the incremental borrowing rate of the Group is used. Any initial direct costs
incurred by the Group are added to the amount recognised as an asset. The assets are capitalised as property, plant
and equipment and the corresponding obligations are treated as liabilities. The property, plant and equipment
capitalised are depreciated on the same basis as owned assets.
The minimum lease payments are apportioned between the finance charges and the reduction of the outstanding
liability. The finance charges are recognised in profit or loss over the period of the lease term so as to produce a
constant periodic rate of interest on the remaining lease and hire purchase liabilities.
(b) Operating leases
A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to
ownership.
Lease payments under operating leases are recognised as an expense on a straight line basis over the lease term.
(c) Leases of land and buildings
For leases of land and buildings, the land and buildings elements are considered separately for the purpose of lease
classification and these leases are classified as operating or finance leases in the same way as leases of other assets.
The minimum lease payments including any lump-sum upfront payments made to acquire the interest in the land
and buildings are allocated between the land and the buildings elements in proportion to the relative fair values of
the leasehold interests in the land element and the buildings element of the lease at the inception of the lease.
For a lease of land and buildings in which the amount that would initially be recognised for the land element
is immaterial, the land and buildings are treated as a single unit for the purpose of lease classification and is
accordingly classified as a finance or operating lease. In such a case, the economic life of the buildings is regarded
as the economic life of the entire leased asset.
