Annual Report 2011/2012 - Colombo Stock Exchange

MERCANTILE SHIPPING COMPANY PLC
NOTES TO THE FINANCIAL STATEMENTS Contd...
Year ended 31 March 2012
22
The cost incurred in bringing inventories to its present
location and conditions are accounted using the
following cost formulae:-
Consumables and Spares - At purchase cost on
First in First out basis (FIFO)
2.4.5 Trade and Other Receivables
Trade receivables are stated at the amounts they are
estimated to realize net of allowances for bad and
doubtful receivables.
Other receivables and dues from Related Parties are
recognized at cost less allowances for bad and doubtful
receivables.
2.4.6 Cash and Cash Equivalents
Cash and cash equivalents are cash in hand, demand
deposits and short-term highly liquid investments,
readily convertible to known amounts of cash and
subject to insignificant risk of changes in value.
For the purpose of cash flow statement, cash and cash
equivalents consist of cash in hand and deposits in
banks net of outstanding bank overdrafts. Investments
with short maturities i.e. three months or less from the
date of acquisition are also treated as cash equivalents.
2.4.7 Property, Plant and Equipment
Property, Plant and Equipment is stated at cost,
excluding the costs of day to day servicing, less
accumulated depreciation and accumulated
impairment in value. Such cost includes the cost of
replacing Property, part of the plant and equipment
when that cost is incurred, if the recognition criteria are
met.
An item of property, plant and equipment is
derecognized upon disposal or when no future
economic benefits are expected from its use or
disposal. Any gain or loss arising on derecognition of
the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the
asset) is included in the income statement in the year
the asset is derecognized.
The asset's residual values, useful lives and method of
depreciation are reviewed, and adjusted if appropriate
at each financial year end.
2.4.8 Investment Properties
Investment property is measured initially at cost,
including transaction costs. The carrying amount
includes the cost of replacing part of an existing
investment property at the time that cost is incurred if
the recognition criteria are met and excludes the costs
of day to day servicing of an investment property.
After initial recognition, the Group measures all of its
investment property in accordance with requirements
in SLAS 18 (Revised 2005) Property, Plant and
Equipment other than those that meet the criteria are to
be classified as held for sale.
Investment properties are derecognized when either
they have been disposed or when the investment
property is permanently withdrawn from the use and no
future economic benefit is expected from its disposal.
Any gains or losses on retirement or disposal of an
investment property are recognized in the income
statement in the year of retirement or disposal.
Transfers are made to investment property when, and
only when, there is a change in use, evidenced by the
end of owner occupation, commencement of an
operating lease to another party or completion of
construction or development. Transfers are made from
investment property when, and only when, there is a
change in use, evidenced by commencement of owner
occupation or commencement of development with a
view to sale.
The provision for depreciation is calculated by using a
straight line method on the cost of the building
recognized as investment properties in order to write off
such amounts over the estimated useful life of twenty
years by equal installments.
2.4.9 Leases
a) Finance Leases
Finance leases, which transfer to the Group
substantially all the risks and benefits incidental to
ownership of the leased item, are capitalized at the
inception of the lease at the fair value of the leased
property or, if lower, at the present value of the minimum
lease payments. Lease payments are apportioned
between the finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are
reflected in the Income Statement.
Capitalized leased assets are depreciated over the
shorter of the estimated useful life of the asset and the
lease term, if there is no reasonable certainty that the
Group will obtain ownership by the end of the lease
term. The depreciation policy for depreciable leased
assets is consistent with that for depreciable asset that
are owned.
2.4.10 Investments
a) Current Investments
Current investments are carried at the lower of cost and
market value, determined on the basis of aggregate
portfolio.