notes to the financial statements - Food Empire Holdings Limited

NOTES TO THE FINANCIAL STATEMENTS (cont’d)
For the year ended 31 December 2012
2. Summary of significant accounting policies (cont’d)
2.20 Financial guarantee
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it
incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Financial guarantees are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to
the issuance of the guarantee. Subsequent to initial recognition, financial guarantees are recognised as income in profit or loss over
the period of the guarantee. If it is probable that the liability will be higher than the amount initially recognised less amortisation,
the liability is recorded at the higher amount with the difference charged to profit or loss.
2.21 Borrowing costs
Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition, construction
or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare the asset for its intended
use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing costs are capitalised until the assets
are substantially completed for their intended use or sale. All other borrowing costs are expensed in the period they occur. Borrowing
costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
2.22 Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date:
whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to
use the asset, even if that right is not explicitly specified in an arrangement.
For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with
the transitional requirements of INT FRS 104.
(a)
As lessee
Finance leases which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item,
are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum
lease payments. Any initial direct costs are also added to the amount capitalised. 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 charged to profit or loss. Contingent rents, if any, are charged as expenses in the periods
in which they are incurred.
Capitalised 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.
Operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. The
aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on
a straight-line basis.
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