Eng - IOI Group

notes to the
financial statements
5. SIGNIFICANT ACCOUNTING POLICIES (cont’d)
5.4 New Planting and Replanting Expenditure
New planting expenditure, which represents total cost incurred from land clearing to the point of harvesting, is capitalised under
plantation development expenditure and is not amortised. Replanting expenditure, which represents cost incurred in replanting
old planted areas, is charged to profit or loss in the financial year it is incurred.
5.5 Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset is capitalised as
part of the cost of the asset until when substantially all the activities necessary to prepare the asset for its intended use or sale are
complete, after which such expense is charged to profit or loss. A qualifying asset is an asset that necessarily takes a substantial
period of time to get ready for its intended use or sale. Capitalisation of borrowing cost is suspended during extended periods in
which active development is interrupted.
The amount of borrowing costs eligible for capitalisation is the actual borrowing costs incurred on the borrowing during the period
less any investment income on the temporary investment of the borrowing.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
5.6 Leases
5.6.1 Finance leases
A lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewards incidental to
ownership. Assets acquired under finance leases 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. 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, net of finance charges, are included in borrowings. The
property, plant and equipment capitalised are depreciated on the same basis as owned assets as disclosed in Note 5.3 to
the financial statements.
The minimum lease payments are allocated between 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 finance lease obligations (hire purchase liabilities).
Leases of land and buildings are classified as operating or finance leases in the same way as leases of other assets.
Subsequently, the land and buildings elements of a lease are considered separately for the purpose of lease classification.
All leases that do not transfer substantially all the risks and the rewards are classified as operating leases other than the
following:
• property held under operating leases that would otherwise meet the definition of an investment property is classified
as an investment property on a property-by-property basis and, if classified as investment property, is accounted for
as if held under a finance lease; and
• land held for own use under an operating lease, the fair value of which cannot be measured separately from the
fair value of a building situated thereon at the inception of the lease, is accounted for as being held under a finance
lease, unless the building is also clearly held under an operating lease.
136 ioi corporation berhad • annual report 2011