SAILING THE SEAS OF SUCCESS - Swissco Holdings Limited

NOTES TO THE FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2004
3. Significant accounting policies (continued)
(g)
Accounting for leases
Finance leases
Leases of assets in which the Group assumes substantially the risks and rewards of ownership are classified
as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value
of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated
between the liability and finance charge so as to achieve a constant rate on the finance balance outstanding.
The corresponding rental obligations, net of finance charges, are included in borrowings. The interest element
of the finance cost is taken to the income statement over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each period.
Operating leases
Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor
are classified as operating leases. Payments made under operating leases (net of any incentives received from the
lessor) are taken to the income statement on a straight-line basis over the period of the lease.
When an operating lease is terminated before the lease period has expired, any payment required to be made to
the lessor by way of penalty is recognised as an expense in the period in which termination takes place.
(h)
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined by the first-in, first-out
basis. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of
completion and selling expenses.
(i)
Deferred income taxes
Deferred income tax is provided in full, using the liability method, on temporary differences arising between the
tax bases of assets and liabilities and their carrying amounts in the financial statements. However, if the deferred
income tax arises from initial recognition of an asset or liability in a transaction other than a business combination
that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for.
Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by
the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associated
companies, except where the timing of the reversal of the temporary difference can be controlled and it is
probable that the temporary difference will not reverse in the foreseeable future.
(j)
Provisions
Provisions are recognised when the Group has a legal or constructive obligation as a result of past events that it is
probable an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount
of the obligation can be made.
(k)
Trade and other payables
Trade and other payables are stated in the balance sheet at cost.
(l)
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred.
Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction
costs) and the redemption value is taken to the income statement over the period of the borrowings using the
effective interest method.
ANNUAL REPORT 2004_33