Entire Document - Chris Hani District Municipality

12.LEASES1.1 ClassificationLeases are classified as Finance Leases where substantially all the risks andrewards associated with ownership of an asset are transferred to the municipality.CHRIS HANI DISTRICT MUNICIPALITY ANNUAL REPORT 2011 / 2012Leases of property, plant and equipment, in which a significant portion of the risksand rewards of ownership are retained by the lessor are classified as OperatingLeases.1.2 The Municipality as Lessee1.2.1Operating LeasesThe municipality recognises operating lease rentals as an expense in the Statementof Financial Performance on a Straight-line Basis over the term of the relevant lease.The difference between the amounts recognised as an expense and the contractualpayments are recognised as an operating lease asset or liability.In the event that lease incentives are received to enter into operating leases, suchincentives are recognised as a liability. The aggregate benefit of incentives isrecognised as a reduction of rental expense on a Straight-line Basis, except whereanother systematic basis is more representative of the time pattern in which economicbenefits from the leased asset are consumed.1.3 The Municipality as LessorAmounts due from lessees under finance leases or instalment sale agreements arerecorded as receivables at the amount of the municipality’s net investment in theleases. Finance lease or instalment sale revenue is allocated to accounting periodsso as to reflect a constant periodic rate of return on the municipality’s net investmentoutstanding in respect of the leases or instalment sale agreements.Operating lease rental revenue is recognised on a Straight-line Basis over the termof the relevant lease.272