Annual Report 2012 - ecoWise Holdings Limited

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68ecoWise Holdings Limitedannual report 201231 OCTOBER 2012NOTES TO THE FINANCIAL STATEMENTS2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)LeasesWhether an arrangement is, or contains, a lease is based on the substance of the arrangement at theinception date, that is, whether (a) fulfilment of the arrangement is dependent on the use of a specific assetor assets (the asset); and (b) the arrangement conveys a right to use the asset.Leases are classified as finance leases if substantially all the risks and rewards of ownership are transferredto the lessee. All other leases are classified as operating leases.Finance LeasesUnder a finance lease, the lessor recognises a finance lease receivables and the lessee recognises the leasedasset and a liability for future lease payments.(a)When the Group is a lessor:When the Group is a lessor, it records a finance lease receivables at the amount of the Group’s netinvestment in the lease, which comprises the present value of the minimum lease payments and anyunguaranteed residual value accruing to the Group. The present value is calculated by discountingthe minimum lease payments due and any unguaranteed residual value, at the interest rate implicitin the lease.The Group derecognised the leased assets and recognised the difference between the carryingamount of the leased assets and the finance lease receivables in the profit or loss and recorded aspart of revenue under “finance lease income”.The Group recognises finance lease income on the net investment over the lease term. The receiptsunder the lease arrangement are allocated between reducing the net investment and recognisingfinance income, so as to product a constant rate of return on the net investment.
ecoWise Holdings Limitedannual report 20126931 OCTOBER 2012NOTES TO THE FINANCIAL STATEMENTS2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)Leases (Continued)Finance Leases (Continued)(b)When the Group is a lessee:At the commencement of the lease term, a finance lease is recognised as an asset and as a liability inthe statement of financial position at amounts equal to the fair value of the leased asset or, if lower,the present value of the minimum lease payments, each determined at the inception of the lease.The discount rate used in calculating the present value of the minimum lease payments is the interestrate implicit in the lease, if this is impracticable to determine, the lessee’s incremental borrowing rateis used.Any initial direct costs of the lessee are added to the amount recognised as an asset. The excess ofthe lease payments over the recorded lease liability are treated as finance costs which are allocatedto each reporting year during the lease term so as to produce a constant periodic rate of interest onthe remaining balance of the liability.Contingent rents are charged as expenses in the reporting years in which they are incurred. Theassets are depreciated as owned depreciable assets.Operating LeasesLeases where the lessor effectively retains substantially all the risks and rewards of ownership of the leasedassets are classified as operating leases. For operating leases, lease payments are recognised as an expensein the profit or loss on a straight-line basis over the term of the relevant lease unless another systematicbasis is representative of the time pattern of the user’s benefit, even if the payments are not on that basis.Lease incentives received are recognised in the profit or loss as an integral part of the total lease expense.Land Use RightsLand use rights under operating leases are initially stated at cost. Following initial recognition, land use rightsare measured and carried at cost less accumulated amortisation. The land use rights are amortised on astraight-line basis over the lease term 50 years.
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Annual Report 2012 - ecoWise Holdings Limited

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