Annual report - Viscofan

4.7. Leases(a) Finance leases:The Group has the right to use certain assets through lease contracts.Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as financeleases, otherwise they are classified as operating leases.The Group evaluates the economic substance of contracts to determine whether there are any implicit leases. A contract isor contains a lease if compliance with the agreement depends on the use of a specific asset or assets. In these cases, at theinception of the contract, based on fair values, the Group separates payments and consideration relating to the lease fromthose corresponding to the rest of the items incorporated in the agreement. Lease-related payments are recognised byapplying the criteria described in this note.At the inception of the lease term, the Group recognises finance leases as assets and liabilities at amounts equal to the lowerof the fair value of the leased asset or the present value of the minimum lease payments. Initial direct costs are added tothe carrying amount of the leased asset. Lease payments are apportioned between the finance charge and the reduction ofthe outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constantperiodic rate of interest on the remaining balance of the liability. Contingent payments are expensed in the years when theyare incurred. Lease payment obligations, net of the finance charge, are recorded under financial liabilities.The main accounting principles applied to assets under finance lease contracts are the same as those described in note 4.4.Nevertheless, if on commencement of the lease term there is no reasonable certainty that the Group will obtain ownershipof the assets on termination of the lease period, these are amortised on a straight line basis over the shorter of useful lifeor the lease term.(b) Operating leasesLease payments under an operating lease, net of any incentives received are recognised as an expense on a straight-linebasis unless another systematic basis is representative of the time pattern of the user’s benefit.4.8. Financial instrumentsThe Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans andreceivables, held-to-maturity investments and available-for-sale financial assets. This classification depends on the purpose forwhich the investments were acquired. Management determines the classification of investments at initial recognition and reevaluatesthis designation at every reporting date.Conventional purchases and sales of financial assets are accounted for at the trade date, when the Group undertakes to purchaseor sell the asset.(a) LoansLoans are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Theyare included in current assets, when maturity is within 12 months of the balance sheet date.Loans are initially recognised at fair value, including transaction costs incurred and are subsequently carried at amortisedcost using the effective interest method.85