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<strong>KNM</strong> GROUP BERHAD I Annual Report 201263Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(d)Property, plant and equipment (cont’d)(i)Recognition and measurement (cont’d)Freehold lands and buildings are stated at Directors’ valuation based on professional valuationson the open market basis conducted in December 2009. The next valuation is expected to be in2014.Surpluses arising from revaluation are recognised in other comprehensive income and accumulatedin the revaluation reserve account. Any deficit arising is offset against the revaluation reserve tothe extent of a previous increase for the same property. In all other cases, a decrease in carryingamount is charged into the profit or loss.Cost includes expenditures that are directly attributable to the acquisition of the asset, any othercosts directly attributable to bringing the asset to working condition for its intended use, and thecosts of dismantling and removing the items and restoring the site on which they are located.The cost of self-constructed assets includes the cost of materials and direct labour. For qualifyingassets, borrowing costs are capitalised in accordance with the accounting policy on borrowingcosts.Purchased software that is integral to the functionality of the related equipment is capitalised aspart of that equipment.The cost of property, plant and equipment recognised as a result of a business combination isbased on fair value at acquisition date. The fair value of property is the estimated amount for whicha property could be exchanged on the date of valuation between knowledgeable willing parties in anarm’s length transaction after proper marketing wherein the parties had each acted knowledgeably,prudently and without compulsion. The fair value of other items of plant and equipment is based onthe quoted market prices for similar items when available and replacement costs when appropriate.When significant parts of an item of property, plant and equipment have different useful lives, theyare accounted for as separate items (major components) of property, plant and equipment.The gain or loss on disposal of an item of property, plant and equipment is determined by comparingthe proceeds from disposal with the carrying amount of property, plant and equipment and arerecognised net within “other income” or “other operating expenses” respectively in profit or loss.When revalued assets are sold, the amounts included in the revaluation surplus reserve aretransferred to retained earnings.(ii)Subsequent costsThe cost of replacing a component of an item of property, plant and equipment is recognised inthe carrying amount of the item if it is probable that the future economic benefits embodied withinthe component will flow to the Group or the Company, and its cost can be measured reliably. Thecarrying amount of the replaced component is derecognised to profit or loss. The costs of theday-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.(iii)DepreciationDepreciation is based on the cost of an asset less its residual value. Significant componentsof individual assets are assessed, and if a component has a useful life that is different from theremainder of that asset, then that component is depreciated separately.Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives ofeach component of an item of property, plant and equipment. Leased assets are depreciated overthe shorter of the lease term and their useful lives unless it is reasonably certain that the Groupwill obtain ownership by the end of the lease term. Freehold lands is not depreciated. Property,plant and equipment under construction (capital work-in-progress) are not depreciated until theassets are ready for their intended use.
64<strong>KNM</strong> GROUP BERHAD I Annual Report 2012Notes to the Financial Statements (cont’d)2. Significant accounting policies (Cont’d)(d)Property, plant and equipment (cont’d)(iii)Depreciation (cont’d)The estimated useful lives for the current and comparative periods are as follows:Leasehold landsBuildingsBuilding improvementsPlant and machineriesMotor vehiclesFurniture, fittings and equipment45 - 66 years20 - 60 years5 - 15 years4 - 20 years3 - 10 years2.5 - 10 yearsDepreciation methods, useful lives and residual values are reviewed at the end of the reportingperiod, and adjusted where appropriate.(e)Leased assets(i)Finance leaseLeases in terms of which the Group or the Company assumes substantially all the risks andrewards of ownership are classified as finance leases. Upon initial recognition, the leased asset ismeasured at an amount equal to the lower of its fair value and the present value of the minimumlease payments. Subsequent to initial recognition, the asset is accounted for in accordance withthe accounting policy applicable to that asset.Minimum lease payments made under finance leases are apportioned between the finance expenseand the reduction of the outstanding liability. The finance expense is allocated to each period duringthe lease term so as to produce a constant periodic rate of interest on the remaining balance of theliability. Contingent lease payments are accounted for by revising the minimum lease paymentsover the remaining term of the lease when the lease adjustment is confirmed.Leasehold lands which in substance is a finance lease is classified as property, plant and equipment.(ii)Operating leaseLeases, where the Group or the Company does not assume substantially all the risks and rewardsof the ownership are classified as operating leases and, except for property interest held underoperating lease, the leased assets are not recognised on the statement of financial position.Payments made under operating leases are recognised in profit or loss on straight-line basis overthe term of the lease. Lease incentives received are recognised in profit or loss as an integral partof the total lease expense, over the term of the lease. Contingent rentals are charged to profit orloss in the reporting period in which they are incurred.Leasehold lands which in substance is an operating lease is classified as prepaid lease payments.(f)Intangible assets(i)GoodwillGoodwill arises on business combinations and is measured at cost less any accumulated impairmentlosses. In respect of equity accounted associates, the carrying amount of goodwill is included in thecarrying amount of the investment and an impairment loss on such an investment is not allocatedto any asset, including goodwill, that forms part of the carrying amount of the equity accountedassociates.
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