notes to the financial statements - Singapore Technologies ...

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132 SIMPLY SMARTERNOTES TO THE FINANCIAL STATEMENTS31 December 2011(Currency - Singapore dollars unless otherwise stated)3. Summary of significant accounting policies (continued)(k)Revenue (continued)(iii)Management fee income is recognised on an accrual basis over the duration upon which management services are rendered.(iv)Where it is probable that a portion of the commission income may not materialise, a certain percentage of the total commissionreceived is treated as downpayment and is deferred and taken up in the income statement only upon the discharge of specifiedcontractual obligations. Commission income in excess of the certain percentage of the total amount received is taken up in the incomestatement as and when it is billed.(v)Rental income from investment property is accounted for on a straight-line basis over the duration of the lease terms.(l)Government grantsGovernment grants are recognised when the Group complies with the conditions associated with the grants. Grants that compensate the Groupfor expenses incurred are recognised in profit or loss as other income in the same periods in which the expenses are recognised. Grants relatingto depreciable assets are deferred and recognised in profit or loss as other income over the period in which such assets are depreciated andused in the projects subsidised by the grants.(m)Finance income and finance costsFinance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on disposalof available-for-sale financial assets, fair value gains on financial assets at fair value through profit or loss, gains on hedging instruments thatare recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend incomeis recognised in profit or loss when the shareholder’s right to receive payment is established.Finance costs comprise interest expense on borrowings, losses on disposal of available-for-sale financial assets, fair value losses on financialassets at fair value through profit or loss, impairment losses recognised on financial assets (other than trade receivables), and losses on hedginginstruments that are recognised in profit or loss.Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit orloss using the effective interest method.Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currencymovements are in a net gain or net loss position.(n)Hire purchaseAssets acquired on hire purchase arrangements are capitalised in the financial statements and the corresponding obligations treated as aliability. The total interest, being the difference between the total instalments payable and the capitalised amount, is recognised in profit orloss over the period of such hire purchase arrangements in equal monthly instalments to produce a constant rate of charge on the balance ofcapital repayments outstanding. Assets acquired on hire purchase arrangements are depreciated in accordance with the policy set out in Note3(d) above.
SINGAPORE TECHNOLOGIES ENGINEERING LTD Annual Report 2011133NOTES TO THE FINANCIAL STATEMENTS31 December 2011(Currency - Singapore dollars unless otherwise stated)3. Summary of significant accounting policies (continued)(o)Finance leases(i)As lesseeFinance leases are those leasing agreements, which effectively transfer to the Group substantially all the risks and benefits incidentalto ownership of the lease items. Assets financed under such leases are capitalised at the inception of the lease at the fair value of theleased asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amountcapitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve aconstant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss. Assets acquired onfinance lease arrangements are depreciated in accordance with the policy set out in Note 3(d) above.(ii)As lessorLeases where the Group transferred substantially all the risks and rewards incidental to legal ownership of the leased assets, areclassified as finance leases.The leased asset is derecognised and the present value of the lease receivables (net of initial direct costs for negotiating and arrangingthe lease) is recognised on the balance sheet. The difference between the gross receivables and the present value of the leasereceivables is recognised as unearned finance income.Each lease payment received is applied against the gross investment in the finance lease receivables to reduce both the principal andthe unearned finance income. The finance income is recognised in profit or loss on a basis that reflects a constant periodic rate ofreturn on the net investment in the finance lease receivables.Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to finance lease receivables andrecognised as an expense in profit or loss over the lease term on the same basis as the leased income.(p)Operating leasesLeases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased asset, are classified as operatingleases. Operating lease payments are recognised as an expense in the profit or loss on a straight-line basis over the lease term.The aggregate benefit of incentives provided by the lessor is recognised as a reduction of rental expense over the lease term on a straightlinebasis.(q)Income taxes(i)Current taxCurrent tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paidto the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted bythe balance sheet date.Current taxes are recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensiveincome or in equity.
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