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laporan tahunan | annual report20042. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)(g) InventoriesInventories are stated at the lower of cost (determined on an actual basis) and net realisable value. Inarriving at net realisable value, due allowance is made for all obsolete and slow moving items. Costincludes the purchase price of goods and attributable expenditure.(h) Cash and Cash EquivalentsFor the purposes of the cash flow statements, cash and cash equivalents include cash on hand and atbanks, deposits at call and short-term highly liquid investments which have an insignificant risk ofchanges in value, net of outstanding bank overdrafts and deposits pledged to the banks.(i) LeasesA lease is recognised as a finance lease if it transfers substantially to the Group all the risks and rewardsincident to ownership. All other leases are classified as operating leases.(i) Finance leasesAssets acquired by way of hire purchase or finance leases are stated at an amount equal to the lowerof their fair values and the present value of the minimum lease payments at the inception of the leases,less accumulated depreciation and impairment losses. The corresponding liability is included in thebalance sheet as borrowings. In calculating the present value of the minimum lease payments, thediscount factor used is the interest rate implicit in the lease, when it is practicable to determine;otherwise, the Company’s incremental borrowing rate is used.Lease payments are apportioned between the finance costs and the reduction of the outstandingliability. Finance costs, which represent the difference between the total leasing commitments andthe fair value of the assets acquired, are charged to the income statement over the term of therelevant lease so as to produce a constant periodic rate of charge on the remaining balance of theobligations for each accounting period.The depreciation policy for leased assets is consistent with that for depreciable property, plant andequipment as described in Note 2(e).(ii) Operating leasesOperating lease payments are charged to the income statement on a straight-line basis over the termof the relevant lease.(j) Provisions for LiabilitiesProvisions for liabilities are recognised when the Group has a present obligation as a result of a past eventand it is probable that an outflow of resources embodying economic benefits will be required to settlethe obligation, and a reliable estimate of the amount can be made. Provisions are reviewed at each balancesheet date and adjusted to reflect the current best estimate. Where the effect of the time value of moneyis material, the amount of a provision is the present value of the expenditure to be required to settle theobligation.61
laporan tahunan | annual report20042. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)(k) Income Tax.Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is theexpected amount of income taxes payable in respect of the taxable profit for the year and is measuredusing the tax rates that have been enacted at the balance sheet date.Deferred taxation is provided for, using the liability method, on temporary differences at the balancesheet date between the tax bases of assets and liabilities and their carrying amounts in the financialstatements. In principle, deferred tax liabilities are recognised for all taxable temporary differences anddeferred tax assets are recognised for all deductible temporary differences, unused tax losses andunused tax credits to the extent that it is probable that taxable profit will be available against which thedeductible temporary differences, unused tax losses and unused tax credits can be utilised. Deferred taxis not recognised if the temporary difference arises from goodwill or negative goodwill or from the initialrecognition of an asset or liability in a transaction which is not a business combination and at thetime of the transaction, affects neither accounting profit nor taxable profit. Deferred tax is measured atthe tax rates that are expected to apply in the period when the asset is realised or the liability is settled,based on tax rates that have been enacted or substantively enacted at the balance sheet date. Deferredtax is recognised in the income statement, except when it arises from a transaction which is recogniseddirectly in equity, in which case the deferred tax is also charged or credited directly in equity, or when itarises from a business combination that is an acquisition, in which case the deferred tax is included in theresulting goodwill or negative goodwill.Prior to the adoption of MASB 25 Income Taxes on 1 January 2003, deferred tax was provided for usingthe liability method in respect of significant timing differences and deferred tax assets were not recognisedunless there was reasonable expectation of their realisation. This change in accounting policy has beenaccounted for retrospectively and the effects of this change are disclosed in Note 30.(l) Employee Benefits(i) Short Term BenefitsWages, salaries, bonuses and social security contributions are recognised as an expense in the year inwhich the associated services are rendered by employees of the Group. Short term accumulatingcompensated expenses such as paid annual leave are recognised when services are rendered byemployees that increase their entitlement to future compensated absences, and short term non-accumulatingcompensated absences such as sick leave are recognised when the absences occur.(ii) Defined Contribution PlansAs required by law, companies in Malaysia make contributions to the state pension scheme, theEmployees Provident Fund ("EPF"). Such contributions are recognised as an expense in the incomestatement as incurred.(iii) Defined Benefit PlansA subsidiary of the Group operates an unfunded, defined benefit Retirement Benefit Scheme for itsexecutives. Only executives who were employed by the subsidiary prior to January 1999 are eligiblefor the scheme. Benefits are payable based on the last drawn salary of the executive and the numberof years of service with the Group.62
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