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Notes to Financial Statements
December 31, 2014
2. Summary of Significant Accounting Policies (cont’d)
INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where
applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their
present location and condition. Cost is calculated using the weighted average method. Net realisable value
represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing,
selling and distribution.
LEASES
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as operating leases.
The Group as lessor
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease unless
another systematic basis is more representative of the time pattern in which use benefit derived from the leased
asset is diminished. Initial direct costs incurred in negotiating and arranging an operating lease are added to the
carrying amount of the leased asset and recognised on a straight-line basis over the lease term.
The Group as lessee
Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the
lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor
is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned
between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are charged directly to profit or loss, unless they are directly
attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on
borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.
Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the
relevant lease unless another systematic basis is more representative of the time pattern in which economic
benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as
an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a
liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis,
except where another systematic basis is more representative of the time pattern in which economic benefits from
the leased asset are consumed.
