| At inception, the company assesses agreements that transfer the right to use assets. The
assessment considers whether the arrangement is, or contains, a lease based on the substance
of the arrangement.
i. Finance leased assets
Leases of assets that transfer substantially all the risks and rewards incidental to ownership are
classified as finance leases.
Finance leases are capitalised at the commencement of the lease as assets at the fair value of
the leased asset or, if lower, the present value of the minimum lease payments calculated using
the interest rate implicit in the lease. Assets are depreciated over the shorter of the lease term
and the estimated useful life of the asset. Assets are assessed for impairment at each reporting
date. The capital element of lease obligations is recorded as a liability on the inception of the
arrangement. Lease payments are apportioned between capital repayment and finance charge,
using the effective interest rate method, to produce a constant rate of charge on the balance of
the capital repayments outstanding.
ii. Operating leased assets
Leases that do not transfer all the risks and rewards of ownership are classified as operating
leases. Payments under operating leases are charged to the profit and loss account on a
straight-line basis over the period of the lease. |