FRENCKEN GROUP LIMITED
ANNUAL REPORT 2015
62
NOTES TO FINANCIAL STATEMENTS
FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015 (CONT’D)
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
(j) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and at bank, demand deposits and short-term, highly liquid
funds which are readily convertible to known amounts of cash and subject to an insignificant risk of changes in
value.
Cash and at bank balances and deposits with licensed banks are carried at cost.
For the purposes of the cash flow statement, cash and cash equivalents are shown net of outstanding bank
overdrafts and deposits pledged as securities.
(k) Leases
When the Group is the lessee
(i)
Lessee - Finance leases
Leases where the Group assumes substantially all risks and rewards incidental to ownership of the leased
assets are classified as finance leases.
The leased assets and the corresponding lease liabilities (net of finance charges) under finance leases are
recognised on the balance sheet as plant and equipment and borrowings respectively, at the inception of
the leases based on the lower of the fair value of the leased assets and the present value of the minimum
lease payments.
Each lease payment is apportioned between the finance expense and the reduction of the outstanding
lease liability. The finance expenses are recognised in the income statement on a basis that reflects a
constant periodic rate of interest on the finance lease liability.
(ii)
Lessee - Operating leases
Leases where substantially all risks and rewards incidental to ownership are retained by the lessor are
classified as operating leases. Payments made under operating leases (net of any incentives received from
the lessor) are recognised in the income statement on a straight-line basis over the period of the lease.
When an operating lease is terminated before the lease period has expired, any payment required to be
made to the lessor by way of penalty is recognised as an expense in the financial year in which termination
takes place.
(iii) Sale and leaseback transaction
A sale and leaseback transaction involves the sale of an asset and the leasing back of the same asset.
Sale and leaseback transaction results in an operating lease, and it is clear that the transaction is established
at fair value, any gain or loss shall be recognised immediately. If the sale price is below fair value, any
loss shall be recognised immediately except that, if the loss is compensated for by future lease payments
at below market price, it shall be deferred and amortised in proportion to the lease payments over the
period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair
value shall be deferred and amortised over the period for which the asset is expected to be used.
