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annual report | 2012 Gunung Capital Berhad (330171-P) 60 NOTES TO THE FINANCIAL STATEMENTS (cont’d) 31 DECEMBER 2012 2 SIGNIFICANT ACCOUNTING POLICIES (cont’d) 2.4 Summary of Significant Accounting Policies (cont’d) (j) Financial Guarantee Contracts A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due. Financial guarantee contracts are recognised initially as a liability at fair value, net of transaction costs. Subsequent to initial recognition, financial guarantee contracts are recognised as income in profit or loss over the period of the guarantee. If the debtor fails to make payment relating to financial guarantee contract when it is due and the Group and the Company, as issuer, is required to reimburse the holder for the associated loss, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period and the amount initially recognised less cumulative amortisation. (k) Provisions Provisions for liabilities are recognised when the Group and the Company have a present legal or constructive obligation as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditure expected to be required to settle the obligation. (l) Leases i) As lessee Finance leases, which transfer to the Company substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at fair value of the lease asset or, if lower, at the present value of the minimum lease payments. Any initial direct costs are also added to the amount capitalised. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the profit or loss. Contingent rents, if any, are charged as expenses in the periods in which they are incurred. Leased assets are depreciated over the estimated useful lives of the assets concerned. However, if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term, the asset is depreciated over the shorter of the estimated useful life and the lease term. Operating lease payments are recognised as an expense in 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 straight-line basis. ii) As lessor Leases where the Group retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the bases as rental income. The accounting policy for rental income is set out in Note 2(t)(iii).
NOTES TO THE FINANCIAL STATEMENTS (cont’d) 31 DECEMBER 2012 2 SIGNIFICANT ACCOUNTING POLICIES (cont’d) 2.4 Summary of Significant Accounting Policies (cont’d) (m) Impairment of Non-financial Assets The carrying amounts of the Group’s assets are reviewed for impairment losses when there is an indication that the assets might be impaired. Impairment is measured by comparing the carrying amounts of the assets with their recoverable amounts. An impairment loss is recognised in profit or loss immediately. An asset’s recoverable amount is the higher an asset’s fair value less costs to sell and its value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which they are separately identifiable cash flows (cash generating units (“CGU”). In assessing value in use, the estimated future cash flows expected to be generated by the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount, the asset is written down to its recoverable amount. Impairment losses recognised in respect of a CGU or groups of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to those units or groups of units and then, to reduce the carrying amount of the other assets in the unit or groups of units on a pro-rata basis. Reversal of impairment losses recognised in prior year is recorded where there is indication that the impairment losses recognised for the assets no longer exist or have decreased. The reversal is recognised to the extent of the asset’s carrying amount that would have been determined, net of depreciation and amortisation, had no impairment loss been recognised. The reversal is recognised in the income statement immediately. Impairment loss on goodwill is not reversed in a subsequent period. (n) Inventories Inventories of finished goods, work-in-progress and raw materials are stated at the lower of cost, determined using the “weighted average” method and net realisable value. Cost of finished goods and work-in-progress includes cost of raw materials, direct labour and an appropriate allocation of manufacturing overheads. Cost of raw materials includes the original purchase price plus cost of bringing these inventories to their present locations. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. (o) Cash and Cash Equivalents Cash and cash equivalents consist of cash and bank balances and deposits with financial institutions. Cash equivalents are short-term, highly liquid investments that are readily convertible to cash with insignificant risk of changes in value. (p) Equity Instruments Ordinary shares are classified as equity instruments. Ordinary shares are recorded at the proceeds received, net of directly attributable incremental transaction costs. Dividends on ordinary shares are recognised in equity in the period that they are declared. (q) Earnings per Ordinary Share The Group presents basic and diluted earnings per ordinary share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit of loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held. Gunung Capital Berhad (330171-P) 61 annual report | 2012
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