Eng - IOI Group

3 SIGNIFICANT ACCOUNTING POLICIES cont’d3.6 Property, Plant and Equipment and DepreciationProperty, plant and equipment are stated at cost, less accumulated depreciation and impairment losses, ifany.Freehold land, freehold plantations, golf course and construction in progress are not depreciated.Other property, plant and equipment are depreciated on the straight line method so as to write off the cost ofthe assets over their estimated useful lives. The principal annual depreciation rates are as follows:Leasehold land and leasehold plantationsover the lease period (30 - 99 years)Buildings and improvements 2% - 10%Plant and machinery 4% - 20%Motor vehicles 10% - 20%Furniture, fittings and equipment 5% - 25%Depreciation on assets under construction commences when the assets are ready for their intended use.3.7 LeasesFinance leaseLeases of property, plant and equipment where the Group assumes substantially all the benefits and risks ofownership are classified as finance leases.Assets acquired by way of finance leases are stated at an amount equal to the lower of their fair values and theestimated present value of the minimum lease payments at the date of inception less accumulated depreciation andimpairment losses. In calculating the present value of the minimum lease payments, the discount rate is the interestrate implicit in the lease, if this is practicable to determine; if not, the Group’s incremental borrowing rate is used.Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on thefinance balance outstanding. The corresponding rental obligations, net of finance charges, are included inborrowings. The interest element of the finance charge is charged to the income statement over the lease period.Property, plant and equipment acquired under finance lease contracts are depreciated over the useful life ofthe asset. If there is no reasonable certainty that the ownership will be transferred to the Group, the asset isdepreciated over the shorter of the lease term and its useful life.141IOI Corporation BerhadAnnual Report 2003