NewWorld Development Company Limited
FINANCIAL SECTION
126
3 PRINCIPAL ACCOUNTING POLICIES
(continued)
(w) Revenue recognition
(continued)
(viii) Interest
Interest is recognised on a time proportion basis using the effective interest method. When a receivable
is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future
cash flow discounted at the original effective interest rate of the instrument, and continues unwinding
the discount as interest income. Interest income on impaired receivables is recognised using the original
effective interest rate.
(ix) Dividend
Dividend is recognised when the right to receive payment is established.
(x) Leases
(i) Finance leases
Leases that transfer to the Group substantially all the risks and rewards of ownership of assets are
accounted for as finance leases. Finance leases are capitalised at the lease’s commencement date at
the lower of the fair value of the leased assets and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant
rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges,
are included in liabilities, as creditors and accrued charges. The finance charges are charged to the
consolidated income statement over the lease periods so as to produce a constant periodic rate of
interest on the remaining balance of the liability for each period.
Assets held under finance leases are depreciated on the basis described in note 3(f)(ii) above.
(ii) Operating leases
Leases in which a significant portion of the risks and rewards of 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 charged to the consolidated income statement on a straight-line basis over the
period of the lease.
(y) Borrowing costs
Borrowing costs incurred for the construction of any qualifying assets are capitalised during the period of time
that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed as
incurred.
(z) Employee benefits
(i) Employee leave entitlements
Employee entitlements to annual leave are recognised when they accrue to employees. A provision is
made for the estimated liability for annual leave as a result of services rendered by employees up to the
end of the reporting period. Employee entitlements to sick leave and maternity leave are not recognised
until the time of leave.
(ii) Bonus plans
Provision for bonus plans are recognised when the Group has a present legal or constructive obligation as
a result of services rendered by employees and a reliable estimate of the obligation can be made.
