Annual Report 2016
127
Financial Section
3 Principal Accounting Policies
(continued)
(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.
Borrowing costs include interest expense, finance charges in respect of finance lease and exchange differences
arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. The
exchange gains and losses that are an adjustment to interest costs include the interest rate differential between
borrowing costs that would be incurred if the entity had borrowed funds in its functional currency, and the borrowing
costs actually incurred on foreign currency borrowings. Such amounts are estimated based on forward currency rates
at the inception of the borrowings.
When the construction of the qualifying assets takes more than one accounting period, the amount of foreign
exchange differences eligible for capitalisation is determined on a cumulative basis based on the cumulative amounts
of interest expenses that would have been incurred had the entity borrowed in its functional currency. The total
amount of foreign exchange differences capitalised cannot exceed the amount of total net foreign exchange
differences incurred on a cumulative basis at the end of the reporting period.
(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.
(iii) Defined contribution plans
A defined contribution plan is a pension plan under which the Group pays contributions into a separate entity.
The Group has no legal or constructive obligations to pay further contributions if the fund does not hold
sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Contributions to defined contribution plans, including the Mandatory Provident Fund Scheme and employee
pension schemes established by municipal government in The People’s Republic of China (“PRC”) are expensed
as incurred. Contributions are reduced by contributions forfeited by those employees who leave the schemes
prior to vesting fully in the contributions, where applicable.
