69
FRONTKEN CORPORATION BERHAD
(651020-T)
ANNUAL REPORT 2014
NOTES TO THE
FINANCIAL STATEMENTS
(cont’d)
3.
SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
Assets Under Finance Leases and Hire Purchase
Leases of plant and equipment where substantially all the benefits and risks of ownership are transferred
to the Group are classified as finance leases. Plant and equipment acquired under finance lease and hire
purchase are capitalised in the financial statements at the lower of the fair value of the leased assets and the
present value of the minimum lease payments.
Each lease and hire purchase payment is allocated between the liability and finance charges so as to achieve
a constant rate on the finance balance outstanding. The corresponding outstanding obligations due under
the finance lease and hire purchase after deducting finance charges are included as liabilities in the financial
statements.
Finance charges are recognised in profit or loss over the period of the respective lease and hire purchase
agreements.
Plant and equipment acquired under finance leases and hire purchase are depreciated over the useful lives of
the assets. If there is no reasonable certainty that the ownership will be transferred to the Group, the assets
are depreciated over the shorter of the lease terms and their useful lives.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on the first-in-first-out
basis and comprises the purchase price and incidentals incurred in bringing the inventories to their present
location and condition.
Net realisable value represents the estimated selling price less the estimated costs necessary to make the
sale.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash in hand, bank balances, demand deposits, bank overdrafts and
short-term, highly liquid investments that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value with original maturities period three months or less.
During the current financial year, the Group excluded deposits pledged to financial institutions from cash and
cash equivalents for the purpose of the statements of cash flows. This change has been applied retrospectively
with an adjustment made against the opening balance of the cash and cash equivalents as at 1 January 2013.
Provisions
Provisions are recognised when the Group and the Company have a present obligation (legal or constructive)
as a result of a past event, and it is probable that the Group will be required to settle that obligation, and
when a reliable estimate of the amount can be made. Provisions are measured at the directors’ best estimate
of the expenditure required to settle the obligation at the end of the reporting period, and are discounted to
present value where the effect is material.
At end of each reporting period, the provisions are reviewed by the directors and adjusted to reflect the current
best estimate. The provisions are reversed if it is no longer probable that the Group and the Company will be
required to settle the obligation. The unwinding of the discount is recognised as interest expense in profit or
loss.
