Yinson Annual Report 2020

220 Notes to the financial statements (cont’d) For the financial year ended 31 January 2020 Yinson Holdings Berhad SECTION 7 ACCOUNTABILITY 2. Summary of significant accounting policies (continued) 2.13 Leases (continued) (b) Accounting by lessor (continued) Finance lease The Group classifies a lease as a finance lease if the lease transfers substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee. The Group derecognises the underlying asset and recognises a receivable at an amount equal to the net investment in a finance lease. Net investment in a finance lease is measured at an amount equal to the sum of the present value of lease payments from lessee and the unguaranteed residual value of the underlying asset. Initial direct costs are also included in the initial measurement of the net investment. The net investment is subject to MFRS 9 impairment (refer to Note 2.17(ii) on impairment of financial assets). In addition, the Group reviews regularly the estimated unguaranteed residual value. Lease income is recognised over the term of the lease using the net investment method so as to reflect a constant periodic rate of return. The Group revises the lease income allocation if there is a reduction in the estimated unguaranteed residual value. Where a lease is determined to be a finance lease at lease inception and the Group is a manufacturer- lessor, the Group recognises selling profit or loss on a finance lease at the lease commencement date in profit or loss as follows: • Revenue is the fair value of the underlying leased asset or, if lower, the present value of the lease payments accruing to the lessor, discounted using a market rate of interest; • Cost of sale is the cost, or carrying amount (if different), of the underlying leased asset, less the present value of the unguaranteed residual value; and • Selling profit or loss is the difference between revenue and the cost of sale, and is recognised in accordance with the principles in MFRS 15. Operating lease Leases in which the Group does not transfer substantially all the risks and benefits of ownership of an 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 a straight-line basis on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. Separating lease and non-lease components If an arrangement contains lease and non-lease components, the Group allocates the consideration in the contract to the lease and non-lease components based on the stand-alone selling prices in accordance with the principles in MFRS 15.