Wah Seong Corporation Berhad Annual Report 2019

103 ANNUAL REPORT 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2019 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.8 Leases (continued) Accounting policy applied from 1 January 2019 (MFRS 16) (continued) Accounting as lessor (continued) (a) Finance leases (continued) 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. (b) Operating leases The Group and the Company lease its investment properties under operating leases to non-related parties. The Group also leases its plant and equipment under operating leases to an associate. Leases of investment properties and equipment, where the Group and the Company retain substantially all risks and rewards incidental to ownership, are classified as operating leases. Rental income from operating leases is recognised in profit or loss on a straight line basis over the lease term. Contingent rents are recognised as revenue in the period in which they are earned. During the financial year, operating lease income from lease contracts in which the Group and the Company act as a lessor is RM20,462,000 and RM1,629,000 respectively. Minimum lease receivables on investment properties and equipment are as follows: Group Company 2019 2019 RM’000 RM’000 Not later than 1 year 10,476 1,529 Later than 1 year and not later than 2 years 9,613 602 Later than 2 years and not later than 3 years 12 12 20,101 2,143 Comparative information for the previous financial year is not required to be disclosed in accordance with MFRS 16. Accounting policy applied until 31 December 2018 (MFRS 117) A lease is an agreement whereby the lessor conveys to the lessee in return for a payment, or series of payments, the right to use an asset for an agreed period of time. Accounting as lessee (a) Finance leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lower of the fair value of the leased assets and the estimated present value of the minimum lease payments at the date of inception. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the lease principal outstanding. The interest element of the finance charge is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Contingent rent, if any, are charged as expenses in the periods which they are incurred.