Wah Seong Corporation Berhad Annual Report 2019

104 WAH SEONG CORPORATION BERHAD 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 until 31 December 2018 (MFRS 117) (continued) Accounting as lessee (continued) (a) Finance leases (continued) Property, plant and equipment acquired under finance lease contracts are depreciated over the shorter of the lease term and its useful life if there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. Initial direct costs incurred by the Group in negotiating and arranging finance leases are added to the carrying amount of the leased assets and recognised as an expense in profit or loss over the lease term on the same basis as the lease expense. (b) Operating leases Leases of assets where 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 are charged to the profit or loss on a straight line basis over the lease period. Accounting as lessor (a) Finance leases The Group leases its compressors under finance leases to non-related party. When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. 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. (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. 2.9 Prepaid lease payments Leasehold land that has a definite economic life and title is not expected to pass to the lessee by the end of the lease term is treated as operating lease. Prepaid lease payments are carried at cost or surrogate carrying amount and are amortised on a straight line basis over the lease terms in accordance with the pattern of benefits provided. At each reporting date, the Group assesses whether there is any indication of impairment. Where an indication of impairment exists, the carrying value of the prepaid lease asset is assessed and written down immediately to its recoverable amount. See accounting policy 2.14 on impairment of non-financial assets. At 1 January 2019, upon adoption of MFRS 16, prepaid lease payments are reclassified as right-of-use assets and depreciated over the remaining period of the respective leases ranging from 61 to 96 years.