WILLAS-ARRAY ELECTRONICS (HOLDINGS) LIMITED
84
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 2016
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
– continued
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
The Group as lessee
Lease payments are apportioned between finance expenses and reduction of the lease obligation
so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
expenses are recognised immediately in profit or loss, unless they are directly attributable to
qualifying assets, in which case they are capitalised in accordance with the Group’s general
policy on borrowing costs (see the accounting policy below). Contingent rentals are recognised as
expenses in the periods in which they are incurred.
Operating lease payments are recognised as expenses on a straight-line basis over the lease
term, except where another systematic basis is more representative of the time pattern in which
economic benefits from the leased asset are consumed. Continent rentals arising under operating
leases are recognised as an expense in the period in which they are incurred.
In the event that lease incentives are received to enter into operating leases, such incentives are
recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental
expense on a straight-line basis, except where another systematic basis is more representative of
the time pattern in which economic benefits from the leased asset are consumed.
Leasehold land and buildings
When a lease includes both land and buildings elements, the Group assesses the classification
of each element as a finance or an operating lease separately based on the assessment as to
whether substantially all the risks and rewards incidental to ownership of each element have been
transferred to the Group, unless it is clear that both elements are operating leases in which case
the entire lease is classified as an operating lease. Specifically, the minimum lease payments
(including any lump-sum upfront payments) are allocated between the land and the buildings
elements in proportion to the relative fair values of the leasehold interests in the land element and
buildings element of the lease at the inception of the lease.
To the extent the allocation of the lease payments can be made reliably, interest in leasehold
land that is accounted for as an operating lease is presented as “prepaid lease payments” in the
consolidated statements of financial position and is amortised over the lease term on a straight-
line basis. When the lease payments cannot be allocated reliably between the land and buildings
elements, the entire lease is generally classified as a finance lease and accounted for as property,
plant and equipment.
