EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS BARLOWORLD Notes to the Consolidated Annual Financial Statements
8. EXTRACTS FROM PUBLISHED FINANCIAL STATEMENTS BARLOWORLD Notes to the Consolidated Annual Financial Statements
For the Year Ended September 30
Capital expenditure commitments to be incurred
Contracted 2,106 1,762 455 Approved but not yet contracted
Share of joint ventures’ capital expenditure commitments to be incurred
Approved but not yet contracted
Commitments will be spend substantially in 2007 and 2008. Capital expenditure will be financed by funds generated by the business, existing cash resources, and borrowing facilities available to the group.
Lease commitments
2-5 years
Operating lease commitments
Land and buildings
Motor vehicles
811 1197 501 2,509 1,682 1,992 Land and building commitments include the following items: • Commitments for the operating and administrative facilities used by the majority of business
segments. The average lease term is five years. Many lease contracts contain renewal options at fair market rates.
• Properties used for office accommodation and used car outlets in the major southern African cities. Rentals escalate at rates which are in line with the historical inflation rates applicable to the southern African environment. Lease periods do not exceed five years.
• Properties at airport locations. The leases are in general for periods of five years and the rental payments are based on a set percentage of revenues generated at those locations subject to cer- tain minimums.
Motor vehicle commitments are mainly for vehicles in use in the offshore operations. The aver- age lease term is four years.
Finance lease commitments
2-5 years
Present value of minimum lease payments
Land and buildings
Motor vehicles
Rental fleets
Minimum lease payments
Land and buildings
Motor vehicles
Rental fleets
Total including future finance charges
Future finance charges
Present value of lease commitments (Note 15)
126 Wiley IFRS: Practical Implementation Guide and Workbook
Land and building commitments are for certain fixed-rate leases in the Motor division for trading premises with an average term of 12 years including a purchase option at the end of the term. Rental fleet commitments arise in Barloworld Finance in the United Kingdom, which has fi- nanced certain rental units under capital leases with various institutions. These expire at the same time as the related lease with the customer.
Other commitments include the following items: • A suspensive sale agreement in PPC between RTA Leasing (Proprietary) Limited and BOE
Bank, interest is payable bi-annually at the end of March and September of each year. The ef- fective interest rate is 12.5% per annum with capital repayments, R98 million in 2007 and R2 million in 2008.
• Plant and equipment leased by the Cement division from Saldanha Steel (Proprietary) Limited with fixed payment terms. The agreement matures in April 2013.
Chapter 12 / Leases (IAS 17)
MULTIPLE-CHOICE QUESTIONS
(d) According to any fair method devised by the 1. The classification of a lease as either an operat-
entity.
ing or finance lease is based on
Answer: (a)
(a) The length of the lease. (b) The transfer of the risks and rewards of
7. An entity classifies a lease of land and buildings ownership.
as an investment property under IAS 40. The entity (c) The minimum lease payments being at least
has adopted the fair value model. In this case 50% of the fair value.
(a) Separate measurement of the lease of land (d) The economic life of the asset.
and buildings is compulsory. (b) Separate measurement of the lease of land
Answer: (b)
and buildings is not required. 2. The accounting concept that is principally used
(c) The lease is treated as an operating lease. to classify leases into operating and finance is
(d) The lease cannot be treated as an operating
lease.
(a) Substance over form. (b) Prudence.
Answer: (b)
(c) Neutrality. (d) Completeness.
8. Which is the correct accounting for a finance lease in the accounts of the lessee (assuming fair
Answer: (a)
value is used)?
3. Which of the following situations would prima (a) Dr Asset account with fair value
Cr Liability account }
facie lead to a lease being classified as an operating
lease? Dr Income statement with deprecia-
(a) Transfer of ownership to the lessee at the
Cr Asset account } tion of asset
end of the lease term. (b) Option to purchase at a value below the fair
Dr Income statement finance charge value of the asset.
Cr Liability account } for period
(c) The lease term is for a major part of the as- set’s life.
Dr Liability account cash paid in (d) The present value of the minimum lease
} period
Cr Cash
(b) Dr Liability account set.
payments is 50% of the fair value of the as-
Cr Asset account } with fair value
Answer: (d)
Dr Income statement with deprecia- 4. The classification of a lease is normally carried
Cr Asset account } tion of asset
out (a) At the end of the lease term.
Dr Liability account finance charge (b) After a “cooling off” period of one year.
Cr Income statement } for period
(c) At the inception of the lease. (d) When the entity deems it to be necessary.
Dr Liability account cash paid in Cr Cash
} period
Answer: (c)
(c) Dr Asset account 5. Where there is a lease of land and buildings and
Cr Liability account } with fair value
the title to the land is not transferred, generally the
lease is treated as if Dr Asset account with deprecia- (a) The land is a finance lease, the building is a
Cr Income statement } tion of asset
finance lease. (b) The land is a finance lease, the building is an
Dr Liability account finance charge operating lease.
Cr Income statement } for period
(c) The land is an operating lease, the building
is a finance lease. Dr Liability account cash paid in (d) The land is an operating lease, the building
} period
Cr Cash
is an operating lease. (d) Dr Asset account
Cr Liability account } with fair value
Answer: (c)
6. The lease of land and buildings when split causes Dr Income statement with deprecia- difficulty in the allocation of the minimum lease
Cr Asset account } tion of asset
payments. In this case the minimum lease payments should be split
Dr Liability account finance charge (a) According to the relative fair value of two
Cr Income statement } for period
elements.
(b) By the entity based on the useful life of the Dr Liability account cash paid in two elements.
} period
Cr Cash
(c) Using the sum of the digits method.
Answer: (a)
Wiley IFRS: Practical Implementation Guide and Workbook
9. Which is the correct accounting treatment for an (b) The asset should be kept off the balance operating lease payment in the accounts of the lessee?
sheet and the lease income should go to the (a) Dr Cash
income statement.
Cr Operating lease rentals/income (c) The asset should be shown in the balance statement
sheet according to its nature and the lease income should go to reserves.
(b) Dr Operating lease rentals/income (d) The asset should be shown in the balance statement
sheet according to its nature with the lease Cr Cash
income going to the income statement.
(c) Dr Asset account
Answer: (d)
Cr Cash
(d) Dr Cash Cr Asset account
Answer: (b)
10. Which is the correct accounting treatment for a finance lease in the accounts of a lessor? (a) Treat as a noncurrent asset equal to net in- vestment in lease. Recognize all finance payments in income statements.
(b) Treat as a receivable equal to gross amount receivable on lease. Recognize finance pay- ments in cash and by reducing debtor.
(c) Treat as a receivable equal to net investment in the lease. Recognize finance payment by reducing debtor and taking interest to in- come statement.
(d) Treat as a receivable equal to net investment in the lease. Recognize finance payments in cash and by reduction of debtor.
Answer: (c)
11. The profit on a finance lease transaction for les- sors who are manufacturers or dealers should (a) Not be recognized separately from finance income. (b) Be recognized in the normal way on the transaction. (c) Only be recognized at the end of the lease term. (d) Be allocated on a straight-line basis over the life of the lease.
Answer: (b)
12. In the case of sale and leaseback transactions, if the sale is at below the fair value of the assets and the loss is compensated by future lease payments, then the loss is
(a) Recognized immediately in reserves. (b) Deferred and amortized over the useful life
of the asset. (c) Deferred until the end of the lease term. (d) Recognized immediately in the profit and
loss.
Answer: (b)
13. Lessors should show assets that are out on operating leases and income therefrom as follows: (a) The asset should be kept off the balance sheet and the lease income should go to re- serves.