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Notes to the Consolidated Financial Statements

31st March 2018

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

2.24 Leases

Operating lease (as the lessee)

Leases in which 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 (net of any
incentives received from the lessor) are charged to the consolidated income statement on a
straight-line basis over the period of the lease.

Finance lease (as the lessee)

The Group has land leases where the Group has substantially all the risks and rewards of
ownership are classified as finance leases. Finance leases are capitalised at the lease’s
commencement at the lower of the fair value of the leased property and the present value of the
minimum lease payments.

Operating lease (as the lessor)

Where the Group leases out assets under operating leases, the assets are included in the
consolidated balance sheet according to their nature, as set out in Note 2.7. Revenue arising from
operating leases is recognised in accordance with the Group’s revenue recognition policies, as set
out in Note 2.23(ii).

2.25 Sales and leaseback transaction

A sale and leaseback transaction involves the sale of an asset and the leasing back of the
same asset. The lease payment and the sale price are usually interdependent because they are
negotiated as a package. The accounting treatment of a sale and leaseback transaction depends
upon the type of lease involved.

If a sale and leaseback transaction results in a finance lease, any excess of sales proceeds
over the carrying amount is deferred and amortised over the lease term. If a sale and leaseback
transaction results in an operating lease, and it is clear that the transaction is established at fair
value, any profit or loss is recognised immediately. If the sale price is below fair value, any profit or
loss is recognised immediately except that, if the loss is compensated for by future lease payments
at below market price, it is deferred and amortised in proportion to the lease payments over the
period for which the asset is expected to be used. If the sale price is above fair value, the excess
over fair value is deferred and amortised over the period for which the asset is expected to be
used.

78 ALCO HOLDINGS LIMITED ANNUAL REPORT 2018