Bahri Annual Report- 2018

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115

Annual Report 2018

Notes to the consolidated financial statements – continued For the year ended 31 December 2018

4. SIGNIFICANT ACCOUNTING POLICIES (continued)

4.2. New standards, amendments and standards issued and not yet effective

4.3. Significant accounting judgments, estimates and assumptions (continued)

Cash and cash equivalents in the consolidated statement of financial position comprise cash at banks, short-term deposits, and murabaha with original maturity of three months or less, which are subject to an insignificant risk of changes in value. Restricted cash and cash equivalents that are not available for use are excluded from cash and cash equivalents for the purposes of the consolidated statement of cash flows. Restricted cash and cash equivalents are related to amounts restricted for repayments of the current portion of loans that are due within 180 days from the date of the consolidated statement of financial position Inventories consisting of fuel and lubricants on board of vessels are shown as inventories at the consolidated statement of financial position date. Inventories are measured at the lower of cost or net realizable value. Cost of the used inventories are measured by using the First-in-First-out method including bunker inventory. Vessels spare parts and other consumables are charged to operating expenses upon purchase. Cost includes the net purchase price (after trade discounts) and any shipping, transportation, insurance, custom duties and other direct expenses related to the acquisition of the inventory. Employees’ benefits Provision for employees’ end of service benefits is made in accordance with the projected unit credit method as per IAS 19 taking into consideration the labor law of the respective country in which the subsidiary operates. The provision is recognized based on the present value of the defined benefit obligations. The present value of the defined benefit obligations is calculated using assumptions on the average annual rate of increase in salaries, average period of employment and an appropriate discount rate. The assumptions used are calculated on a consistent basis for each period and reflect management’s best estimate. The discount rates are set in line with the best available estimate of market yields currently available at the reporting date with reference Saudi Arabia interest rate swap curve or other basis, if applicable. Impairments of estimated value of receivables from finance lease The Group is conducting a study to determine whether there is a decrease in the value of the financial lease receivables based on the nature and duration of the contract and the related terms. 4.4. Cash and cash equivalents 4.5. Inventories Property and equipment are stated at cost, net of accumulated depreciation and/or accumulated impairment losses, if any. Such cost includes the cost of replacing parts of the property and equipment and borrowing costs for long-term construction projects (qualified assets) if the recognition criteria are met. When significant parts of property and equipment are required to be replaced at intervals, the Group recognizes such parts as individual assets with specific useful lives and depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the consolidated statement of profit or loss as incurred. 4.6. Property and equipment

Following are the new standards and amendments to standards, applicable to the Group, effective for annual years beginning on or after 1 January 2019 and earlier application is permitted; however, the Group has not early adopted them in preparing these consolidated financial statements. a. IFRS 16 Leases Determining whether an arrangement contains a lease On transition to IFRS 16, the Group can choose whether to: • Apply the IFRS 16 definition of a lease to all its contracts; or • Apply a practical expedient and not reassess whether a contract is, or contains, a lease. Transition As a lessee, the Group can either apply the standard using a: • Retrospective approach; or • Modified retrospective approach with optional practical expedients. The lessee applies the election consistently to all of its leases. The Group currently plans to apply IFRS 16 initially on 1 January 2019. As a lessor, the Group is not required to make any adjustments for leases in which it is a lessor except where it is an intermediate lessor in a sub-lease. IFRS 16 introduces a single, on-statement of financial position lease accounting model for lessees. A lessee recognizes a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard – i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual years beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of IFRS 16. The Group has performed a detailed analysis, subject to changes arising from additional information available to the Group during the year 2018. The actual impact of applying IFRS 16 on the consolidated financial statements in the year of initial application will depend on future economic conditions, including the Group’s borrowing rate at 1 January 2019, the composition of the Group’s lease portfolio at that date, the Group’s latest assessment of whether it will exercise any lease renewal options and the extent to which the Group chooses to use practical expedients and recognition exemptions. The preparation of financial statements requires management to make judgments, estimates, and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Therefore, actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognized in the year in which the estimates are revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. In the process of applying the Group’s accounting policies, management has made the following estimates and judgments, which are significant to the financial statements: • Determining the estimated residual values impairment and useful lives of property and equipment • Lease classification • Leases: whether an arrangement contains a lease • Measurement of defined benefit obligations, Key actuarial assumptions • Investments in associate: whether Group has significant influence over investees • Consolidation whether the Group has defacto control over investees • Measurement of ECL allowance for trade receivables key assumption in determining the weighted average loss rate Determining the estimated residual values and estimated useful lives of property and equipment The estimated residual values and estimated useful life of the property and equipment are reviewed by management at each annual reporting period. Based on the review, prospective adjustments are made to the estimated residual value and estimated useful life of property and equipment. 4.3. Significant accounting judgments, estimates and assumptions

Useful lives (in years)

Property and equipments

Buildings and improvements

3 - 20 6 - 25 5 - 12

Fleet and equipment Containers and trailers Furniture and fixtures

Tools and office equipment

Motor Vehicles

4 - 5 4 - 6 4 - 10

Computers equipment

Containers yard equipment