The National Shipping Company of Saudi Arabia (A Saudi Joint Stock Company) Notes to the Consolidated Financial Statements As of December 31, 2012 (in Thousands of Saudi Riyals)
2. Significant Accounting Policies
a) Accounting convention The accompanying consolidated financial statements are prepared in accordance with the accounting standards issued by the Saudi Organization for Certified Public Accountants (SOCPA) and under the historical cost convention, except for the investment in financial instruments and derivative financial instruments, which are at fair value. The Company applies the accruals basis of accounting in recognizing revenues and expenses. b) Period of financial statements According to the by-laws of the Company, the fiscal year of the Company starts on the 1st of January and ends on December 31st of each Gregorian year. c) Basis of consolidation For the purpose of consolidating accounts, inter-company transactions and balances are eliminated in the consolidation process. Non-controlling interests relating to third parties (other partners in the subsidiaries) are also accounted for in the subsidiaries’ net assets and income. d) Use of estimates The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Although these estimates are based on management’s best knowledge of current events and actions, actual results ultimately may differ from those estimates. e) Accounting for finance leases The present value of lease payments for assets sold under finance leases together with the unguaranteed residual value at the end of the lease is recognized as a receivable net of unearned finance income. Lease income is recognized over the term of the lease using the net investment method, which reflects a constant periodic rate of return. The Company accounts for the assets acquired under a lease arrangement as a finance lease when the lease transfers to the lessee (the “Company”) substantially all the benefits and risks incidental to the ownership of the leased assets. f) Cash and cash equivalents For the purpose of preparing the consolidated statement of cash flows, cash and cash equivalents represent cash in hand, bank balances, investment in Murabaha and short-term deposits, and investments that can be liquidated to cash and maturing within three months or less from the date of acquisition, which is available to the Company and its subsidiaries without any restrictions. g) Investments 1- Investments in affiliates and others: Investments in affiliates in which the Company has significant influence, but no control, over the investee’s financial and operational policies, usually owns an equity interest ranging between 20% and 50%, are accounted for using the equity method. When the Company acquire an interest in an associate for an amount in excess of the fair value of purchased net assets, the difference is recorded as goodwill as part of the investment account. Goodwill is stated net after deducting impairment losses, if any. 2- Investments in financial instruments: Investments in financial instruments represent investments in mutual funds units and investment portfolios managed by local banks, which were classified into three categories as follows: • Investments held to maturity Certain investments in financial instruments are classified as held to maturity based on the Company’s management’s intentions. These investments are stated at cost adjusted for premium or discount, if any. • Investments held for trading Certain investments in financial instruments are classified as held for trading based on the Company’s management’s intentions. These investments are stated at fair value. Unrealized gains or losses are recorded in the consolidated statement of income. • Investments available for sale Certain investments are classified as available for sale when the conditions of classification as investments held to maturity or for trading are not met. The available for sale investments are stated at fair value. Unrealized gains or
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