Annual Report 2017
160
161
Notes to the Consolidated Financial Statements (continued) December 31, 2017 (In Thousands Saudi Riyal)
11 Consolidated Financial Statements
4.2 Significant accounting judgement, estimates, and assumptions (continued)
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.
Notes to the Consolidated Financial Statements (continued) December 31, 2017 (In Thousands Saudi Riyal)
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
4.1 New standards, amendments and standards issued and not yet effective (continued)
4.1.2. Standards issued but not yet effective (continued)
d ) Annual improvements to IFRS (2014 – 2016) cycle
Impairments of estimated value of receivables from finance lease
• IFRS 1 First-time Adoption of IFRS - Outdated exemptions for first-time adopters of IFRS are removed. Effective for annual periods beginning from January1, 2018. • IAS 28 Investments in Associates and Joint Ventures - A venture capital organization, or other qualifying entity, may elect to measure its investments in an associate or joint venture at fair value through profit or loss. This election can be made on an investment-by-investment basis. A non-investment entity investor may elect to retain the fair value accounting applied by an investment entity associate or investment entity joint venture to its subsidiaries. This election can be made separately for each investment entity associate or joint venture. The adjustments should be accounted for using a retrospective approach, and it is effective from January 1, 2018 and early adoption is permitted. In case, the Company will follow the adjustment, the Company should disclose it. This exemption is not applicable to the Group. 4.2 Significant accounting judgement, estimates, and assumptions The preparation of the Group consolidated 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 yearend financial statements in which the estimates are revised if the revision affects only those yearend financial statements, or in the year end financial statements of the revision and future periods if the revision affects both current and future periods. 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. Provisions The provision policy for doubtful debts of the Group is based on the ageing analysis and management›s continuous evaluation of the recoverability of the outstanding receivables. Management considers in assessing the ultimate realization of these receivables among other factors, the creditworthiness and the past collection history of each customer. If the financial conditions of these customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. In the process of applying the Group’s accounting policies, management has made the following estimates and judgments, which are significant to the consolidated financial statements:
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.
4.3. Cash and cash equivalents Cash and cash equivalents in the consolidated statement of financial position comprise cash at banks and cash equivalent, short-term deposits, and Murabaha with an original maturity of three months or less, which are not subject to a significant 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. 4.4. Inventories Inventories consisting of fuel and lubricants on board of the vessels are shown as inventories at the consolidated statement of financial position date, and the cost is determined using the First in First Out (FIFO) method. Spare parts and other consumables on board for each vessel are charged to operating expenses upon purchase. Cost includes the net purchase price and any other direct expenses related to the acquisition. 4.5. Investment in associates and joint ventures An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The considerations made in determining whether significant influence or joint control are similar to those necessary to determine control over subsidiaries. Under the equity method, the investment in an associate or joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately. The statement of profit or loss reflects the Group’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognized directly in the equity of the associate or joint venture, the Group recognizes its share of any changes, when applicable, in the statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the associate and joint venture are eliminated to the extent of the interest in the associate or joint venture. The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group.
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