Annual Report 2017
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Notes to the Consolidated Financial Statements (continued) December 31, 2017 (In Thousands Saudi Riyal) 4. SIGNIFICANT ACCOUNTING POLICIES (continued) 4.10. Financial Instruments
11 Consolidated Financial Statements
Notes to the Consolidated Financial Statements (continued) December 31, 2017 (In Thousands Saudi Riyal)
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
4. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial assets
4.9. Leases
Initial recognition and measurement
Group as a lessor Leases in which the Group transfers substantially all the risks and rewards incidental to the ownership of an asset to the lessees are classified as finance leases. Finance leases are recorded at the inception of the lease at the lower of the fair values of the leased asset and the present value of the minimum lease payments. Gross investment in finance leases include the total of future lease payments on finance leases (lease receivables), plus estimated residual amounts receivable. The difference between the lease receivables and the cost of the leased asset is recorded as unearned lease finance income and for presentation purposes, is deducted from the gross in finance leases. Any unguaranteed residual value of the assets is reviewed periodically and any decrease in the residual value is recorded immediately. Group as a lessee Finance leases that transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and a reduction in the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the consolidated statement of income. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Initial direct costs incurred by lessors in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as the lease income.
The Company classifies non-derivative financial assets into the following categories: financial assets at fair value through statement of income, held-to-maturity financial assets, loans and receivables and available-for-sales financial assets.
Measurement
Financial assets at fair value through statement of income - A financial asset is classified as at fair value through statement of income if it is classified as held for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value income statement are measured at fair value and changes therein, including any interest or dividend income, are recognized in consolidated statement of income. Financial assets held-to-maturity - These assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method. Available-for-sale financial assets - These assets are initially recognized at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein, are recognized in statement of other comprehensive income and recorded in accumulated fair value of financial assets. When these assets are derecognized, the gain or loss accumulated in equity is reclassified to profit or loss. Financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through consolidated statement of income, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset.
An operating lease is a lease other than a finance lease. Operating lease payments are recognized as an operating expense in the consolidated statement of income on a straight-line basis over the lease term. Notes to the
Consolidated Financial Statements (continued) 31 December 2017 (In Thousands Saudi Riyal)
Subsequent measurement
For purpose of subsequent measurement, financial assets are classified in three categories: a ) Receivables b ) Investments held to maturity c ) Available for sales “AFS” financial assets
Receivables Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the Effective Interest Rate “EIR” method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the consolidated statement of income. The losses arising from impairment are recognized in the consolidated statement of income in finance costs for loans and in cost of sales or other operating expenses for receivables.
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