MISC Annual Report 2019

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.2 Changes in accounting policies and effects arising from the adoption of new and revised MFRSs (cont’d.) The adoption of the above pronouncements did not have any significant financial impact to the Group and the Corporation other than as set out below: 1 (i) MFRS 16: Leases The Group and the Corporation adopted MFRS 16: Leases on 1 January 2019. MFRS 16 replaces the guidance in MFRS 117: Leases, IC Interpretation 4: Determining whether an Arrangement contains a Lease, IC Interpretation 115: Operating Leases - Incentives and IC Interpretation 127: Evaluating the Substance of Transactions Involving the Legal Form of a Lease. MFRS 16 introduces a single, on-balance sheet lease accounting for lessees. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. The lessee shall choose to measure the right-of-use asset at either its carrying amount as if MFRS 16 has been applied since inception or an amount equal to the lease liability. There are recognition exemptions for short-term leases, leases of low-value items and variable lease payments. Lessor accounting remains similar i.e. lessor continues to classify leases as finance or operating leases. The Group and the Corporation have elected the modified retrospective approach with no restatement of comparatives. Effects arising from the initial application of MFRS 16 in retained earnings and balance sheet as at 1 January 2019 are as disclosed below: Group Corporation RM’000 RM’000 Decrease in retained earnings 187,436 1,193 Increase in non-controlling interests 470 – Increase in right-of-use assets 800,915 53,388 Increase in lease liabilities 987,881 54,581 Group Corporation RM’000 RM’000 Operating lease commitment as at 31 December 2018 1,156,277 15,990 Less: Commitments related to short-term leases (155,588) (206) Less: Commitments related to leases of low-value assets (2,234) – Less: Adjustments to lease payments relating to revision of rates not included in operating lease as at 31 December 2018 (16,607) – Less: Non-lease component (1,143) (1,143) Add: Extension option certain to be exercised 67,534 43,923 Net operating lease commitments at 31 December 2018 1,048,239 58,564 Discounted using the incremental borrowing rates at 1 January 2019 (60,358) (3,983) Lease liabilities recognised at 1 January 2019 987,881 54,581 When measuring lease liabilities, the Group and the Corporation discounted lease payments using respective incremental borrowing rates at 1 January 2019. The range of incremental borrowing rates applied for the Group and the Corporation are from 3.5% to 6.8% and 3.5% respectively. 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D.) 2.2 Changes in accounting policies and effects arising from the adoption of new and revised MFRSs (cont’d.) (ii) Amendments to MFRS 123: Borrowing Costs (Annual Improvements 2015 - 2017 Cycle) In previous years, borrowing costs relating to a specific qualifying assets are capitalised into the cost of the asset. The capitalisation of borrowing costs cease when substantially all activities necessary to prepare the qualifying asset for its intended use or sale are completed. Any borrowing costs incurred subsequently were expensed off to profit or loss. The amendments clarify that an entity treats as part of general borrowings, any borrowings that are outstanding during the period, except for those made specifically to obtain a qualifying asset that is not yet ready for its intended use or sale. If a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use or sale, it becomes part of the Group’s and the Corporation’s general borrowing. A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or sale. The Group and the Corporation apply these amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the Group and the Corporation first apply those amendments (i.e. 1 January 2019). During the year, the Group has capitalised RM39,400,000 of general borrowing costs into its qualifying assets. 2.3 Summary of significant accounting policies The accounting policies set out below have been applied consistently to the periods presented in these financial statements by the Group and the Corporation, unless otherwise stated. (a) Subsidiaries and basis of consolidation (i) Subsidiaries Subsidiaries are entities including structured entities controlled by the Corporation. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Potential voting rights are considered when assessing control only when such rights are substantive. The Group considers it has de facto power over an investee when, despite not having the majority of voting rights, it has the current ability to direct the activities of the investee that significantly affect the investee’s return. In the Corporation’s separate financial statements, investments in subsidiaries are stated at cost less impairment losses. On disposal of such investments, the difference between net disposal proceeds and their carrying amounts is included in the income statement. (ii) Basis of consolidation The consolidated financial statements comprise the financial statements of the Corporation and its subsidiaries as at the reporting date. The financial statements of the subsidiaries are prepared for the same reporting date as the Corporation. Subsidiaries are consolidated from the date of acquisition, being the date which the Group obtains control and continue to be consolidated until the date that such control ceases. All inter-company transactions are eliminated on consolidation and hence, revenue and profits relate to external transactions only. Unrealised losses resulting from intercompany transactions are also eliminated, except for instances where cost cannot be recovered. NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 NOTES TO THE FINANCIAL STATEMENTS 31 December 2019 FINANCIAL STATEMENTS MISC BERHAD PEOPLE. PASSION. POSSIBILITIES ANNUAL REPORT 2019 254 255