MKH Annual Report 2018

102 MKH Berhad Annual Report 2018 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (Cont’d) (a) Statement of compliance (Cont’d) (iii) Malaysian Financial Reporting Standards (Cont’d) MFRS 16 Leases (Cont’d) At lease commencement, a lessee will recognise a right-of-use asset and a lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated accordingly and the liability accrues interest. The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease if that can be readily determined. If that rate cannot be readily determined, the lessees shall use their incremental borrowing rate. The directors anticipate that the application of MFRS 16 may have an impact on the amounts reported and disclosures made in the financial statements of the Group. However, it is not practical to provide a reasonable estimate of the e ect of the MFRS 16 until the Group completes a detailed review. MFRS 141 Agriculture MFRS 141 prescribes the accounting treatment, financial statement presentation and disclosures related to agricultural activity. It requires measurement of fair value less costs to sell, from initial recognition of biological assets up to the point of harvest. On 2 September 2014, the Amendments to MFRS 116 Property, Plant and Equipment and MFRS 141 Agriculture: Bearer Plants introduce a new category of biological assets i.e. bearer plants. A bearer plant is a living plant that is used in the production and supply of agricultural produce, is expected to bear produce for more than one period, and has remote likelihood of being sold as agriculture produce. Bearer plants are accounted for under MFRS 116 as an item of property, plant and equipment. Agricultural produce growing on bearer plants continue to be measured at fair value less costs to sell under MFRS 141, with fair value changes recognised in profit or loss as the produce grows. The Group’s bearer plants consist of oil palm trees which the cost includes development expenditure and the plantation infrastructure from land clearing to the point of harvesting. Any replanting costs incurred are capitalised. These costs are currently in biological assets accounts and are measured at cost less accumulated amortisation based on estimated productive years of the plantation of 20 years from the date of maturity. Upon adoption of MFRS Framework, the net carrying amount of the biological assets accounts will be reclassified to bearer plants as part of the Group’s property, plant and equipment. Produce growing on bearer plants of the Group comprise fresh fruit bunches (“FFB”) prior to harvest. The valuation to be adopted by the Group considers the present value of the net cash flows expected to be generated from the sale of FFB. To arrive at the fair value of FFB, the management has considered the quantity of the unripe FFB on bearer plant prior to harvest when there is formation of oil content and the quantity will be based on yield per harvest per metric tonne. The estimated ripe FFB is based on actual oil extraction rate and kernel extraction rate of the unripe FFB from the laboratory tests. Cost to sell includes the costs in producing the FFB which are direct costs from the upkeep, harvesting cost and transportation cost. Based on the preliminary assessment, the directors do not anticipate that the application of MFRS 141 will have a significant impact on the financial position and/or financial performance of the Group. FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2018 NOTES TO THE FINANCIAL STATEMENTS