FGV Annual Report 2018

NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018 140 FGV HOLDINGS BERHAD EXAMINED OUR NUMBERS 2 BASIS OF PREPARATION (CONTINUED) (i) Accounting pronouncements that are not yet effective and have not been early adopted by the Group and Company: Effective for annual periods beginning on or after 1 January 2019 with earlier application permitted • MFRS 16 “ Leases ” Under MFRS 16, a lease is a contract (or part of a contract) that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. MFRS 16 will affect primarily the accounting by lessees and will result in the recognition of almost all leases on the statement of financial position. The standard removes the current distinction between operating leases (off balance sheet) and finance leases (on balance sheet) and requires a lessee to recognise a ‘ right-of-use ’ of the underlying asset and a lease liability reflecting future lease payments for virtually all lease contracts. The only exceptions are for short-term and low-value leases. The standard will affect primarily the accounting for the Group and Company’s leases previously recognised as operating leases under MFRS 117 disclosed in Note 25 and Note 58 and other rentals of buildings and equipments. The right-of-use asset is depreciated in accordance with the principle in MFRS 116 ‘ Property, Plant and Equipment ’ ( “ MFRS 116 ” ) and the lease liability is accreted over time with interest expense recognised in the income statement. The statement of profit or loss will also be affected because the total expense is typically higher in the earlier years of a lease and lower in later years. Additionally, as operating expense will be replaced with interest and depreciation, key metrics like earnings before interest, taxation, depreciation and amortisation ( “ EBITDA ” ) will change. Operating cash flows will be higher as cash payments for the principal portion of the lease liability are classified within financing activities. Only the part of the payments that reflects interest can continue to be presented as operating cash flows. For lessors, MFRS 16 retains most of the requirements in MFRS 117. Lessors continue to classify all leases as either operating leases or finance leases and account for them differently. As such, the Group and Company does not expect any significant impact from activities as a lessor on the financial statements. However, some additional disclosures will be required from the next financial year. Amendments to existing standards and other accounting pronouncements that are not expected to have any significant impact on the financial statements of the Group and Company: • IC Interpretation 23 ‘ Uncertainty over Income Tax Treatments ’ • Amendments to MFRS 128 ‘ Investments in Associates and Joint Ventures ’ – Long-Term Interests in Associates and Joint Ventures • Amendments to MFRS 9 ‘ Financial Instruments ’ – Prepayment Features with Negative Compensation • Amendments to MFRS 119 ‘ Employee Benefits ’ – Plan Amendment, Curtailment or Settlement • Annual Improvements to MFRS 3 ‘ Business Combinations ’ • Annual Improvements to MFRS 11 ‘ Joint Arrangements ’ • Annual Improvements to MFRS 112 ‘ Income Taxes ’ • Annual Improvements to MFRS 123 ‘ Borrowing Costs ’