86.
INDOFOOD AGRI RESOURCES LTD
ANNUAL REPORT 2015
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For the financial year ended 31 December 2015
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT’D)
2.18 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using weighted-average method.
Cost incurred in bringing each product to its present location and condition is accounted for as follows:
Raw materials, goods in transit, spare parts and factory supplies – purchase cost; and
Finished goods and work in progress
– cost of direct materials and labour and a
proportion of manufacturing overheads based
on normal operating capacity but excluding
borrowing costs.
Where necessary, allowance is provided for damaged, obsolete and slow moving items to adjust the carrying value of
inventories to the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion
and the estimated costs necessary to make the sale.
2.19 Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) where, as a result of a past
event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation
and the amount of the obligation can be estimated reliably.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. If it is
no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation,
the provision is reversed. If the effect of the time value of money is material, provisions are discounted using a current
pre-tax rate that reflects, where appropriate, the risks specific to the liability. When discounting is used, the increase in
the provision due to the passage of time is recognised as a finance cost.
2.20 Financial guarantee
A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the
holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of
a debt instrument.
Financial guarantees are recognised initially as a liability at fair value, adjusted for transaction costs that are directly
attributable to the issuance of the guarantee. Subsequent to initial recognition, financial guarantees are recognised as
income in profit or loss over the period of the guarantee. If it is probable that the liability will be higher than the amount
initially recognised less amortisation, the liability is recorded at the higher amount with the difference charged to profit
or loss.
2.21 Borrowing costs
Borrowing costs are capitalised as part of the cost of a qualifying asset if they are directly attributable to the acquisition,
construction or production of that asset. Capitalisation of borrowing costs commences when the activities to prepare
the asset for its intended use or sale are in progress and the expenditures and borrowing costs are incurred. Borrowing
costs are capitalised until the assets are substantially completed for their intended use or sale. All other borrowing
costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds.
