Airtel 2014 Annual Report Download - page 199

Notes to consolidated financial statements
FINANCIAL STATEMENTS
Bharti Airtel Limited Statutory ReportsCorporate Overview Financial Statements
197
Consolidated Financial Statements
Operating lease payments are recognised as an
expense on a straight-line basis over the lease term.
Contingent rents are recognised as expense in the
period in which they are incurred.
b. Group as a lessor
Assets leased to others under finance lease are
recognised as receivables at an amount equal to
the net investment in the leased assets. The finance
income is recognised based on the periodic rate of
return on the net investment of the Group outstanding
in respect of the finance lease.
Leases where the Group does not transfer substantially
all the risks and rewards incidental to ownership
of the asset are classified as operating lease. Initial
direct costs incurred in negotiating an operating lease
are added to the carrying amount of the leased asset
and recognised over the lease term on the same basis
as rental income.
Lease rentals under operating leases are recognised
as income on a straight-line basis over the lease term.
Contingent rents are recognised as income in the
period in which they are earned.
c. Indefeasible right to use (‘IRU’)
As part of the operations, the Group enters into
agreement for leasing assets under “Indefeasible right
to use” with third parties. Under the arrangement
the assets are given on lease over the substantial
part of the asset life. However, the title to the assets
and significant risk associated with the operation
and maintenance of these assets remains with the
lessor. Hence, such arrangements are recognised as
operating lease.
The contracted price is received in advance and
is recognised as revenue during the tenure of the
agreement. Unearned IRU revenue net of the amount
recognisable within one year is disclosed as deferred
revenue in non-current liabilities and the amount
recognisable within one year is disclosed as deferred
revenue in current liabilities.
d. Sale and leaseback transactions
Sale and leaseback transaction involves the sale of
an asset and the leasing back of the same asset. If a
sale and leaseback transaction results in a finance
lease, any excess of sales proceeds over the carrying
amount shall not be immediately recognised as
income, instead, the asset leased back is retained at
its carrying value and the amount received towards
the leased back portion is recorded as a finance lease
obligation. If a sale and leaseback transaction results
in an operating lease, and transaction is established
at fair value, any profit or loss shall be recognised
immediately.
3.13 Financial Instruments
A. Financial instruments – initial recognition and
measurement
Financial assets and financial liabilities are recognised
in the Group’s statement of financial position when the
Group becomes a party to the contractual provisions
of the instrument. The Group determines the
classification of its financial assets and liabilities at
initial recognition. All financial assets and liabilities
are initially recognised at fair value plus directly
attributable transaction costs in case of financial
assets and liabilities not at fair value through profit
or loss. Financial assets and liabilities carried at fair
value through profit or loss are initially recognised at
fair value, and transaction costs are expensed in the
income statement.
Purchases or sales of financial assets that require
delivery of assets within a time frame established by
regulation or convention in the marketplace (regular
way trades) are recognised on the trade date, i.e., the
date that the Group commits to purchase or sell the
asset.
B. Financial Assets
1. Subsequent measurement
The subsequent measurement of financial assets
depends on their classification as follows:
a. Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss
include financial assets held for trading and those
designated upon initial recognition at fair value
through profit or loss. Financial assets are classified
as held for trading if they are acquired for the purpose
of selling in the near term. Derivatives, including
separated embedded derivatives are classified as held
for trading unless they are designated as effective
hedging instruments. Financial assets are designated
upon initial recognition at fair value through profit
or loss when the same are managed by the Group on
the basis of their fair value and their performance
is evaluated on fair value basis in accordance with a
documented risk management or investment strategy.
Financial assets at fair value through profit or loss are
carried in the statement of financial position at fair
value with changes in fair value recognised in finance
income or finance costs in the income statement.
Derivatives embedded in host contracts are accounted
for as separate derivatives and recorded at fair value
if their economic characteristics and risks are not
closely related to those of the host contracts and the
host contracts are not held for trading or designated
at fair value though profit or loss. Reassessment only
occurs if there is a change in the terms of the contract
that significantly modifies the cash flows that would
otherwise be required.