115 / 172
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HSRC Annual Report 2016/17
1.9.1. Operating leases – lessee
Lease agreements are classified as operating leases where substantially the entire risks and rewards incidental to ownership
remain with the lessor. Operating lease payments are recognised as an expense on a straight-line basis over the lease
term. The difference between the amounts recognised as an expense and the contractual payments is recognised as
an operating lease liability.
1.9.2. Operating leases – lessor
The HSRC presents assets subject to operating leases in the Statement of Financial Position according to the nature
of the asset. Lease revenue is recognised in line with the accounting policy on revenue. The depreciation policy for
depreciable leased assets is consistent with the entity’s normal depreciation policy for similar assets.
1.9.3. Key judgments on operating leases
The HSRC has entered into commercial property leases on buildings. The HSRC leases its Pretoria building to the
Department of Social Development. The HSRC has determined, based on evaluation of the terms and conditions of the
arrangements, that it retains all the significant risks and rewards of ownership of this property and so accounts for this
contract as an operating lease, with the HSRC being a lessor. On the other hand, the HSRC leases premises occupied
by staff in regional offices, where it does not retain all the significant risks and rewards of ownership of these properties
and so accounts for these contracts as operating leases, with the HSRC being a lessee. Refer to Note 7 for more details
on the respective lease agreements.
1.10. Employee benefits
1.10.1. Short-term employee benefits
The cost of short-term employee benefits (those payable within 12 months after the service is rendered, such as cost
to company (CTC), allowances and performance bonuses) are recognised in the period in which the service is rendered
and are not discounted.
1.10.2. Post-employment benefit costs.
1.10.2.1. Pension funds
The entity contributes to a pension fund for the benefit of its employees. The plan is a defined contribution plan. The
entity identifies as defined contribution plans, any post-employment plan in terms of which it has no obligation to
make further contributions to the plan over and above the monthly contributions payable on behalf of employees (for
example in the event of a funding shortfall). Contributions made towards the fund are recognised as an expense in the
Statement of Financial Performance in the period that such contributions become payable. This contribution expense
is measured at the undiscounted amount of the contribution paid or payable to the fund. A liability is recognised to
the extent that any of the contributions have not yet been paid. Conversely an asset is recognised to the extent that
any contributions have been paid in advance.
Pensions are provided for employees by means of two separate pension funds to which contributions are made. These
are the HSRC Pension Fund (HSRCPF) and the Associated Institutions Pension Fund (AIPF).
1.10.2.2. Post-retirement medical aid benefits
The entity contributes to a medical aid for the benefit of its employees. The plan is a defined benefit plan. The cost
of providing these benefits is determined based on the projected unit credit method and actuarial valuations are
performed every year.
The HSRC contributed voluntarily to post-retirement medical aid benefits of specific employees who opted to remain
on the previous conditions of service when the benefit was terminated. The HSRC does not provide for post-retirement
medical aid benefits to any other category of employees.