HSRC Integrated Annual Report 2018/2019

98 / HSRC INTEGRATED ANNUAL REPORT 2018/19 PART E: ANNUAL FINANCIAL STATEMENTS Amortisation is charged to the statement of financial performance so as to write off the cost of intangible assets over their estimated useful lives, using the straight-line method as follows: IT software Average of 5–22 years User rights 20 years 1.8.3 Impairment of Non-financial Assets The HSRC assesses at each reporting date whether there is any indication that an asset may be impaired. If any such indication exists, the entity estimates the recoverable amount of the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That excess is an impairment loss and it is charged to the statement of financial performance. An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in the statement of financial performance. Any impairment deficit of a revalued asset is treated as a revaluation decrease in the revaluation reserve only to the extent of the existing reserve. The HSRC assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated andmatched against their carrying values and any excess of the recoverable amounts over their carrying values is reversed to the extent of the impairment loss previously charged in the statement of financial performance. 1.9 Inventory Inventories are valued at the lower of cost price or net realisable value. The net realisable value is the estimated selling price, less the estimated completion costs or selling costs. Inventory consists of cafeteria consumables and publications (comprising of completed books and work in progress). Inventory is valued using the weighted average method. Cost for publications is determined by using specific identification of their individual costs. When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. 1.10 Leases A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. The classification of the leases is determined using GRAP 13 – Leases. 1.10.1 Operating Leases – Lessee Lease agreements are classified as operating leases where substantially the entire risks and rewards incident 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. 1.10.2 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. 1.10.3 Key Judgements Applied by Management 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. 1.10.4 Key Estimates and Assumptions Applied by Management 1.10.4.1 Property, Plant and Equipment and Intangible Assets Property, plant and equipment and intangible assets are depreciated over their useful lives, taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovation and ACCOUNTING POLICIES for the period ended 31 March 2019 (continued)