eSign Land Lease Agreement Made Easy

Esign land lease agreement

fgv land lease agreement lla the land lease agreement is part of FG V's land lease arrangement with Felder since listed in 2012 if it is a lease then shouldn't it always be a charge in the income statement by definition it should however fair value accounting means that the lla can either be a charge or a right back so how is lla calculated let's start with the basics Felder has more than 850 thousand hectares of land of which about four hundred and seventy-five thousand hectares are appropriated to small holders and about three hundred and fifty-five thousand hectares are lease fgv for ninety nine years starting from 2012 under the terms and conditions known as the lla or land lease agreement there are two parts to the payment terms of the lla the first is the fixed leased payment which amounts to almost two hundred and fifty million ringgit annually subject to revision every 20 years the second is a 15% profit sharing based on the profits from the sale of fresh fruit punches on lla defined areas the accounting treatment for this is based on fair value accounting in accordance with the Malaysian financial reporting standards and discounted cash flow discounted cash flow simply put is the present value of total future payments payable under the lease agreement the present value of the future fixed payment is easy to predict as it is based on a fixed figure whereas the present value of future profit sharing is more complex to calculate as it is dependent on several variables for example crude palm oil prices costs and volume we will illustrate how CP o prices affect our income statement using the fluctuating CP o prices in 2012 2013 and 2014 in 2012 the CP o price 2,900 ringgit and ll a liability was 5 billion ringgit in 2013 the CP o price fell to 2300 ringgit registering a lower profit and thus lower ll a profit sharing reducing the ll a liability to 4.5 billion ringgit the reduced ll a liability is written back to the 2013 income statement in 2014 the CP o price went up to 2400 ringgit for a higher profit and higher ll a profit sharing increasing the ll a liability to 4.7 billion ringgit the increased lla liability is now a cost that is charged to the 2014 income statement so there you have it this is a very simplified accounting example to demonstrate how the lla charge or right-back is based on variables whose movements result in a plus or minus in the income statement and the reason why even though the ll a is a lease it isn't always a charge in the income statement for details of the ll a please refer to our latest annual integrated report available online