Edgars Consolidated Stores Limited - Impact Of Sai
Edgars Consolidated Stores Limited - Impact Of Saica Circular 7/2005 - Leases
EDGARS CONSOLIDATED STORES LIMITED
(Reg No. 1946/022751/06)
(Incorporated in the Republic of South Africa)
ISIN Code : ZAE000068649
Share Code : ECO
(`Edcon`)
IMPACT OF SAICA CIRCULAR 7/2005 - LEASES
The South African Institute of Chartered Accountants has recently issued a
circular explaining the requirements of IAS 17 (AC 105) `Leases` in respect of
operating leases which include fixed rental increases.
Paragraph 5 of this circular states: `Lease payments under an operating lease
shall be recognised as an expense on a straight-line basis over the lease term
unless another systematic basis is more representative of the time pattern of
the user`s benefit.`
Edcon, along with most South African lessees and lessors, has recognised rental
expenses and income respectively on the basis of the cash flows in the lease
agreement, believing that they were `more representative of the time pattern of
the user`s benefit`.
Paragraph 9 of the circular concludes: `After considerable debate, both locally
and internationally, about when it is appropriate not to use the straight-line
basis, it has become clear that the other systematic basis` as applied by South
African entities is not consistent with the requirements of IAS 17 (AC 105) as
applied internationally.`
Accordingly all lessees and lessors are required to change to the straight-line
method for accounting for leases.
Edcon has assessed this change in interpretation and advises that the impact is
not material on a year on year basis. The effect, which has been audited, will
be to reduce Edcon`s attributable earnings for the year to March 2005 by R17
million (2004 R16 million). Furthermore, the opening retained income in March
2003 will be reduced by R282 million to reflect the cumulative impact at that
date. Earnings per share and headline earnings per share for the year-ended
March 2005 would have been 4 cents less (year-ended March 2004, 4 cents less)
and will be restated to 263 cents and 262 cents per share respectively (March
2004 to 149 cents and 155 cents per share respectively).
This change clearly has no impact on Edcon`s cash flows or reported cash
position. Nevertheless the Board will not change Edcon`s current policy of
covering dividends twice and future dividends will be calculated with reference
to the attributable earnings per share determined after changing rentals on the
new (straight line) interpretation.
Johannesburg
1 September 2005
Sponsor
Merrill Lynch South Africa (Pty) Ltd
Namibian Sponsor
Irwin Jacobs Greene (Pty) Ltd
Date: 01/09/2005 03:55:17 PM
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