ArcelorMittal South Africa 2007 Annual Report Page 84 Notes to the group and company annual financial statements continued for the year ended 31 December 2007 3.13 Accounting for finance leases as lessee Finance lease arrangements consist of those transactions that are: •  leases in both economic substance and legal form; and •  those that arise out of commercial arrangements that in economic substance represent leases, though not in legal form. The group and company lease certain property, plant and equipment. Leases of property, plant and equipment where the group and company have substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lower of the fair value of the leased property, plant and equipment and the present value of the minimum lease payments of the lease. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the capital balance outstanding. The corresponding rental obligations, net of finance charges, are shown as finance lease obligations. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term. Finance lease obligations with settlement tenures greater than 12 months after the balance sheet date, are classified as non-current finance lease obligations, whilst those to be settled within 12 months of the balance sheet date are classified as current finance lease obligations. 3.14 Non-current assets (or disposal groups) held for sale Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. When the requirements for classification as held for sale are no longer met, the asset (or disposal group) is reclassified out of the held for sale category. Such asset (or disposal group) are carried at the lower of (i) its carrying amount before being classified as held for sale, adjusted for any amortisation or revaluations that would have been recognised had it not been classified as held for sale; and (ii) its recoverable amount at the date of the subsequent decision not to sell. 3.15 Intangible assets Internally-generated intangible assets – research and development Research expenditure is recognised as an expense as incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfilled: •  it is technically feasible to complete the intangible asset so that it will be available for use or sale; •  management intends to complete the intangible asset and use or sell it; •  there is an ability to use or sell the intangible asset; •  it can be demonstrated how the intangible asset will generate probable future economic benefits; •  adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available; and •  the expenditure attributable to the intangible asset during its development can be reliably measured. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.