The group and company have elected as an accounting policy choice not to apply IFRS 16 to leases of intangible assets.
At inception of a contract, an assessment is made of whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the following is assessed:
The definition has been applied to contracts entered into or changed on or after 1 January 2019.
At inception, or on reassessment, of a contract that contains a lease component, the consideration in the contract is allocated to each lease and non-lease component on the basis of their relative standalone prices.
Leases are recognised as a lease liability and corresponding right-of-use asset at the commencement date of the leases. Each lease payment is allocated between the settlement of the lease liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis, except, when there is a purchase option which is expected to be exercised, in which case it is depreciated over the asset’s useful life.
Non-lease components, contained in a lease, are recognised as an expense in profit or loss when incurred.
(i) Initial measurement
|Right-of-use assets||Lease liabilities|
Measured at cost which is:
Measured at the present value of the following lease payments:
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, an incremental borrowing rate is applied.
(ii) Subsequent measurement
|Right-of-use assets||Lease liabilities|
After commencement date of the lease, the right-of-use asset is measured applying the cost model where a right-of-use asset falls within the scope of IAS 16 Property, Plant and Equipment.
After commencement date of the lease, the lease liability is measured by:
Incremental borrowing rates:
Lease term greater than 12 months but less than 18 months – 7.85%
Lease term greater than 18 months – 10.42 to 10.44%
(c) Short-term leases and leases of low-value assets
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis, over the lease term, as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Leases of low-value assets comprise IT equipment, furniture, fittings and appliances as well as tools and other small equipment used at the plants.
When the group and company act as a lessor, it determines at lease inception whether a lease is a finance lease or an operating lease.
To classify a lease, an overall assessment is made of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease. If not, then it is an operating lease. As part of this assessment, the group and company consider certain indicators such as whether the lease is for the major part of the economic life of the asset.
When the group and company act as an intermediate lessor, it accounts for its interests in the head lease and the sublease separately. It assesses the lease classification of a sublease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the group and company apply the exemption described above, then it classifies the sublease as an operating lease.
If an arrangement contains lease and non-lease components, the group and company apply IFRS 15 to allocate the consideration in the contract.
Lease income from operating leases is recognised as income on a straight-line basis over the lease term in profit or loss.
The group recognises the net investment in finance leases, which is the aggregate of the minimum lease payments receivable, discounted at the interest rate implicit in the lease at the commencement of the lease. On conclusion of the lease agreement the leased asset is derecognised and depreciation ceases. Each lease payment received is allocated between the receivable and finance income. The interest element is recognised in profit or loss over the lease period.