Page 139 - Capricorn IAR 2020

2020 INTEGRATED ANNUAL REPORT
NOTES TO THE CONSOLIDATED AND SEPARATE ANNUAL FINANCIAL STATEMENTS (continued)
for the year ended 30 June 2020
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.8 Leases (continued)
2.8.1 IFRS 16 – ‘Leases’ – Applicable to current period figures (continued)
Initial recognition
At the commencement date a lessee recognises a right-of-use asset and a lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
• Fixed payments (including in-substance fixed payments), less any lease incentives receivable
• Variable lease payments that are based on an index rate or a rate, initially measured using the index or rate as at the
commencement date
• Amounts expected to be payable by the Group under residual value guarantees
• The exercise price of a purchase option if the Group is reasonably certain to exercise that option
• Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
Right-of-use assets are measured at cost comprising the following:
• The amount of the initial measurement of the lease liability
• Any lease payments made at or before the commencement date less any lease incentives received
• Any initial direct costs
• An estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or site on which it is
located, less any lease incentives received
Subsequent measurement
Right-of-use assets are subsequently measured at cost less accumulated depreciation and impairment losses. They are depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. Depreciation starts at the commencement date of the lease.
The lease liability is measured at amortised cost using the effective interest rate method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be repayable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is remeasured in any way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Discount rate
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions. Generally, the Group uses the lessee’s incremental borrowing rate as the discount rate.
Short-term and leases of low-value assets
Payments associated with short-term leases of equipment and vehicles and all leases of low value assets are recognised on a straight- line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low value assets comprise IT equipment and small items of office furniture.
Lessor accounting
The Group is not part of lease contracts where it is the lessor.
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