| CIM FINANCE. INTEGRATED REPORT 2022 116 EXPLANATORY NOTES 30 SEPTEMBER 2022 2. A CCOUNTING POLICIES (CONT’D) 2.7 Significant accounting policies (Cont’d) (h) Leases Accounting for leases - where Company is the lessor Lease income from leases where the Group and the Company are a lessor is recognised in income on a straight line basis over the lease term. Initial direct costs incurred in obtaining the lease are added to the carrying amount of the underlying asset and recognised as expense over the lease term on the same basis as lease income. The respective leased assets are included in the balance sheet based on their nature. Accounting for leases - where Company is the lessee From 1 October 2019, all leases are accounted for by recognising a right-of-use asset and a lease liability, except for: • Leases of low value assets; and • Leases with a duration of 12 months or less. Identifying Leases The Group and the Company account for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a period of time in exchange for consideration. Leases are those contracts that satisfy the following criteria: a) There is an identified asset; b) The Group and the Company obtain substantially all the economic benefits from use of the asset; and c) The Group and the Company have the right to direct use of the asset. The Group and the Company consider whether the supplier has substantive substitution rights. If the supplier does have those rights, the contract is not identified as giving rise to a lease. In determining whether the Group and the Company obtain substantially all the economic benefits from use of the asset, the Group and the Company consider only the economic benefits that arise from the use of the asset, not those incidental to legal ownership or other potential benefits. In determining whether the Group and the Company have the right to direct use of the asset, the Group and the Company consider whether it directs howand for what purpose the asset is used throughout the period of use. If there are no significant decisions to bemade because they are pre-determined due to the nature of the asset, the Group and the Company consider whether it was involved in the design of the asset in a way that predetermines how and for what purpose the asset will be used throughout the period of use. If the contract or portion of a contract does not satisfy these criteria, the Group and the Company apply other applicable IFRSs rather than IFRS 16. Measuring Leases Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which case the group’s incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate. On initial recognition, the carrying value of the lease liability also includes: • amounts expected to be payable under any residual value guarantee; • the exercise price of any purchase option granted in favour of the Company/Group if it is reasonably certain to assess that option; • any penalties payable for terminating the lease, if the termof the lease has been estimated on the basis of termination option being exercised.
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