GHL System Berhad Annual Report 2019

A N N U A L R E P O R T 2 0 1 9 111 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2019 CONT’D 13. RIGHT-OF-USE ASSETS AND LEASE LIABILITIES (cont’d) (a) The right-of-use assets under property, plant and equipment are initially measured at cost, which comprise the initial amount of the lease liabilities adjusted for any lease payments made at or before the commencement date of the leases. After initial recognition, right-of-use assets are stated at cost less accumulated depreciation and any accumulated impairment losses, and adjusted for any re-measurement of the lease liabilities. The right-of-use assets are depreciated on a straight-line basis over the earlier of the estimated useful lives of the right-of-use assets of the end of the lease term. The lease terms of right-of-use assets are as follows: Long term leasehold land 99 years Buildings 2 - 6 years Office equipment 5 - 6 years Motor vehicles 5 years (b) As at the end of the reporting period, long term leasehold land with the carrying amount of RM465,067 (2018: RM470,538) have been charged to a bank for credit facilities to the Group as disclosed in Note 25 to the financial statements. (c) The Group and the Company determine the lease term of a lease as the non-cancellable period of the lease, together with periods covered by an option to extend or to terminate the lease if the Group and the Company reasonably certain to exercise the relevant options. Management has considered the relevant facts and circumstances that create an economic incentive for the Group and the Company to either exercise the option to extend the lease, or to exercise the option to terminate the lease. Any differences in expectations from the original estimates would impact the carrying amounts of the lease liabilities of the Group and of the Company. The lease payments are discounted using the annual incremental borrowing rate of the Group and of the Company in range of 3.93% to 8.82% and 3.96% respectively. (d) The Group and the Company have certain leases with lease term less than 12 months, and low value leases of office equipment of RM20,000 and below. The Group and the Company apply the “short-term lease” and “lease of low-value assets” exemptions for these leases. (e) The following are the amounts recognised in profit or loss: Group Company 2019 2019 RM RM Depreciation charge of right-of-use assets (included in administrative expenses) 5,592,026 147,866 Interest expense on lease liabilities (included in finance costs) 1,180,222 12,801 Expense relating to short-term leases (included in administrative expenses) 828,102 - Expense relating to leases of low-value assets (included in administrative expenses) 38,540 4,100 7,638,890 164,767 (f) The Group leases several lease contracts that include extension and termination options. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. Management exercises significant judgement in determining whether these extension and termination options are reasonably certain to be exercised. As at 31 December 2019, there is no undiscounted potential future rental payments that are not included in the lease term.