Sasbadi Annual Report 2020

77 ANNUAL REPORT 2020 FINANCIAL STATEMENTS (continued) 2. Significant accounting policies (continued) (e) Leases (continued) Current financial year (continued) (ii) Recognition and initial measurement (a) As a lessee The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. 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 interest rate implicit in the lease or, if that rate cannot be readily determined, the respective Group entities’ incremental borrowing rate. Generally, the Group entities use their incremental borrowing rate as the discount rate. Lease payments included in the measurement of the lease liability comprise the following: x fixed payments, including in-substance fixed payments less any incentives receivable; x variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; x amounts expected to be payable under a residual value guarantee; x the exercise price under a purchase option that the Group is reasonably certain to exercise; and x penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The Group excludes variable lease payments that are linked to future performance or usage of the underlying asset from the lease liability. Instead, these payments are recognised in profit or loss in the period in which the performance or use occurs. The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight- line basis over the lease term.