Wah Seong Corporation Berhad Annual Report 2020

102 WAH SEONG CORPORATION BERHAD NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2020 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.8 Leases The Group recognises leases as right-of-use asset and a corresponding liability at the date on which the leased asset is available for use (i.e. the commencement date). Accounting as lessee (a) Lease term The Group leases various offices, warehouses and motor vehicles. Rental contracts are typically made for fixed periods of 2 to 17 years, but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. Extension and termination options are included in a number of property leases across the Group. These are used to maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. In determining the lease term, the Group considers all facts and circumstances that create an economic incentive on whether to exercise an extension option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not to be terminated). The Group reassess the lease term upon the occurrence of a significant event or change in circumstances that is within the control of the Group and affects whether the Group is reasonably certain to exercise an option not previously included in the determination of lease term, or not to exercise an option previously included in the determination of lease term. A revision in lease term results in remeasurement of the lease liabilities – see accounting policy 2.8(d). (b) Right-of-use assets Right-of-use assets are initially measured at cost comprising the following:  the amount of the initial measurement of lease liability;  any lease payments made at or before the commencement date less any lease incentive received;  any initial direct costs; and  decommissioning or restoration costs. Right-of-use assets are subsequently measured at cost, less accumulated depreciation and impairment loss. The right-of-use assets 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. In addition, the right-of-use assets are adjusted for certain remeasurement of the lease liabilities. Right-of-use assets are depreciated over the remaining period of the respective leases ranging from 1 to 95 years (2019:1 to 96) years.