MISC Integrated Annual Report 2020

2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D. ) 2.3 Summary of significant accounting policies (cont’d.) (o) Leases (cont’d.) Group and Corporation as a lessee (cont’d.) Subsequent measurement The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of ships, offshore floating assets, and other PPE. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is measured at amortised cost using the effective interest 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 revision of in-substance fixed lease payments, or if there is a change in the Group’s and the Corporation’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group and the Corporation change their assessment of whether they will exercise a purchase, extension or termination option. The Group and the Corporation will reassess whether it is reasonably certain to exercise the extension option if there is a significant change in circumstances within their control. When the lease liability is remeasured as described in the above paragraph, 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. When there is lease modification due to increase in the scope of lease by adding the right-to-use one or more underlying assets, the Group and the Corporation assess whether the lease modification shall be accounted for as a separate lease or similar to reassessment of lease liability. The Group and the Corporation account for lease modification as a separate lease when the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope and any appropriate adjustments. When there is lease modification due to decrease in scope, the Group and the Corporation decrease the carrying amount of the right-of-use asset and remeasure the lease liability to reflect the partial or full termination of the lease. The corresponding gain or loss shall be recognised in income statement. Lease liabilities are remeasured for all other lease modifications with corresponding adjustments to the right-of-use assets. 2. SIGNIFICANT ACCOUNTING POLICIES (CONT’D. ) 2.3 Summary of significant accounting policies (cont’d.) (o) Leases (cont’d.) Group and Corporation as a lessor Initial recognition and measurement When the Group and the Corporation act as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Group and the Corporation make an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. If an arrangement contains lease and non-lease components, the Group and the Corporation apply MFRS 15 Revenue from Contracts with Customers to allocate the consideration in the contract based on the stand-alone selling price. The Group and the Corporation recognise assets held under a finance lease in its statement of financial position and presents them as a receivable at an amount equal to the net investment in the lease. The Group and the Corporation use the interest rate implicit in the lease to measure the net investment in the lease. When the Group or the Corporation is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group or the Corporation apply the exemption described above, then it classifies the sub-lease as an operating lease. Subsequent measurement The Group and the Corporation recognise lease payments received under operating leases as income on a straight- line basis over the lease term. In the case of a finance lease, the Group and the Corporation recognise finance income over the lease term, based on a pattern reflecting a constant periodic rate of return on the Group’s and the Corporation’s net investment in the lease. The Group and the Corporation aim to allocate finance income over the lease term on a systematic and rational basis. The Group and the Corporation apply the lease payments relating to the period against the gross investment in the lease to reduce both the principal and the unearned finance income. The net investment in the lease is subject to impairment requirements in MFRS 9 Financial Instruments as per Note 2.3(m). 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 31 December 2020 NOTES TO THE FINANCIAL STATEMENTS 10 348 10 349 /// Leadership / Governance / Financial Statements / Additional Information / Annual General Meeting ////// /// Leadership / Governance / Financial Statements / Additional Information / Annual General Meeting ////// Section Section MISC Berhad / Integrated Annual Report 2020 MISC Berhad / Integrated Annual Report 2020