243 ANNUAL REPORT 2022 ACCOUNTABILITY NOTES TO THE FINANCIAL STATEMENTS (CONT’D) For the financial year ended 31 January 2022 2. Summary of significant accounting policies (continued) 2.13 Leases (continued) (a) Accounting by lessee (continued) Lease term In determining the lease term, the Group considers all facts and circumstances that create an economic incentive to exercise an extension option, or not to exercise a termination 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 reassesses 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 below on reassessment of lease liabilities. ROU assets ROU 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. ROU assets are subsequently measured at cost, less accumulated depreciation and impairment loss (if any). The ROU assets are generally 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 ROU asset is depreciated over the underlying asset’s useful life. In addition, the ROU assets are adjusted for certain remeasurement of the lease liabilities. ROU assets are presented as part of property, plant and equipment in the statements of financial position of the Group and the Company. Lease liabilities Lease liabilities are initially measured at the present value of the lease payments that are not paid at that date. The lease payments include the following: - Fixed payments (including in-substance fixed payments), less any lease incentive receivable; - Variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date; - Amounts expected to be payable by the Group under residual value guarantees; - The exercise price of a purchase and extension options if the Group is reasonably certain to exercise that option; and - Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. Lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used. This is the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the ROU in a similar economic environment with similar term, security and conditions.
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