Arla Foods Consolidated Annual Report 2021
88
Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes
Capital employed
3.2 PROPERTY, PLANT AND EQUIPMENT
3.2.1 Right of use assets
and
FINANCIAL COMMENTS
Arla leases various offices, warehouses, vehicles and
other equipment. Leases are typically agreed for a
fixed duration, but may include an extension option.
Significant right of use assets include office buildings and
warehouses in Denmark, Germany, Sweden and the UK
with remaining useful lives between 10 and 20 years.
Filling machinery and other technical plants represent
another major right of use asset category. Filling
machines typically have useful lives of seven years,
whereas other technical plants are depreciated
between one and seven years. Cars and trucks have on
average useful lives of four and five years, respectively.
In total, the group has approximately 4,000 leases.
Additions to right of use assets during the year amounted
to EUR 69 million, compared to EUR 102 million last year.
The total carrying amount of right of use assets was EUR
230 million, compared to EUR 229 million last year, as
specified in table 3.2.1.a. Lease liabilities are specified in
Note 4.3.
Table 3.2.1.b Amounts recognised in the income statement
(EURM)
Expenses related to short-term and low-value leases
Interest expenses on lease liabilities
Total amounts recognised in the income statement
Payment of lease debt
Total cash outflow from right of use assets
Table 3.2.1.a Right of use assets
(EURM)
Land and
buildings
Fixtures and
Plant and fittings, tools
machinery and equipment
Total
2021
Carrying amount at 1 January
136
13
80
Additions
30
4
35
229
69
Disposals
-5
-7
-18
-30
Depreciation and amortisation for the year
-31
Depreciation on disposals
5
Exhange rate adjustments
6
Carrying amount at 31 December
141
9618
-9
-34
-74
.
16
2
27
9
81
230
2020
Carrying amount at 1 January
109
Additions
55
Disposals
-8
Depreciation and impairment for the year
-23
-10
Depreciation on disposals
5
218006
4
43
-8
78 5 19 7
208
102
-35
-34
-67
13
24
Exhange rate adjustments
-2
-1
-3
Carrying amount at 31 December
136
13
80
229
Contents
2021
2020
38
39
7
8
45
47
73
67
118
114
Accounting policies
Leases are typically agreed for a fixed duration, but may
have an option to extend at a future date. All leases are
recognised as a right of use asset and a corresponding
liability at the date at which the leased asset is available
for use by the group.
A lease liability is initially measured on a present value basis,
which comprises the net present value of the following:
• fixed lease payments (including in-substance fixed
payments), less any lease incentives receivable
⚫ variable lease payments based on an index or a rate
• amounts expected to be payable by the group under
residual value guarantees
⚫the exercise price of a purchase option if the group is
reasonably certain to exercise that option, and
payments of penalties for terminating the lease, if the
group is reasonably certain to exercise that exit option.
The lease payments are discounted using an incremental
borrowing rate, being the rate that the group would
have to pay to borrow the funds necessary to obtain an
asset of similar value in a similar economic environment
with similar terms and conditions.
The corresponding right of use asset is measured at
cost comprising the following:
⚫ the amount of the initial measurement of the lease
liability
⚫ any lease payments made at or before the com-
mencement date less any lease incentives received
⚫ any initial direct costs, and restoration costs.
The right of use asset is subsequently depreciated over
the shorter of the asset's useful life and the lease term
on a straight-line basis. In addition, the value of the right
of use asset is adjusted for certain remeasurements of
the lease liability.
Each lease payment comprises a reduction of the lease
liability and a finance cost. The finance cost is charged
to profit or loss over the lease period to produce a
constant periodic rate of interest on the remaining
balance of the liability for each period.
Short-term leases and leases of low-value assets are
recognised as an expense in the income statement.
Short-term leases have a lease term of less than one
year. Low-value assets have an individual value of less
than EUR 5 thousand.
40
Uncertainties and estimates
The group has applied estimates and judgements with
an impact on the recognition and measurement of
right of use assets and lease liabilities. This includes an
assessment of the incremental borrowing rate, service
components and facts and circumstances that could
create an economic incentive to utilise the extension
options of lease arrangements.
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