SBN HOLDINGS LIMITED Annual Report 2022

166 ANNEXURE D - DETAILED ACCOUNTING POLICIES continued 7. Property developments and properties in possession 9. Leases - lessee accounting policies Property developments and properties in possession Leases 8. Property developments Properties in possession Finance leases Operating leases SBN HOLDINGS LIMITED Annual report 2022 167 Property developments Property developments are stated at the lower of cost or net realisable value. Cost is assigned by specific identification and includes the cost of acquisition and where applicable, development and borrowing costs during development. Properties in possession Properties in possession are properties acquired by the group which were previously held as collateral for underlying lending arrangements that, subsequent to origination, have defaulted. The properties are initially recognised at cost and are subsequently measured at the lower of cost and its net realisable value. Any subsequent write-down in the value of the acquired properties is recognised as an operating expense. Any subsequent increases in the net realisable value, to the extent that it does not exceed its original cost, are also recognised within operating expenses. Equity-linked transactions Equity compensation plans Equity-settled share-based payments Cash-settled share-based payments Equity-settled share-based payments The fair value of the equity-settled share-based payments are determined on grant date and accounted for within operating expenses (staff costs) over the vesting period with a corresponding increase in the group's share-based payment reserve. Non- market vesting conditions, such as the resignation of employees and retrenchment of staff, are not considered in the valuation but are included in the estimate of the number of options expected to vest. At each reporting date, the estimate of the number of options expected to vest is reassessed and adjusted against operating expenses and share-based payment reserve over the remaining vesting period. On vesting of the equity-settled share-based payments, amounts previously credited to the share-based payment reserve are transferred to retained earnings through an equity transfer. On exercise of the equity-settled share-based payment, any proceeds received are credited to share capital and premium. Cash-settled share-based payments Cash-settled share-based payments are accounted for as liabilities at fair value until the date of settlement. The liability is recognised over the vesting period and is revalued at every reporting date up to and including the date of settlement. All changes in the fair value of the liability are recognised in operating expenses. Lessee Lessor Statement of financial position Type and description Lessee accounting policies Single lessee accounting model All leases are accounted for by recognising a right-of- use asset and a lease liability except for: ■leases of low value assets; and ■leases with a duration of twelve months or less. Lease liabilities: Lessee Lessor Initially measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate implicit in the lease unless (as is typically the case for the group) this is not readily determinable, in which case the group's incremental borrowing rate on commencement of the lease is used. The group's internal funding rate is the base on which the incremental borrowing rate is calculated. Variable lease payments are only included in the measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to which they relate. On initial recognition, the carrying value of the lease liability also includes: ■Amounts expected to be payable under any residual value guarantee; ■The exercise price of any purchase option granted in favour of the group, should it be reasonably certain that this option will be exercised; ■ Any penalties payable for terminating the lease, should the term of the lease be estimated on the basis of this termination option being exercised. Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets: Initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for: ■lease payments made at or before commencement of the lease; ■initial direct costs incurred; and ■the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset. The group applies the cost model subsequent to the initial measurement of the right-of-use assets. Termination of leases: When the group or lessor terminates or cancels a lease, the right-of-use asset and lease liability are derecognised. Income statement Interest expense on lease liabilities: A lease finance cost, determined with reference to the interest rate implicit in the lease or the group's incremental borrowing rate, is recognised within interest expense over the lease period. Depreciation on right-of-use assets: Subsequent to initial measurement, the right of use assets are depreciated on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset should this term be shorter than the lease term unless ownership of the underlying asset transfers to the group at the end of the lease term, whereby the right- of-use assets are depreciated on a straight- line basis over the remaining economic life of the asset. This depreciation is recognised as part of operating expenses. Termination of leases: On derecognition of the right-of-use asset and lease liability, any difference is recognised as a derecognition gain or loss in profit or loss.

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