Annual Financial Statements 2020
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ANNEXURE E - DETAILED ACCOUNTING POLICIES 3. FINANCIAL INSTRUMENTS CONTINUED
STANDARD BANK NAMIBIA LIMITED
Annual financial statements 2020
9. Leases Lessee accounting policies
-
Type and description
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.
Statement of financial position
Lessee accounting policies
Lease liabilities:
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 company) this is not
readily determinable, in which case the company's
incremental borrowing rate on commencement of
the lease is used. The company'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 company, 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 company applies the cost model subsequent to
the initial measurement of the right-of-use assets.
Termination of leases:
When the company 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 company'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 company 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.
Type and description
All leases that meet
the criteria as either
a lease of a low value
asset or a short term
lease are accounted
for on a straight-line
basis over the lease
term.
Reassessment and
modification of
leases
Finance leases
Leases, where the
company transfers
substantially all the
risk and rewards
incidental to
ownership, are
classified as finance
leases
Operating leases
All leases that do not
meet the criteria of a
financial lease are
classified as
operating leases.
Statement of financial position
Income statement
Lessee accounting policies continued
Accruals for unpaid lease charges, together with
a straight-line lease asset or liability, being the
difference between actual payments and the
straight-line lease expense are recognised.
Payments made under these leases, net of any
incentives received from the lessor, are
recognised in operating expenses on a straight-
line basis over the term of the lease. When these
leases are terminated before the lease period has
expired, any payment required to be made to the
lessor by way of a penalty is recognised as
operating expenses in the period in which
termination takes place.
Reassessment of lease terms and lease modifications that are not accounted for as a
separate lease:
When the company reassesses the terms of any lease (i.e. it re-assesses the probability of exercising
an extension or termination option) or modifies the terms of a lease without increasing the scope of
the lease or where the increased scope is not commensurate with the stand-alone price, it adjusts the
carrying amount of the lease liability to reflect the payments to be made over the revised term, which
are discounted at the applicable rate at the date of reassessment or modification. The carrying amount
of lease liability is similarly revised when the variable element of future lease payments dependent on a
rate or index is revised.
For reassessments to the lease terms, an equivalent adjustment is made to the carrying amount of the
right-of-use asset, with the revised carrying amount being depreciated over the revised lease term.
However, if the carrying amount of the right-of-use asset is reduced to zero any further reduction in the
measurement of the lease liability is recognised in profit or loss.
For lease modifications that are not accounted for as a separate lease, an equivalent adjustment is
made to the carrying amount of the right-of-use asset, with the revised carrying amount being
depreciated over the revised lease term. However, for lease modifications that decrease the scope of
the lease the carrying amount of the right-of-use asset is decreased to reflect the partial or full
termination of the lease, with any resulting difference being recognised in profit or loss as a gain or loss
relating to the partial or full termination of the lease.
Lease modifications that are accounted for as a separate lease:
When the company modifies the terms of a lease resulting in an increase in scope and the
consideration for the lease increases by an amount commensurate with a stand-alone price for the
increase in scope, the company accounts for these modifications as a separate new lease. This
accounting treatment equally applies to leases which the company elected the short-term lease
exemption and the lease term is subsequently modified.
Lessor accounting policies
Finance lease receivable, including initial direct
costs and fees, are primarily accounted for as
financing transaction in backing activities, with
rentals and instalments receivable, less unearned
finance charges, being included in loans and
advances.
The asset underlying the lease continues to be
recognised and accounted for in terms of the
relevant accounting policies. Accruals for
outstanding lease charges, together with a
straight-line lease asset or liability, being the
difference between actual payments and the
straight-line lease income are recognised.
Finance charges earned within interest income
are computed using the effective interest
method, which reflects a constant periodic rate of
return on the investment in the finance lease. The
tax benefits arising from investment allowances
on assets leased to clients are accounted for
within direct taxation.
Operating lease income net of any incentives
given to lessees, is recognised on the straight-line
basis, or a more representative basis where
applicable, over the lease term and is recognised
in operating income.
When an operating lease is terminated before the
lease period has expired, any payment received/
(paid) by the company by way of a penalty is
recognised as income/(expense) in the period in
which termination takes place.
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