12. Right-of-use assets

Under IFRS 16, an agreement is a lease agreement or contains a lease component if it transfers the right to control the use of an identified asset for a given period in return for consideration.

The scope of application of IFRS 16 excludes lease agreements concerning exploration for or use of lignite deposits, including in particular agreements for establishing mining usufruct and perpetual usufruct of land, rental agreements and similar land lease agreements concerning mining pits, forelands and spoil heaps. In accordance with the Group’s interpretation, agreements concerning the exploitation of lignite deposits are excluded from the scope of application of IFRS 16.

The Group defines a lease term as an irrevocable period during which the lessee has the right of use the underlying asset, together with the following:

• periods for which the lease may be extended if it can be assumed with reasonable certainty that the lessee will exercise this right; and
• periods during which the lease may be terminated if it can be assumed with reasonable certainty that the lessee will not exercise this right.

In determining the lease term and estimating the length of the irrevocable lease term, the Group applies the definition of an  agreement and determines the term of an agreement’s enforceability. A lease ceases to be enforceable when both the lessee and the lessor have the right to terminate the lease agreement without the other party’s consent, with the consequence that a penalty is at most minor. The concept of a penalty includes all kinds of economic “disadvantages” that create barriers to terminating an agreement.

If only the lessee has the right to terminate the lease agreement, this right is regarded as an option for the lessee to terminate the lease agreement that the entity takes into account in determining the lease term. If only the lessor has the right to terminate the lease agreement, the irrevocable lease term covers the period covered by the option to terminate the lease agreement.

The lease term begins at the commencement date, i.e. when the underlying asset is made available for use by the lessee, and includes any rent-free periods granted by the lessor to the lessee.

At the lease commencement date, the Group takes into account all material facts and circumstances which create an economic incentive for the lessee to exercise or not to exercise the option to extend the lease, to purchase the underlying asset or not to exercise the option to terminate the lease.

The interest rate of the lease agreement is the interest rate that causes the present value of the lease payments and the unguaranteed residual value to equal the sum of the fair value of the underlying asset and any initial direct costs incurred by the lessor.

The lessee’s marginal rate of interest is the interest rate that the lessee would have to pay to borrow funds necessary to purchase an asset of a value similar to that of the asset under the right of use for a similar period, with similar security, and in a similar economic environment.

The lessee recognises an asset constituting the right of use an asset at the commencement date.

The Group, as a lessee, applies an exemption in respect of the recognition, measurement and presentation of the following:

• short-term leases, i.e. leases whose term is not longer than 12 months and which do not include a purchase option;
• leases for which the underlying asset is of low value and is not sub-leased. The Group recognises that the base asset has a low value (the value of a new asset regardless of the age of the leased asset) if it does not exceed the amount of PLN 18,000.

The choice of the exemption for short-term leases is made according to the base class of the asset to which the right of use applies. The Group takes advantage of the exemption for all concluded lease agreements. The choice of the exemption for leases where the underlying asset is of a low value is made in relation to individual leases.

At the commencement date, the lessee measures an asset constituting the right of use an asset at cost. The cost of an asset with the right of use should include the following:

• the amount of the initial measurement of the lease liability,
• any lease payments made on or before the commencement date, less any lease incentives received,
• any initial direct costs incurred by the lessee, and
• an estimate of the costs to be incurred by the lessee to dismantle and remove the underlying asset, to refurbish the site on which it is located, or to restore the underlying asset to the condition required by the lease terms, unless such costs are incurred for the purpose of creating inventories. The lessee assumes the obligation to cover these costs on the commencement date or as a result of using the underlying asset for a given period.

After the commencement date, the lessee measures an asset constituting the right of use an asset, applying a cost model. The lessee measures an asset constituting the right of use an asset at cost:

• less total depreciation (amortisation) and total impairment write-downs. Depreciation is charged throughout the lease term, from the moment an asset has been made available for use. No depreciation is made on the right of use an asset classified as fixed assets held for sale.
• adjusted for the revaluation of the liability (e.g. due to a change in lease payments).

For the particular groups of rights to use assets, the following ranges of economic useful lives are used: