12. Right-of-use assets

As defined in IFRS 16, an arrangement is, or contains, a lease if it transfers the right to control the use of an identified asset for a specified period in exchange for consideration.

The scope of application of IFRS 16 excludes leases relating to the exploration for or exploitation of lignite deposits, including in particular agreements to establish mining usufruct and perpetual usufruct of land, lease agreements and similar land lease agreements relating to mine workings, forefields and spoil tips. In accordance with the Group’s interpretation, lignite mining contracts are excluded from the scope of IFRS 16.

The Group defines the lease term as an irrevocable period over which the lessee has the right to use the underlying asset, along with:

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

In determining the lease term and estimating the length of the irrevocable lease term, the Group applies the contract definition and determines the enforceability period of the contract. A lease ceases to be enforceable when both the lessee and the lessor have the right to terminate the lease without the consent of the other party, resulting at most in a minor penalty. The notion of penalty includes all kinds of „disadvantages” of an economic nature, creating barriers to exit from the contract.

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

The lease term begins on the inception date (when the underlying asset is made available for use by the lessee) and includes any rent-free periods granted to the lessee by the lessor.

At the inception of the lease, the Group takes into account all relevant facts and circumstances that create an economic incentive for the lessee to exercise or not to exercise the option to renew the lease, the option to purchase the underlying asset or the option to terminate the lease.

The lease rate is an interest rate that causes the present value of the lease payments and the non-guaranteed 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 interest rate is the interest rate the lessee would have to pay to borrow, for a similar term and with similar security, the funds necessary to purchase an asset of similar value to the right-of-use asset in a similar economic environment.

The lessee recognises the right-of-use asset on the inception date.

As a lessee, the Group applies a recognition, measurement and presentation exemption to:

• short-term leases, i.e. leases of which the lease term is not longer than 12 months and which do not contain a call option;
• leases in respect of which the underlying asset is of low value and which are not subleased. The Group considers the value of the underlying asset to be low (the value of a new asset regardless of the age of the leased asset) if it does not exceed PLN 18 thousand.

As a lessee, the Group applies a recognition, measurement and presentation exemption to:

• short-term leases, i.e. leases of which the lease term is not longer than 12 months and which do not contain a call option;
• leases in respect of which the underlying asset is of low value and which are not subleased. The Group considers the value of the underlying asset to be low (the value of a new asset regardless of the age of the leased asset) if it does not exceed PLN 18 thousand.

The exemption for short-term leases is selected by class of the underlying asset to which the right of use relates. The Group benefits from this exemption for all contracts entered into. Where the underlying asset is of low value, it selects the exemption on a lease-by-lease basis.

At the inception date, the lessee measures the right-of-use asset at cost. The cost of a right-of-use asset should include:

• the amount of the initial measurement of the lease liability,
• any lease payments paid on or before the inception 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, renovate the site on which it is located or renovate the underlying asset to the condition required by the terms of the lease, unless those costs are incurred to produce inventories. The lessee assumes the obligation to pay these costs at the inception date or as a result of using the underlying asset for a given period.

Subsequent to the inception date, the lessee measures the right-of-use asset using the cost model. The lessee measures the right-of-use asset at cost:

• less accumulated depreciation (amortisation) and accumulated impairment losses. Depreciation is charged over the life of the lease, from the moment the asset is put in service. No depreciation is charged on the right-of-use classified as non-current assets held for sale.
• adjusted for the revaluation of the liability (e.g. as a result of changes in lease payments).