MKH Annual Report 2020

104 FINANCIAL STATEMENTS ANNUAL REPORT 2020 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (a) Statement of compliance (Cont’d) MFRS 16 Leases (Cont’d) The Group applies the definition of a lease and related guidance set out in MFRS 16 to all lease contracts entered into or changed on or after 1 October 2019 and the new definition in MFRS 16 did not significantly change the scope of contracts that meet the definition of a lease for the Group. MFRS 16 changes how the Group accounts for leases previously classified as operating leases under MFRS 117, which are off balance sheet. Applying MFRS 16, the Group: (a) recognises right-of-use assets and leases liabilities in the Group’s statement of financial position, initially measured at the present value of the future lease payments, with the right-of-use assets adjusted by the amount of any prepaid or accrued lease payment in accordance with MFRS 16:C8(b)(ii); (b) recognises depreciation of right-of-use assets and interest on lease liabilities in the Group’s statement of profit and loss and other comprehensive income; and (c) separates the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within financing activities) in the Group’s statement of cash flows. The Group has adopted the following practical expedients when applying the cumulative catch-up approach to leases previously classified as operating leases applying MRFS 117: (a) single discount rate to a portfolio of leases with reasonably similar characteristics; (b) exclusion of initial direct costs from the measurement of the right-of-use assets at the date of initial application; (c) non-recognition of right-of-use assets and lease liabilities to leases which the lease term ends within 12 months of the days of initial application; (d) hindsight used when determining the lease term when the contract contains options to extend or terminate the lease; and (e) no separation of non-lease components, and account for the lease and associated non-lease components as a single arrangement. For short-term leases and leases of low-value assets, the Group has opted to recognise a lease expense on a straight-line basis as permitted by MFRS 16. This expense is presented within ‘Administrative expenses’ in the Group’s profit or loss. Under MFRS 16, right-of-use assets are tested for impairment in accordance with MFRS 136 Impairment of Assets . This replaces the previous requirement to recognise a provision for onerous lease contracts.