MKH Annual Report 2020

105 MKH BERHAD 2. BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (CONT’D) (a) Statement of compliance (Cont’d) MFRS 16 Leases (Cont’d) The directors of the Company reviewed and assessed the Group’s operating lease commitment applying MFRS 117 as at 30 September 2019 and concluded that the initial application of MFRS 16 has had the following impact: The Group RM Operating lease commitments as at 30 September 2019 (Note 37(b)) 72,059,641 Effect of discounting the above amount (52,677,132) Less:  Leases of low-value assets (223,887)  Short-term leases (748,252) Lease liability recognised as at 1 October 2019 18,410,370 The Group recognised RM18,410,370 of right-of-use asset (Note 11) and lease liability (Note 31) in the Group’s statement of financial position as at 1 October 2019. The incremental borrowing rate of the Group applied to the lease liabilities as at 1 October 2019 at 4.51% per annum. The initial application of MFRS 16 has had no impact on the Group’s retained earnings as at 1 October 2019. No reclassification was made to prepaid land lease payments, which consist of leasehold lands (Note 13) upon the adoption of MFRS 16. Prepaid lease payments are upfront payments for right to use the leasehold land over a predetermined period stated at cost less accumulated amortisation and amortised over the lease term on a straight line basis. For lessor accounting, the application of MFRS 16 has had no impact on the Group’s financial statements. Standards and Amendments in Issue But Not Yet Effective At the date of authorisation for issue of these financial statements, the new and amendments to MFRSs which were in issue but not yet effective and not early adopted by the Group and the Company are as listed below: MFRS 17 Insurance Contracts 5 MFRSs Amendments to Reference to the Conceptual Framework in MFRS  Standards 1 Amendments to MFRS 3 Definition of a Business 1 Amendments to MFRS 3 Reference to the Conceptual Framework 4 Amendments to MFRS 10  and MFRS 128 Sale or Contribution of Assets between an Investor and its Associate  or Joint Venture 6 Amendments to MFRS 101 Classification of Liabilities as Current or Non-current 5 Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30 SEPTEMBER 2020