2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) 2.3 Summary of significant accounting policies (cont’d.) (o) Leases A contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for a consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group and the Corporation assess whether: • the contract involves the use of an identified asset – this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified; • the customer has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and • the customer has the right to direct the use of the asset when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used. The customer has the right to direct the use of the asset if either the customer has the right to operate the asset; or the customer designed the asset in a way that predetermines how and for what purpose it will be used throughout the period of use. At inception or on reassessment of a contract that contains a lease component, the Group and the Corporation allocate the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. Group and Corporation as a lessee Initial recognition and measurement The Group and the Corporation recognise a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the respective Group entities’ incremental borrowing rate is used. Generally, the Group entities use their incremental borrowing rate as the discount rate. 2. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.) 2.3 Summary of significant accounting policies (cont’d.) (o) Leases (cont’d.) Group and Corporation as a lessee (cont’d.) Initial recognition and measurement (cont’d.) Lease payments included in the measurement of the lease liability comprise the following: • fixed payments, including in-substance fixed payments; • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; • amounts expected to be payable under a residual value guarantee; • the exercise price under a purchase option that the Group and the Corporation are reasonably certain to exercise; and • penalties for early termination of a lease unless the Group and the Corporation are reasonably certain not to early terminate the contract. The Group and the Corporation exclude variable lease payments that linked to future performance or usage of the underlying asset from the lease liability. Instead, these payments are recognised in profit or loss in the period in which the performance or use occurs. The Group and the Corporation assess at lease commencement whether it is reasonably certain to exercise the extension options in determining the lease term. The Group and the Corporation have elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The Group and the Corporation recognise the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Group and the Corporation present right-of-use assets that do not meet the definition of investment property in ships, offshore floating assets, other property, plant and equipment as disclosed in Note 14 and lease liabilities in interest-bearing loans and borrowings as disclosed in Note 20(c). NOTES TO THE FINANCIAL STATEMENTS 31 December 2021 NOTES TO THE FINANCIAL STATEMENTS 31 December 2021 MISC Berhad 324 Integrated Annual Report 2021 MISC Berhad Integrated Annual Report 2021 325 FINANCIAL STATEMENTS FINANCIAL STATEMENTS
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