McConnell Dowell 2020 Annual Review

69 Annual Review 2020 of initial application whether they contain a lease based on the AASB 16 criteria. Instead, contracts that were already classified as leases under AASB 117 or AASB Interpretation 4 continue to be classified as leases. Contracts that were not classified as leases under AASB 117 or AASB Interpretation 4 are also not classified as leases under AASB 16. The Group also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a remaining lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’). a) Effect of adoption of AASB 16 The Group has lease contracts for various occupancy related items, motor vehicles, office machines and other equipment. Before the adoption of AASB 16, the Group classified each of its leases (as lessee) at the inception date as either a finance lease or an operating lease. A lease was classified as a finance lease if it transferred substantially all of the risks and rewards incidental to ownership of the leased asset to the Group; otherwise it was classified as an operating lease. Finance leases were capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments were apportioned between interest (recognised as finance costs) and reduction of the lease liability. In an operating lease, the leased property was not capitalised and the lease payments were recognised as rent expense in profit or loss on a straight-line basis over the lease term. Any prepaid rent and accrued rent were recognised under Prepayments, Trade and other payables or Provisions. Comparative amounts reflect this accounting. The standard provides specific transition requirements and practical expedients, which have been applied by the Group. Leases previously classified as finance leases The Group did not change the initial carrying amounts of recognised assets and liabilities at the date of initial application for leases previously classified as finance leases (i.e., the right- of-use assets and lease liabilities equal the lease assets and liabilities recognised under AASB 117). The requirements of AASB 16 was applied to these leases from 1 July 2019. Leases previously accounted for as operating leases The Group recognised right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. The right-of-use assets were recognised based on the amount equal to the lease liabilities, adjusted for any related prepaid and accrued lease payments previously recognised. Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application. The Group also applied the available practical expedients wherein it: • Used a single discount rate to a portfolio of leases with reasonably similar characteristics • Applied the short-term leases exemptions to leases with lease term that ends within 12 months at the date of initial application • Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application • Used hindsight in determining the lease termwhere the contract contains options to extend or terminate the lease • Relied on its assessment as to whether leases are onerous applying AASB 137 Provisions, Contingent Liabilities and Contingent Assets immediately before the date of initial application as an alternative to performing an impairment review. Based on the above, as at 1 July 2019: • Right-of-use assets of $27.4 million were recognised and presented Property, Plant and Equipment in the statement of financial position. • Additional lease liabilities of $27.4 million (included in Interest bearing liabilities) were recognised. Reconciliation of lease commitments at 30 June 2019 to lease liabilities (excluding asset-backed financing arrangements) at 1 July 2019 A$ 000 Operating lease commitments disclosed as at 30 June 2019 27,812 Recognition exemption for: Short-term leases recognised on a straight- line basis as an expense Low-value leases recognised on a straight- line basis as an expense Contracts reassessed as lease contracts Finance Lease Liabilities Discounted using the lessee’s weighted average incremental borrowing rate at the transition date (1,024) (45) 4,737 204 (4,242) Lease liability recognised as at 1 July 2019 27,442 Of which are: Current lease liabilities Non-current lease liabilities 12,517 14,925 27,442 AASB Interpretation 23 - Uncertainty over Income Tax Treatment The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects AASB 112. The interpretation specifically addresses the following: • Whether an entity considers uncertain tax treatments separately • The assumptions an entity makes about the examination of tax treatments by taxation authorities