Annual report and accounts 2023 - Flipbook - Page 168
A.G. BARR p.l.c. Annual Report and Accounts 2023
Notes to the Accounts continued
13. Leases continued
(iii) The Group’s leasing activities and how these are accounted for
The Group leases various offices, equipment and vehicles. Rental contracts are typically made for fixed periods of 12 months to 10 years, but may have extension options
as described in (iv).
Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their
relative stand-alone prices. However for leases for real estate for which the Group is a lessee, it has elected not to separate lease and non-lease components and instead
accounts for these as a single lease.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other
than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
• Fixed payments (including in-substance fixed payments), less any lease incentives receivable
• Variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date
• Amounts expected to be payable by the Group under residual value guarantees
• The exercise price of a purchase option if the Group is reasonably certain to exercise that option
• Payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group,
the lessee’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the
right-of-use asset in a similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Group:
• Where possible, uses recent third-party financing received by the Group as a starting point, adjusted to reflect changes in financing conditions since third-party financing
was received
• Uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk for leases
• Makes adjustments specific to the lease, e.g. term, country, currency and security
Lease payments are allocated between principal and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:
• The amount of the initial measurement of the lease liability
• Any lease payments made at or before the commencement date less any lease incentives received
• Any initial direct costs
• Restoration costs
Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
Payments associated with short-term leases of equipment and vehicles, and all leases of low-value assets, are recognised on a straight-line basis as an expense in the income
statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture.
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