Asset Buyout Partners Annual Report 2019

account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease. For leases with at lease term of 12 months or less and leases of low-value assets, the Group will recognize a lease expense on a straight-line basis as permitted by IFRS 16. The Group implemented IFRS 16 applying the modified retrospec- tive transition method. Under the modified retrospective transition method, the cumulative effect of initially applying the standard is recognized at the date of initial application. The effect of applying IFRS 16 as of 01.01.2019 was as follows: Investment properties 26 353 054 Property plant and equipment 5 556 576 Total equity 0 Non-current liabilities 29 705 647 Current liabilities 2 317 792 Property lease contracts The Group has analyzed all its contracts for use of ground and buildings to evaluate if they fulfil the criteria to qualify as leases according to IFRS 16. Lease liabilities are measured based on only fixed payments. Based on this analysis a limited number of contracts has been identified as lease contracts according to the standard. Lease liabilities are measured at the net present value of fixed lease payments due under the contract. The lease term corresponds to the non-terminable period. Extension options are included if it is reasona- bly certain that these options will be exercised. The discount rate used to calculate the lease liability is determined, for each asset, based on the Group’s incremental borrowing rate for leases with under 5 years until maturity. For leases of land the properties’ net yields are used as a basis for determinig the discount rate. The average incremental borrowing rate applied for all leases was 6.1%. The group applies the fair value model in IAS 40 to its investment properties, where the rental expenses under the property lease contracts until the implementation of IFRS 16 were included in the individual property’s assumed future cash flows. The leased properties meet the definition of investment properties in IAS 40, so the fair value model is applied to right-of-use assets associated with the property lease contracts. On the transition to IFRS 16, the Group elected to use the practical expedient to apply the short-term leases exemptions to leases with lease term that ends within 12 months of the date of initial application. Other leased assets The Group has made an analysis of all the lease contracts on other assets to evaluate if they fulfil the criteria to qualify and to account a lease according to IFRS 16. No other material leased assets were identified in this analysis. Short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liability are presented under Operating costs in the statement of comprehensive income. The impacts on the statement of comprehensive income in 2019 was the following: · Increase in lease revenue with 2.2 million relating to the treatment of cost of leased land. · Reduction of the rents included in administrative expenses of 1.9 million compared to accounting treatment in accordance with IAS 17 · Increase of depreciation included in administrative expenses of 1.8 million · 0.5 million in negative changes in the value of the right-of-use assets is included in Changes in value of investment property. · Financial expenses on the lease liabilities of 1.9 million is included in financial expenses b) New standards, interpretations and amendments not yet effective There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early. The Group does not expect any other standards issued by the IASB, but not yet effective to have a material impact on the group. 2.3. Consolidation Subsidiaries When the Group has control over an investee, the investee is classified as a subsidiary. The Group controls an investee if all the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Subsidiaries are deconsolidated from the date control ceases. When a property is acquired, through corporate acquisitions or otherwise, management considers the substance of the transaction in determining whether the acquisition represents an acquisition of a business or a purchase of an asset. All transactions up until the balance sheet date have been treated as purchase of assets. These transactions are not considered to be acquisition of businesses. The cost to purchase such assets is capitalized as a part of the cost for the acquired assets. Elimination of transactions Intercompany transactions, balances and unrealized gains and losses on transactions between group companies are eliminated. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Asset Buyout Partners | Annual Report 2019 21