Asset Buyout Partners Annual Report 2020

The 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 defined in the contract. Extension options are included if it is reasonably 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. The average incremental borrowing rate applied for all leases is 6 %. The group applies the fair value model in IAS 40 to its investment properties. 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. For other leased assets, the right-of-use assets are initially measured at cost, comprising the amount of the initial measurement of lease liability in addition to any initial costs, restoration costs and lease payments made at or before the commencement date less any lease incentives received. 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. Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. 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 recognized on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less without a purchase option. Low-value assets comprise IT equipment and small items of office furniture. Amounts related to lease agreements are included in note 21. For lessor accounting, refer to section 2.13. 2.9. Financial instruments Recognition Financial instruments (financial assets and financial liabilities) are recognized when the Group becomes party to the contractual provisions of the instrument. Financial assets - Classification and measurement The Group classifies its financial assets in one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group’s accounting policy for each category is as follows: Fair value through profit or loss This category comprises in-the-money derivatives and out-of-money derivatives where the time value offsets the negative intrinsic value (see “Financial liabilities” section for out-of-money derivatives classified as liabilities). They are carried in the statement of financial position at fair value with changes in fair value recognized in the consolidated statement of comprehensive income in the finance income or expense line. Other than derivative financial instruments which are not designated as hedging instruments, the Group does not have any assets held for trading nor does it voluntarily classify any financial assets as being at fair value through profit or loss. Amortized cost These assets arise principally from the provision of goods and services to customers (“e.g.” trade receivables), but also incorporate other types of financial assets where the objective is to hold these assets in order to collect contractual cash flows and the contractual cash flows are solely payments of principal and interest. They are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortized cost using the effective interest rate method, less provision for impairment. Impairment provisions for expected losses on current and non-cur- rent trade receivables are recognized based on the simplified approach within IFRS 9. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognized within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. Material financial assets for the Group Trade receivables Trade receivables consist of amounts due from customers under the lease contracts for investment properties and are initially recognized at the amount of consideration that is unconditional, unless they contain significant financing components when they are recognized at fair value. If collection is expected within one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Cash and cash equivalents For the purpose of the balance sheet and presentation in the statement of cash flows, cash and cash equivalents consist solely of bank deposits. In the consolidated balance sheet, bank overdrafts are shown as borrowings in current liabilities. Derecognition Financial assets are derecognized when the right to receive cash flows from investments has expired or been transferred and the Group has substantially transferred all risks and rewards of ownership. Financial liabilities - Classification and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit and loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. Financial liabilities are initially recognized at fair value, and in the case of loans and borrowings and payables, net of incurred transaction costs. The Group’s financial Asset Buyout Partners | Annual Report 2020 22