Hexagon Annual Report 2019

• 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 an option to terminate the lease. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications, or to reflect adjustments in lease payments due to an adjustment in an index or rate. The Group does not include variable lease payments in the lease liability. Instead, the Group recognizes these variable lease expenses in profit or loss. The Group presents its lease liabilities as separate line items in the statement of financial position. The Group measures the right-of use asset at cost, less any accumulated depreciation and impairment losses, adjusted for any remeasurement of lease liabilities. The cost of the right-of-use asset comprise: Right-of-use assets • The amount of the initial measurement of the lease liability recognized • Any lease payments made at or before the commencement date, less any incentives received • Any initial direct costs incurred by the Group. An estimate of the costs to be incurred by the Group in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. The Group applies the depreciation requirements in IAS 16 Property, Plant and Equipment in depreciating the right-of-use asset, except that the right-of-use asset is depreciated from the commencement date to the earlier of the lease term and the remaining useful life of the right-of-use asset, unless there is an option to purchase the asset which has been determined to be exercised with reasonably certainty, in which case the right of use asset is depreciated over the expected economic life of the underlying asset. The Group applies IAS 36 Impairment of Assets to determine whether the right-of-use asset is impaired and to account for any impairment loss identified. Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned. The Group as a lessor Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. 2.11 BORROWING COST A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. 2.12 FINANCIAL INSTRUMENTS Financial asset The Group’s financial assets are derivatives, non-listed equity instruments, trade receivables and cash and cash equivalents. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. • Financial assets at amortized cost • Financial assets at fair value through OCI with recycling of cumulative gains and losses • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition • Financial assets at fair value through profit and loss The Group classified its financial assets in four categories: Financial assets at amortized cost The Group measures financial assets at amortized cost if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows and, 12 98 2019 AT A GLANCE FROM THE BOARD ROOM FINANCIAL STATEMENTS