47153 AG Barr Annual Report 2025 AW4 SQ WEB - Flipbook - Page 167
Strategic Report
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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.
(iv) Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the Group. These are used to maximise operational flexibility in terms
of managing the assets used in the Group’s operations. The majority of extension and termination options are exercisable only by the Group and not by the respective lessor.
(v) Residual value guarantees
To optimise lease costs during the contract period, the Group sometimes provides residual value guarantees in relation to equipment leases.
The Group initially estimates and recognises amounts expected to be paid under residual value guarantee as part of the lease liability. Typically, the expected residual value
at lease commencement is equal to or higher than the guaranteed amount, so the Group does not expect to pay anything under the guarantees.
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