75.2. Leases – lessee

Lease agreements or agreements containing a lease according to the Group’s classification include agreements under which the Group:

• obtains the right of use of the identified asset and the supplier’s ability to substitute an alternative asset is not significant; and
• has the right to obtain substantially all economic benefits from the right of use throughout the period of use; and
• has the right to direct the use of the identified asset over the period of use, when:
  • the Group has the right to direct how and for what purpose the asset is used throughout the period of use; or
  • the relevant decisions about how and for what purpose the asset is used are The Group applies exceptions and does not recognize right-of-use assets and liabilities with respect to:
• short-term leases, which include agreements without an option to buy an asset, concluded for a period not exceeding 12 months from the commencement of the agreement, in particular agreements concluded for an indefinite period with a short (up to 12 months) notice period, without significant penalties, which include in particular leasehold improvements incurred and relocation costs;
• low-value leases (an asset’s value is lower than PLN 20,000, determined based on the value of a new asset, regardless of the age of the leased asset), excluding agreements for rental of space.

The Group initially measures lease liabilities at the present value of the lease payments outstanding as at that date. The amount of the lease liability is affected by:

• fixed payments less any lease incentives payable;
• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
• any residual guarantees expected from the lessee;
• the exercise price of a purchase option if the probability that the Group would exercise that option is higher than 50%;
• payments of penalties for terminating the lease, if the lease agreement contains an option for the Group to terminate the lease as a lessee.

The Group does not classify variable fees that depend on external factors as lease payments. After initial recognition the Group’s lease liabilities are measured at amortized cost.

The Group records revaluation of lease liabilities as an adjustment to the right-of-use asset. If as a result of remeasurement the carrying amount of the right-of-use asset is reduced to zero and the lease liability is further reduced, the Group recognizes the remaining amount of the remeasurement as a profit or loss.

The Group’s lease liability is presented under “Other liabilities”, line item “Lease liabilities”.

The Group initially measures the right-of-use assets, presented under “Property, plant and equipment” at cost, which comprises:

• 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 incurred by the

The Group subsequently measures the right-of-use asset at cost less accumulated depreciation (depreciation calculated under the straight-line method) and accumulated impairment losses, adjusted for any remeasurement of the lease liability.

To discount future lease payments, the Group applies discount rates that:

• are calculated based on yield curves reflecting the cost of financing in a given currency;
• cover the tenor of the longest lease contract subject to measurement and reflecting – for a given currency – a fixed market interest rate and the Group’s cost of financing (the tenors of the lease agreements are within the range from 1 to 99 years);
• have been read from the curve for maturity corresponding to one-half of the maturity of the lease The Group performs quarterly updates of the incremental borrowing rate for lease agreements.

The Group applies the same discount rates for the portfolio of car leases and property leases, including rights to perpetual usufruct of land, taking into account the impact of the lease security on the discount rate applied.

The Group recognizes the lease payments relating to short-term and low-value leases as cost using the straight-line method, over the term of the lease. The differences between the amounts paid and those arising from the straight- line recognition of the costs are recorded as prepayments or accruals.