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2. Changes in accounting policies (continued)
(ii) The Group’s leasing activities and how these are accounted for

The Group’s leases are mainly rentals of offices. Rental contracts of offices are
typically made for fixed periods of 1 to 16 years. 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, but certain leased assets may
not be used as security for borrowing purposes.
Until the 2019 financial year, leases of office were classified as operating leases
and the payments made under operating leases were charged to profit or loss on
a straight-line basis over the period of the lease.

From 1 April 2019, leases are recognised as a right-of-use asset and a
corresponding liability at the date at which the leased asset is available for use
by the group. Each lease payment is allocated between the liability 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. The right-of-use asset is depreciated over the shorter of
the asset’s useful life and the lease term on a straight-line basis.

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)

• payments of penalties for terminating the lease, if the lease term reflects the
lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If
that rate cannot be determined, the lessee’s incremental borrowing rate is used,
being the rate that the lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value in a similar economic environment with similar
terms and conditions.

Right-of-use assets are measured at cost comprising the following:

– the amount of the initial measurement of lease liability,
– any lease payments made at or before the commencement date less any
lease incentives received,
– any initial direct costs, and

– restoration costs.

Payments associated with short-term leases and leases of low-value assets are
recognised on a straight-line basis as an expense in profit or loss.

Interim Report 2019 ALCO HOLDINGS LIMITED 11