Page 130 - Urban Renewal Authority 2023-24 Annual Report

NOTES TO THE FINANCIAL STATEMENTS

(expressed in Hong Kong Dollars)

2. Material accounting policies (Continued)

(j) Leased assets
(i) As a lessee
At inception of a contract, the Group assesses whether the contract is, or contains, a lease. A
contract is, or contains, a lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration. Control is conveyed where
the customer has both the right to direct the use of the identified asset and to obtain
substantially all of the economic benefits from that use.

At the lease commencement date, the Group recognises a right-of-use asset and a lease
liability, except for short-term leases that have a lease term of 12 months or less and leases of
low-value assets. When the Group enters into a lease in respect of a low-value asset, the Group
decides whether to capitalise the lease on a lease-by-lease basis. The lease payments
associated with those leases which are not capitalised are recognised as an expense on a
systematic basis over the lease term.

Where the lease is capitalised, the lease liability is initially recognised at the present value of the
lease payments payable over the lease term, discounted using the interest rate implicit in the
lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate.
After initial recognition, the lease liability is measured at amortised cost and interest expense is
calculated using the effective interest method. Variable lease payments that do not depend on
an index or rate are not included in the measurement of the lease liability and hence are
charged to profit or loss in the accounting period in which they are incurred.

The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which
comprises the initial amount of the lease liability plus any lease payments made at or before the
commencement date, and any initial direct costs incurred. Where applicable, the cost of the
right-of-use assets also includes an estimate of costs to dismantle and remove the underlying
asset or to restore the underlying asset or the site on which it is located, discounted to their
present value, less any lease incentives received. The right-of-use asset is subsequently stated
at cost less accumulated depreciation and impairment losses.

The lease liability is remeasured when there is a change in future lease payments arising from a
change in an index or rate, or there is a change in the Group’s estimate of the amount expected
to be payable under a residual value guarantee, or there is a change arising from the
reassessment of whether the Group will be reasonably certain to exercise a purchase, extension
or termination option. When the lease liability is remeasured in this way, a corresponding
adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or
loss if the carrying amount of the right-of-use asset has been reduced to zero.

The lease liability is also remeasured when there is a change in the scope of a lease or the
consideration for a lease that is not originally provided for in the lease contract (“lease
modification”) that is not accounted for as a separate lease. In this case the lease liability is
remeasured based on the revised lease payments and lease term using a revised discount rate
at the effective date of the modification.

The Group presents right-of-use assets in “property, plant and equipment” and presents lease
liabilities under “trade and other payables” in the consolidated statement of financial position.

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