Page 197 - Bank-Muamalat-Annual-Report-2021

ANNUAL REPORT 2021 195
SUSTAINABILITY STATEMENT OUR GOVERNANCE OUR NUMBERS OTHER INFORMATION

2. sIGNIfIcANT AccOuNTING POLIcIes (cONT’D.)
2.3 summary of significant accounting policies (cont’d.)
(i) Leases (cont’d.)

(b) Recognition and initial measurement (cont’d.)
(i) The Group and the Bank as lessee (cont’d.)

Lease liabilities
At the commencement date of the lease, the Group and the Bank recognises lease liabilities measured
at the present value of lease payments to be made over the lease term. The lease payments include
fixed payments (including in substance fixed payments) less any lease incentives receivable, variable
lease payments that depend on an index or a rate, and amounts expected to be paid under residual
value guarantees.

The lease payments also include the exercise price of a purchase option reasonably certain to be
exercised by the Group and the Bank and payments of penalties for terminating the lease, if the lease
term reflects the Group and the Bank exercising the option to terminate. Variable lease payments that
do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce
inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group and the Bank uses its incremental
profit rate at the lease commencement date because the profit rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease liabilities is increased to reflect
the accretion of profit and reduced for the lease payments made. In addition, the carrying amount
of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the
lease payments (e.g. changes to future payments resulting from a change in an index or rate used to
determine such lease payments) or a change in the assessment of an option to purchase the underlying
asset.

Short-term leases and leases of low-value assets
The Group and the Bank applies the short-term lease recognition exemption to its short-term leases of
office building (i.e. those leases that have a lease term of 12 months or less from the commencement
date and do not contain a purchase option). It also applies the lease of low-value assets recognition
exemption to leases of office building that are considered to be low value. Lease payments on short-
term leases and leases of low-value assets are recognised as expense on a straight-line basis over the
lease term.
(ii) The Group and the Bank as lessor

Leases in which the Group and the Bank does not transfer substantially all the risks and rewards incidental
to 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 statements 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 recognised over the lease term on the same basis
as rental income. Contingent rents are recognised as revenue in the period in which they are earned.