10.1.3 Right-of-use assets
Accounting policies
The Group uses a single accounting model for leases under which the lessee recognises right-of-use assets and lease liabilities for all leases except short- term leases and leases of low-value assets
Short-term leases are leases with a term of 12 months or less, containing no purchase options. In particular, the Group defines as short-term leases contracts made for an indefinite term which may be terminated on a short notice (up to 12 months) without any significant penalty imposed on the party.
The materiality level defined by the Group to identify low-value leases is PLN 20 thousand for entities whose functional currency is PLN, and the equivalent of USD 5 thousand for entities whose functional currency is other than PLN. The value of the underlying asset is measured based on the value of the asset when it is new, regardless of the age of the leased asset.
An asset is typically identified by being explicitly specified in a contract, but an asset can also be identified by being implicitly specified at the time it is made available for use by the customer. The Group recognises a right-of-use asset and a lease liability upon commencement of a contract under which control of the use of specified assets is transferred for a certain period of time. The date of commencement of a lease contract is the date on which the leased asset is made available to the Group as the lessee.
A right-of-use asset is initially measured at cost which includes:
- the amount of the initial measurement of the lease liability,
- any lease payments made at or prior to commencement, less any lease incentives received,
- any initial direct costs incurred by the lessee,
- the initial estimate of the costs of dismantling and removing the underlying asset and restoring the site on which it is located
Right-of-use assets are recognised in the statement of financial position as property, plant and equipment (property, plant and equipment of the Refining & Marketing segment and property, plant and equipment of the Exploration & Production segment). Perpetual usufruct right to land acquired for a consideration or received free of charge is recognised in the same manner as other lease contracts (as right-of-use assets and lease liabilities). To calculate assets and liabilities related to perpetual usufruct, the Group conducts an analysis to determine the anticipated term of perpetual usufruct. Once the anticipated term of perpetual usufruct has been determined, the lease liability is calculated in accordance with general principles.
After the lease commencement date, the right-of-use asset is measured at cost less accumulated depreciation and accumulated impairment losses. If there is a lease modification, the right-of-use asset is adjusted to the remeasurement of the lease liability (reflecting changes resulting from the lease modification or revision of the discount rate).
The right-of-use asset is amortised on a straight-line basis over the period corresponding to the estimated useful life of the asset. The estimated useful lives of right-of-use assets are determined in the same manner as estimated useful lives of property, plant and equipment.
If the lease transfers the ownership of an asset to the Company before the end of the lease term, or if the cost of the right-of-use asset reflects that the Company will exercise a purchase option, the Company depreciates the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. In other cases, the Company depreciates the right-of-use assets from the commencement date to the earlier of the end of the useful life of the asset or the end of the lease term.
Decommissioning costs are capitalised as part of the right-of-use asset and amortised over the estimated useful life of the asset. The fair value of decommissioning costs is estimated by the Group in accordance with the methodology specified in IFRIC 1.
When the Group establishes a provision for the contractually required inspection or overhaul of a leased asset (for example, rolling stock), it recognises the value of the established provision as an asset component (rights of use) at the date of its initial recognition. The component should be fully depreciated by the time of the first contracted repair or overhaul (this component is used against the last repair required under the lease contract). If more than one overhaul of the asset is required before the end of the lease contract, the Group capitalizes the costs of the overhaul and amortizes it until the next overhaul. The last overhaul required for a given contract results in the termination of the provision recognised at the commencement of the contract.
Right-of-use assets of the Refining & Marketing segment
| Refining & Marketing | Land | Buildings, structures | Plant and equipment | Vehicles, other | Property, plant and equipment under construction | Total |
|---|---|---|---|---|---|---|
| Gross carrying amount Jan 1 2021 | 892.2 | 174.8 | 0,1 | 759.6 | – | 1,826.7 |
| New leases | 30.1 | 9.3 | – | 134.9 | – | 174.3 |
| Early termination of lease contract | (3.0) | (2.6) | – | (49.2) | – | (54.8) |
| Termination of leases | (3.2) | (0.2) | – | (5.4) | – | (8.8) |
| Purchase of asset – transfer to property, plant and equipment | – | – | – | (41.0) | – | (41.0) |
| Lease modifications | 17.7 | 4.6 | – | 26.6 | – | 48.9 |
| Recognition of liquidation assets | 0.1 | – | – | – | – | 0.1 |
| Other | – | – | – | 1.2 | – | 1.2 |
| Gross carrying amount Dec 31 2021 | 933.9 | 185.9 | 0.1 | 826.7 | – | 1,946.6 |
| Accumulated depreciation Jan 1 2021 | 74.0 | 36.7 | 0.1 | 346.2 | – | 457.0 |
| Depreciation and amortisation | 37.5 | 19.3 | – | 150.9 | – | 207.7 |
| Early termination of lease contract | (0.5) | (0.9) | – | (35.3) | – | (36.7) |
| Termination of leases | (3.1) | (0.2) | – | (5.1) | – | (8.4) |
| Purchase of asset – transfer to property, plant and equipment | – | – | – | (15.1) | – | (15.1) |
| Lease modifications | – | – | – | (3.5) | – | (3.5) |
| Accumulated depreciation Dec 31 2021 | 107.9 | 54.9 | 0.1 | 438.1 | – | 601.0 |
| Accumulated depreciation Dec 31 2021 | 26.1 | 3.4 | – | – | – | 29.5 |
| Recognised | 0.1 | – | – | – | – | 0.1 |
| Used/Reversed | – | – | – | – | – | – |
| Impairment losses Dec 31 2021 | 26.2 | 3.4 | – | – | – | 29.6 |
| Net carrying amount Dec 31 2021 | 799.8 | 127.6 | – | 388.6 | – | 1,316.0 |
| Refining & Marketing | Land | Buildings, structures | Plant and equipment | Vehicles, other | Property, plant and equipment under construction | Total |
|---|---|---|---|---|---|---|
| Gross carrying amount Jan 1 2020 | 852.0 | 146.4 | 0.1 | 729.8 | 0.4 | 1,728.7 |
| New leases | 30.0 | 27.6 | – | 116.5 | – | 174.1 |
| Early termination of lease contract | – | (1.5) | – | (24.6) | – | (26.1) |
| Termination of leases | – | – | – | (17.1) | – | (17.1) |
| Purchase of asset – transfer to property, plant and equipment | – | – | – | (50.9) | – | (50.9) |
| Lease modifications | 10.0 | 2.3 | – | (7.0) | – | 5.3 |
| Recognition of liquidation assets | 0.2 | – | – | – | – | 0.2 |
| Unsettled upfront payments | – | – | – | – | 11.8 | 11.8 |
| Settled upfront payments | – | – | – | 12.2 | (12.2) | – |
| Other | – | – | – | 0.7 | – | 0.7 |
| Gross carrying amount Dec 31 2020 | 892.2 | 174.8 | 0.1 | 759.6 | 0.0 | 1,826.7 |
| Accumulated amortisation Jan 1 2020 | 38.0 | 17,9 | – | 254.2 | – | 310.1 |
| Accumulated amortisation Jan 1 2020 | 36.0 | 19,1 | 0.1 | 147.5 | – | 202.7 |
| Early termination of lease contract | – | (0,2) | – | (15.6) | – | (15.8) |
| Termination of leases | – | – | – | (16.7) | – | (16.7) |
| Purchase of asset – transfer to property, plant and equipment | – | – | – | (16.3) | – | (16.3) |
| Lease modifications | – | (0.1) | – | (5.5) | – | (5.6) |
| Other | – | – | – | (1.4) | – | (1.4) |
| Accumulated depreciation Dec 31 2020 | 74.0 | 36.7 | 0.1 | 346.2 | – | 457.0 |
| Impairment losses Jan 1 2020 | 18,5 | 2,9 | – | – | – | 21.4 |
| Recognised | 7,6 | 0,5 | – | – | – | 8.1(1) |
| Used/Reversed | – | – | – | – | – | – |
| Impairment losses Dec 31 2020 | 26.1 | 3.4 | – | – | – | 29.5 |
| Net carrying amount Dec 31 2020 | 792.1 | 134.7 | – | 413.4 | 0.0 | 1,340.2 |
Right-of-use assets of the Exploration & Production segment
| Exploration & Production | Other non-current assets | Total | |||||
| Oil and gas production assets | Land | Buildings, structures | Plant and equipment | Vehicles, other |
Total |
||
| Gross carying amount Jan 1 2021 | 2.4 | 14.7 | 6.6 | – | 61.7 | 83.0 | 85.4 |
| New leases | 281.9 | – | – | – | 25.6 | 25.6 | 307.5 |
| Termination of leases | – | – | – | – | (57.9) | (57.9) | (57.9) |
| Termination of leases | (0.2) | – | – | – | 3.8 | 3.8 | 3.6 |
| Exchange differences on translating foreign operations | 6.4 | – | 0.3 | – | 3.3 | 3.6 | 10.0 |
| Gross carrying amount Dec 31 2021 | 290.5 | 14.7 | 6.9 | – | 36.5 | 58.1 | 348.6 |
| Accumulated depreciation Jan 1 2021 | 0.7 | 5.0 | 2.4 | – | 44.3 | 51.7 | 52.4 |
| Depreciation and amortisation | 0.9 | 0.5 | 1.2 | – | 18.9 | 20.6 | 21.5 |
| Termination of leases | – | – | – | – | (57.9) | (57.9) | (57.9) |
| Exchange differences on translating foreign operations | – | – | 0.1 | – | 1.5 | 1.6 | 1.6 |
| Accumulated depreciation Dec 31 2021 | 1.6 | 5.5 | 3.7 | – | 6.8 | 16.0 | 17.6 |
| Impairment losses Jan 1 2021 | 0.4 | – | – | – | – | – | 0.4 |
| Recognised | – | – | – | – | – | – | – |
| Used/Reversed | – | – | – | – | – | – | – |
| Impairment losses Dec 31 2021 | 0.4 | – | – | – | – | – | 0.4 |
| Net carrying amount Dec 31 2021 | 288.5 | 9.2 | 3.2 | – | 29.7 | 42.1 | 330.6 |
| Exploration & Production | Oil and gas production assets | The non-current assets | Total | ||||
| Land | Buildings, structures | Plant and equipment | Vehicles, other | Total | |||
| Gross carrying amount Jan 1 2020 | 2.3 | 12.7 | 6.5 | 0.9 | 61.9 | 82.0 | 84.3 |
| New leases | – | – | – | – | 0.3 | 0.3 | 0.3 |
| Termination of leases | 0.1 | – | – | – | – | – | 0.1 |
| Purchase of asset – transfer to property, plant and equipment | – | – | – | (0.9) | – | (0.9) | (0.9) |
| Lease modifications | – | 2.0 | – | – | – | 2.0 | 2.0 |
| Exchange differences on translating foreign operations | – | – | 0.1 | – | (0.5) | (0.4) | (0.4) |
| Gross carrying amount Dec 31 2020 | 2.4 | 14.7 | 6.6 | – | 61.7 | 83.0 | 85.4 |
| Accumulated amortisation Jan 1 2020 | 0.3 | 4.6 | 1.2 | 0.5 | 21.5 | 27.8 | 28.1 |
| Depreciation and amortisation | 0.4 | 0.4 | 1.1 | – | 23.7 | 25.2 | 25.6 |
| Purchase of asset – transfer to property, plant and equipment | – | – | – | (0.5) | – | (0.5) | (0.5) |
| Exchange differences on translating foreign operations | – | – | 0.1 | – | (0.9) | (0.8) | (0.8) |
| Accumulated depreciation Dec 31 2020 | 0.7 | 5.0 | 2.4 | – | 44.3 | 51.7 | 52.4 |
| Impairment losses Jan 1 2020 | 0.4 | – | – | – | – | – | 0.4 |
| Recognised | – | – | – | – | – | – | – |
| Used/Reversed | – | – | – | – | – | – | – |
| Impairment losses Dec 31 2020 | 0.4 | – | – | – | – | – | 0.4 |
| Net carrying amount Dec 31 2020 | 1.3 | 9.7 | 4.2 | – | 17.4 | 31.3 | 32.6 |
| Leasing costs recognised in the statement of comprehensive income | 2021 | 2020 | |
|---|---|---|---|
| Depreciation and amortisation | Costs by nature of expense | 227 | 225.9 |
| Short-term leases | Costs by nature of expense: Services | 48.5 | 45.1 |
| Leases of low-value assets other than short-term leases | Costs by nature of expense: Services | 0.3 | 0.4 |
| Variable lease payments not included in the measurement of lease liabilities | Costs by nature of expense: Services | 16.1 | 11.9 |
| Interest on lease liabilities | Finance costs | 72.7 | 75.8 |
| Total | 364.6 | 359.1 |
| Allocation of depreciation expense | 2021 | 2020 |
|---|---|---|
| Cost of sales | 168.1 | 171.3 |
| Selling expenses | 52.4 | 50 |
| Administrative expenses | 6.5 | 4.6 |
| Total depreciation/amortisation expense recognised in the statement of comprehensive income | 227 | 225.9 |
| Capital expenditure | 2.2 | 2.4 |
| Total | 229.2 | 228.3 |
For information on lease liabilities, see Note 10.9.4.
In 2020, the total amount of expenditure under lease contracts, disclosed in the statement of cash flows as cash flows from financing and operating activities, was PLN 356.5m (2020: PLN 347.2m).