10.9 Bank and non-bank borrowings, notes and lease liabilities

Accounting policies

Bank and non-bank borrowings and notes

All bank and non-bank borrowings and notes are initially recognised at cost, equal to the fair value, less cost of obtaining the financing.

Following initial recognition, bank and non-bank borrowings and notes are measured at amortised cost, using the effective interest rate method. Amortised cost includes the cost of obtaining financing and discounts, as well as premiums received on settlement of the liability. Upon removal of the liability from the statement of financial position or recognition of an impairment loss, gains or losses are recognised in the statement of comprehensive income.

Leases

A lease liability is initially measured at the present value of lease payments outstanding at that date, including:

• fixed lease payments net of any lease incentives;
• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
• amounts expected to be payable by the lessee under residual value guarantees;
• the exercise price of a purchase option if exercise of that option by the lessee is reasonably certain;
• lease termination penalties if the lessee is entitled to exercise the option to terminate the lease.

Lease payments do not include variable charges that depend on external factors. Variable lease payments not included in the initial measurement of a lease liability are recognised directly in profit or loss.

After initial recognition, the Group measures lease liabilities by:

• increasing the carrying amount to reflect interest on the lease liability,
• reducing the carrying amount to reflect the lease payments made, and
• remeasuring the carrying amount in order to take into account a lease reassessment or modification, or to take account of revised substantially fixed lease payments, including increases or reductions due to index changes in the case of index-linked contracts.

Upon lease commencement, and to the extent that the costs are not included in the carrying amount of another asset in accordance with applicable standards other than IFRS 16, the lessee recognises in profit or loss both interest on the lease liability and variable lease payments not included in the measurement of the lease liability in the period in which the event or condition that triggers the payments occurs.

Lease payments are discounted using the interest rate implicit in the lease or the Group’s incremental borrowing rate when the interest rate implicit in the lease cannot be readily determined. To determine the incremental borrowing rate, the Group takes into account the type of contract, the duration of the contract, the currency of the contract and the potential margin it would have to pay to external financial institutions if it wanted to enter into such a transaction on the financial market.

The Group determined incremental borrowing rates in a breakdown by contract currency and taking into account contract term, based on the time brackets presented below:

• short-term contracts (12 months or shorter),
• contracts for a term of 1 to 2 years (inclusive),
• contracts for a term of 2 to 5 years (inclusive),
• contracts for a term of 5 to 10 years (inclusive),
• contracts for a term of more than 10 years.

Professional judgement

For each type of lease contract, the Group estimates the discount rate which will affect the final value of the contracts. The Group takes into account characteristics of the contract, its term and currency as well as potential margin it would have to pay to external financial institutions if it wanted to enter into such a transaction on the financial market.

The process of determining the current incremental borrowing rate consists of the following steps:

• analysis of the lessee’s current financing structure (e.g., debt instruments held by the lessee and their terms);
• determination of the appropriate reference rate – assuming specific currency, economic conditions and lease term;
• analysis of other material lease terms, including the nature of the underlying assets.

To calculate discount rates for leasing purposes, the Group assumes that the discount rate should reflect the cost that it would have to pay to borrow the funds necessary to purchase the leased asset.

The Group enters into lease contracts based on the three principal currencies to which it has assigned the base discount rate, These are PLN at the WIBOR base rate for short-term periods and interest rates on government bonds for long-term periods, EUR at the EURIBOR base rate for short-term periods and interest rate on government bonds for long-term periods, and USD at the LIBOR base rate for short-term periods and interest rate on government bonds for long-term periods.

 Current discount rates are determined every quarter, and the discount rates so determined are then used for lease calculations in accordance with IFRS 16 for the period until the next determination of the discount rates.

For currency risk sensitivity analysis, see Note 11.2.3.1.
For interest rate risk sensitivity analysis, see Note 11.2.4.1.
For information on contract maturities, see Note 11.2.5.