Page 16 University of Technology, Jamaica Notes to the Financial Statements 31 March 2020 (expressed in Jamaican dollars unless otherwise indicated) 2. Summary of Significant Accounting Policies (Continued) (r) Leases (continued) Accounting policies applied from 31 March 2019 (continued) Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the risk free rate. 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. Potential future increases in variable lease payments based on an index or rate are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset. 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. Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the University is reasonably certain to exercise a purchase option, the right-ofuse asset is depreciated over the underlying asset’s useful life. Payments associated with short-term leases are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. The lease term is determined as the non-cancellable period of the lease and also takes account of extension and termination options if reasonably certain to be exercised. The extension and termination options held are exercisable only by the University and not by the respective lessor. The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this assessment, and that is within the control of the University. Extension and termination options are included in the property leases. These are used to maximise operational flexibility in terms of managing the assets used in the University’s operations. The majority of extension and termination options held are exercisable only by the University and not by the respective lessor. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). University of Technology, Jamaica 132
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