Senwes Annual Financial Statements 2022 | Page 79

SENWES ANNUAL FINANCIAL STATEMENTS 2022

2.6 Leases The group assesses at contract inception whether a contract is , or contains , a lease . That is , if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration .

Group as a lessee The group applies a single recognition and measurement approach for all leases , except for short-term leases and leases of low-value assets . The group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets .

i ) Right-of-use assets The group recognises right-of-use assets at the commencement date of the lease ( i . e ., the date the underlying asset is available for use ). Right-of-use assets are measured at cost , less any accumulated depreciation and impairment losses , and adjusted for any remeasurement of lease liabilities . The cost of right-of-use assets includes the amount of lease liabilities recognised , initial direct costs incurred , and lease payments made at or before the commencement date less any lease incentives received . Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets , as follows :

If ownership of the leased asset transfers to the group at the end of the lease term or the cost reflects the exercise of a purchase option , depreciation is calculated using the estimated useful life of the asset .

The right-of-use assets are also subject to impairment . Refer to accounting policy note 3.8 for the impairment of nonfinancial assets .

ii ) Lease liabilities At the commencement date of the lease , the group 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 payments of penalties for terminating the lease , if the lease term reflects the group 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 uses its incremental borrowing rate at the lease commencement date because the interest 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 interest 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 .

iii ) Short-term leases and leases of low-value assets The group applies the short-term lease recognition exemption to its short-term leases of land and buildings and plant and equipment ( 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 land and buildings and plant and equipment 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 .

2.7 Inventory Inventory represents assets held for resale in the normal course of business , to produce assets for sale , or for use in production processes , or the rendering of services . Included in cost of inventory are the cost price , production costs and any costs incurred in bringing the inventory to its current position and condition , ready for the intended purpose . Cost of inventory does not include interest , which is accounted for as an expense in the period when incurred .

Included in cost of production are costs directly attributable to units produced , direct costs such as direct wages and salaries , variable overheads , as well as the systematic allocation of fixed production overheads based on the normal capacity of the production facility .

Cost of inventory items is determined in accordance with the weighted average cost method , unless it is more appropriate to apply another basis on account of the characteristics , nature and use of the inventory . Cost of inventory is determined as follows :

Merchandise , processed goods , consumables and other commodities Mechanisation whole goods and vehicles Grain commodities

- Weighted average cost price

- Purchases price - At fair value

Inventory is valued at the lower of cost or net realisable value . Net realisable value is the estimated selling price in the normal course of business , less estimated costs necessary to conclude the sale .

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