Annual Financial Statements for the year ended 30 June 2021 0 - Book - Page 94
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SASOL LIMITED GROUP
Funding activities and facilities (continued)
18 Leases continued
Areas of judgement:
Various factors are considered in assessing whether an arrangement contains a lease including whether a service contract
includes the implicit right to substantially all of the economic benefits from assets used in providing the service and whether
the group directs how and for what purpose such assets are used. In performing this assessment, the group considers decisionmaking rights that will most affect the economic benefits that will be derived from the use of the asset such as changing the type,
timing, or quantity of output that is produced by the asset.
Incorporating optional lease periods where there is reasonable certainty that the option will be extended is subject to judgement
and has an impact on the measurement of the lease liability and related right of use asset. Management considers all facts and
circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option, including
consideration of the significance of the underlying asset to the operations and the expected remaining useful life of the operation
where the leased asset is used.
The incremental borrowing rate that the group applies is the rate that the group would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right of use asset in a similar economic environment with similar terms, security and
conditions. The estimation of the incremental borrowing rate is determined for each lease contract using the risk-free rate over a
term matching that of the lease, adjusted for other factors such as the credit rating of the lessee, a country risk premium and the
borrowing currency. A higher incremental borrowing rate would lead to the recognition of a lower lease liability and corresponding
right of use asset.
The range of incremental borrowing rates applied were as follows:
Southern Africa
6,19 – 15,35% (2020: 6,25 – 16,58%)
North America
2,15 – 5,64% (2020: 2,15 – 5,64%)
Eurasia
0,38 – 6,35% (2020: 1,00 – 5,00%)
Accounting policies:
At contract inception all arrangements are assessed to determine whether it is, or contains, a lease. 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:
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■fixed payments (including in-substance fixed payments) less any lease incentives receivable;
■variable lease payments that depend on an index or a rate;
■amounts expected to be paid under residual value guarantees;
■the exercise price of a purchase option reasonably certain to be exercised;
■payments of penalties for terminating the lease, if the lease term reflects the group exercising the option to terminate; and
■lease payments to be made under reasonably certain extension options.
Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are capitalised as part
of the cost of inventories or assets under construction) 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 generally not readily determinable. The incremental borrowing rate is the rate
that the group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right of use asset in a
similar economic environment with similar terms, security and conditions.
After the commencement date, finance cost is charged to profit or loss over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each period.
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.
The group applies the recognition exemptions to short-term leases (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) and leases of assets that are considered to be low value.
Lease payments on short-term leases and leases of low-value assets are recognised as expenses over the lease term.
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:
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■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 group is reasonably certain to exercise a purchase option, the right of use asset is depreciated over the underlying asset’s
useful life. The depreciation charge is recognised in the income statement unless it is capitalised as part of the cost of inventories
or assets under construction.
The right of use assets are also subject to impairment. Refer to the accounting policies in the note on Remeasurement items
affecting profit or loss.
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Sasol Annual Financial Statements 2021