The effects of applying IFRS 16 on the Group’s financial statements as of 1 January 2018 are explained below. Reclassifications and adjustments that arose owing to the new lease regulations are therefore recognised in the opening balance on 1 January 2018. The new accounting policies are described in Note 2.
On transition to IFRS 16 and IFRS 1, the Group recognised lease liabilities in relation to leases which had previously been classified as operating leases under K3 principles. These liabilities were measured at the present value of the future minimum lease payments. The lessee’s incremental borrowing rate as of 1 January 2018 was used in the calculation. The lessee’s weighted average incremental borrowing rate applied to the lease liabilities, regardless of asset type, was 2.50% on 1 January 2018.
All right-of-use assets are measured as of 1 January 2018 at an amount corresponding to the lease liability adjusted for prepaid lease payments attributable to the leases as at 31 December 2018. In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by IFRS 16, and by the transition rules governing IFRS 1:
- Use of a single discount rate for the portfolio of leases with similar characteristics;
- Recognition of operating leases with a term of less than 12 months from 1 January 2018 as short-term leases;
- Exclusion of initial direct costs in calculating the right-of-use asset on the date of initial application; and
- The use of extension options or options to cancel leases was taken into account in conjunction with the transition to IFRS.
For leases previously classified as operating leases with the Group as lessee, a lease liability is recognised at the present value of future lease payments totalling MSEK 16.4 as of 1 January 2018. The Group recognises right-of-use assets totalling MSEK 16.7 as of 1 January 2018.
The recognition of depreciation of right-of-use assets instead of lease payments had a positive impact of kSEK 209 on operating profit. Interest on lease liabilities had a negative impact of kSEK 369 on net financial items. Earnings before tax were negatively impacted by kSEK 159 due to IFRS 16. Since the primary payment is recognised as financing activities, the cash flow from financing activities decreases with a corresponding increase of the cash flow from operating activities. The interest portion of the lease payment remains as cash flow from operating activities and is included in net financial items. The Group recognises a right-of-use asset in the balance sheet and a lease liability at the present value of future lease payments. The leased asset is depreciated straight-line over the lease term, or over the useful life of the underlying asset if it is deemed reasonably certain that the Group will take over ownership at the end of the lease term. Lease expenses are recognised as depreciation in operating profit, and interest expenses in net financial items. If the lease is regarded as including a low-value asset, has a lease term that expires within 12 months, or includes service components, these lease payments are recognised as operating expenses in profit or loss over the lease term.
As of 1 January 2018, leased assets are recognised in a separate item in the balance sheet, designated Right-of-use assets. Disclosures regarding these leases, as well as short-term leases and low-value leases, are presented below.
The balance sheet shows the following amounts relating to leases:
The statement of profit or loss shows the following amounts relating to leases:
No significant variable lease payments were identified that are not included in the lease liability.