Page 223 - Bank Muamalat_AR24

ANNUAL REPORT 2024 1 2 3 4 5 6 7 Our Numbers 8 221

2. MATERIAL ACCOUNTING POLICIES (CONT’D.)

(g) Leases
(a) Classification

At inception of a contract, the Group and the Bank assesses whether a contract is, or contains, a lease
arrangement based on whether the contract that conveys to the user (the lessee) the right to control the use of an
identified asset for a period of time in exchange for consideration.

(b) Recognition and initial measurement
(i) The Group and the Bank as lessee

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

Right-of-use (‘’ROU”) asset
The Group and the Bank recognises right-of-use assets at the commencement date of the lease
(i.e., the date the underlying asset is available for use). Right-ofuse 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 life of the assets, as follows:

Office building 2 to 3 years
If ownership of the leased asset is transferred to the Group and the Bank 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 in accordance with Note 2.2 (j) on impairment of
non-financial assets.
Lease liabilities

At the commencement date of the lease, the Group and the Bank 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 the Bank and payments of penalties for terminating the lease, if the lease term reflects the
Group and the Bank 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 and the Bank uses its incremental profit rate
at the lease commencement date because the profit 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 profit
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.