IBERSOL | 2019 Annual Report

Consolidated Financial Statements 2.18 RIGHT OF USE AND LEASING LIABILITIES A lease is defined as a contract or part of a contract that conveys the right to use an asset for a certain period, in exchange for a fee. With the adoption of IFRS 16 to January 1, 2019, the distinction between operating leases (off balance sheet) and finance leases (included in the balance sheet) has been eliminated at the lessee level, having been replaced by a model in which it is accounted for an asset identified with a right to use and a corresponding liability for all lease agreements. On the effective date of the lease, the Group recognizes the lease liability at the present value of lease payments that are not paid on that date and the respective right to use. Payments relating to variable components of the contract are not considered as lease payments, but are recognized as an expense in the year in which they occur. Right of use The right of use is initially measured at cost and subsequently at the net cost of de- preciation and impairment, adjusted by remeasurement of the lease liability. The right of use is constituted by the initial value of the liabilities with leases and by initial direct costs and payments made to the lessor before the date of entry into force of the lease, less the rental incentives received. The right of use is depreciated on a straight-line basis over the term of the contract, comprising the non-cancellable period during which the lessee has the right to use an underlying asset and (i) the periods covered by an option to extend the lease, if the lessee has a reasonable certainty of exercising this option; (ii) the periods cove- red by a lease termination option, if the lessee is reasonably certain that it will not exercise that option. Alternatively, in cases where the Group intends to exercise any existing call options for the underlying asset, the right to use is depreciated over the estimated useful life of the asset. Leasing liabilities Lease liabilities are initially measured based on the present value of the lease liabili- ties at the date. Subsequently, the lease liability is adjusted for the effect of interest and lease payments, as well as for possible changes to lease agreements. Lease payments include payments made to a lessor for the right to use an underlying asset during the term lease terms (excluding variable lease payments) and also include the exercise price of a call option, if there is a reasonable expectation that the Group will exercise it, and the amount of penalties for termination of contracts, if it is reasona- bly certain that the Group triggers the possibility of termination. 228