Econocom - 2019 Universal registration document

06 consolidated financial statements

notes to the consolidated financial statements

payments must be equal to almost the entire fair value of the leased asset. The thresholds applied are based on those of ASC 840 under US GAAP, i.e., 85%, of the fair value of the leased asset and 75% of the asset’s economic life. In practice, as it is the Group’s policy not to use its equity to fund leases and to limit its risk on residual value, operating leases are fairly rare. Finance leases where the Group is lessor are mainly refinanced contracts in which: the lease contracts and equipment are • sold to refinancing institutions at an all-inclusive price representing the present value of future minimum lease payments receivable and the residual financial value of the equipment; residual financial value represents the • amount for which the Group undertakes to repurchase the equipment upon expiry of the lease; lease payments due by lessees are paid • directly to the refinancing institutions on a non-recourse basis, which means that the Group transfers the risk of payment default. From a legal standpoint, the Group relinquishes ownership of the equipment on the date of sale to the refinancing institution and recovers ownership at the end of the lease term by repurchasing the equipment. In some cases, the Group asks the refinancing institutions to grant it invoicing and payment agency on their behalf. This does not alter the transfer of the risk of payment default from the lessees to the refinancing institutions. Econocom acts as a dealer lessor and therefore recognises a margin as from the inception of the lease. Revenue, cost of sales and the residual interest in leased assets are recognised progressively as

assets are delivered, pro rata to the amount of each delivery. IFRS ژ 16 states that initial recognition of a lease must take place at the commencement of the lease term, i.e., the date from which the lessee is entitled to exercise its right to use the leased asset. The provisions of the Group’s General Lease Conditions define this date as the date on which the leased asset is delivered, which is officially confirmed when the Statement of Acceptance is signed. Refinanced contracts are accounted for as follows: Statement of financial position For each lease, the Group’s residual interest in the leased assets (see note ژ 11.1) is recognised in assets and the gross liability for purchases of leased assets (defined in note ژ 11.2) is recognised in liabilities. Income statement Revenue on these contracts corresponds to the present value of future minimum lease payments (corresponding to the payments that the lessee is required to make throughout the realisation period and the lease term). Financial income not yet acquired from lease payments is recognised in the income statement when the contracts are refinanced. The impacts of discounting only concern the “Gross liability for purchases of leased assets” (see note ژ 11.2) and the “Residual interest in leased assets” (see note ژ 11.1) items. The cost of sales represents the purchase cost of the asset. The Group’s residual interest in the leased assets is deducted from the cost of sales based on its present value.

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2019 annual report