Econocom - 2020 annual report

06 consolidated financial statements

notes to the consolidated financial statements

LEASE ACCOUNTING 4.1.2. Virtually all leases entered into by the Technology Management & Financing business as lessor are finance leases, and Econocom acts as a dealer-lessor, although operating leases may also occasionally be contracted. Finance leases 4.1.2.1. The Group identifies finance lease contracts, as opposed to the operating leases, using the criteria set out in IFRS 16. A lease is classified as a finance lease (rather than an operating lease) if it transfers substantially all the risks and rewards incidental to ownership. When determining whether a lease transfers substantially all the risks and rewards incidental to ownership and should therefore be classified as a finance lease, the Group generally uses (i) the fair value criterion ( i.e. , the lease is a finance lease if, at inception, the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset), and then (ii) the economic life criterion ( i.e. , the lease is a finance lease if the lease term is for the major part of the economic life of the asset even if title is not transferred). At the beginning of the lease, the discounted value of the minimum lease 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 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-recoursebasis, whichmeans 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 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. Certain sales and lease-backs in the event that Econocom is not considered a dealer-lessor the following are recorded: price representing

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2020 annual report