Ntegrator International Ltd. - Annual Report 2020

69 NOTES TO THE FINANCIAL STATEMENTS For the financial year ended 31 December 2020 2. Significant accounting policies (continued) 2.15 Leases (continued) When the Group is the lessee: (continued) (ii) Lease liabilities The initial measurement of a lease liability is measured at the present value of the lease payments discounted using the implicit rate in the lease, if the rate can be readily determined. If that rate cannot be readily determined, the Group shall use its incremental borrowing rate.  Lease payments include the following: - Fixed payment (including in-substance fixed payments), less any lease incentives receivables; - Variable lease payment that are based on an index or rate, initially measured using the index or rate as at the commencement date; - Amount expected to be payable under residual value guarantees; - The exercise price of a purchase option if is reasonably certain to exercise the option; and - Payment of penalties for terminating the lease, if the lease term reflects the Group exercising that option. For contracts that contain both lease and non-lease components, the Group allocates the consideration to each lease component on the basis of the relative stand-alone price of the lease and non-lease component. The Group has elected to not separate lease and non-lease component for property leases and account these as one single lease component. Lease liabilities are measured at amortised cost using the effective interest method. Lease liability shall be remeasured when: - There is a change in future lease payments arising from changes in an index or rate; - There is a change in the Group’s assessment of whether it will exercise an extension option; or - There are modifications in the scope or the consideration of the lease that was not part of the original term. Lease liabilities are remeasured with a corresponding adjustment to the right-of-use asset, or are recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. (iii) Short term and low value leases The Group has elected to not recognised right-of-use assets and lease liabilities for short-term leases that have lease terms of 12 months or less and leases of low value leases, except for sublease arrangements. Lease payments relating to these leases are expensed to profit or loss on a straight-line basis over the lease term. 2.16 Inventories Inventories comprise of materials and supplies to be consumed in the rendering of system integration services and project sales. Inventories are carried at the lower of cost and net realisable value. Cost is determined using the weighted average method. The cost of inventories comprises of materials, direct labour, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realisable value is the estimated selling price in rendering of system integration services and project sales, less the applicable costs of conversion to complete the services and project sales, and applicable variable selling expenses.