NOTES TO THE FINANCIAL STATEMENTS
CAPITAL – FINANCING
RAMSAY HEALTH CARE LIMITED
8 Net debt (Continued)
All leases are accounted for by recognising a right of use asset and a lease liability except for:
• Leases of low value assets, being those with a cost of $50,000 or less; and
• Leases with a term of 12 months or less.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount
rate determined by reference to the rate inherent in the lease unless (as is typically the case) this is not readily determinable, in which
case the Group’s incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the
measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability assumes
the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in the period to
which they relate.
On initial recognition, the carrying value of the lease liability also includes:
• amounts expected to be payable under any residual value guarantee;
• the exercise price of any purchase option granted in favour of the group if it is reasonably certain to exercise that option;
• any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of the termination option
Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
• lease payments made at or before commencement of the lease;
• initial direct costs incurred; and
• the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement, lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding
and are reduced for lease payments made. Right of use assets are amortised on a straight line basis over the shorter of the useful life of
the asset or the term of the lease. Lease liabilities are remeasured when there is a change in future lease payments arising from a change
in an index or rate or when there is a change in the assessment of the term of the lease.
The Group applies the short term lease recognition exemption to its short term lease of equipment, being those leases that have a lease
term of 12 months or less from the commencement date and do not contain a purchase option. The Group also applies the low-value
assets recognition exemption to leases of equipment that are considered to be of low value. Lease payments on short term leases and
leases of low value assets are recognised as an expense on a straight line basis over the lease term.
Key Accounting Judgements, Estimates and Assumptions
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend
the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain
not to be exercised.
The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies judgement in evaluating
whether it is reasonably certain to exercise the options to renew. That is, it considers all relevant factors that create an economic incentive
for it to exercise the renewal. After commencement date, the Group reassess the lease term if there is a significant event or change in
circumstances that is within its control and affects its ability to exercise (or not exercise) the option to renew.
The lease payments are discounted using the interest rate implicit in the lease or the Group’s incremental borrowing rate (IBR). The IBR
is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to
obtain an asset of a similar value to the right of use asset in a similar economic environment. The IBR therefore requires estimation when
no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted
to reflect the terms and conditions of the lease.
Annual Report 2021 87