Table:
|  | CONSOLIDATED |  |
| --- | --- | --- |
|  | 2019 $’000 | 2018 $’000 |
| Lease liabilities |  |  |
| Current | 2,569 | 2,599 |
| Non-current | 6,773 | 5,934 |
|  | 9,342 | 8,533 |
Paragraphs:
3.5 Leases
Recognition, measurement and classification
The Group has applied AASB 16 using the retrospective approach. The impact of changes is disclosed in Note 1.6.
At inception of a contract, the Group assesses whether a contract is, or contains a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group assesses whether:
• The contract involves the use of an identified asset – this may be specified explicitly or implicitly, and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified.
• The Group has the right to obtain substantially all of the economic benefits from the use of the asset throughout the period of use; and
• The Group has the right to direct the use of the asset. The Group has this right when it has the decisionmaking rights that are most relevant to changing how and for what purpose the asset is used. In rare cases where all the decisions about how and for what purpose the asset is used are predetermined, the Group has the right to direct the use of the asset if either:
• The Group has the right to operate the asset
•• The Group designed the asset in a way that predetermines how and for what purpose it will be used
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. For measurement and recognition of right-of-use assets, refer to Note 3.1.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise:
• Fixed payments, including in-substance fixed payments;
• variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
• amounts expected to be payable under a residual value guarantee; and
• the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Short-term leases and leases of low-value assets
The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less and leases of low-value assets, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Question:
How is the lease liability measured?
Answer: at amortised cost using the effective interest method