ANNUAL REPORT 2021

Annual report 2021 Železiarne Podbrezová a.s. 64 12 (ii) Leased assets Assets acquired under a lease are recognised at their cost as assets as at the acquisition date. The related lease liability is initially measured at the present value of the lease payments payable over the lease term and discounted at the interest rate implicit in the lease if such a rate can be readily determined. If this rate cannot be readily determined, the lessee must use their incremental borrowing rate. The related payable to the lessor is recognised as a lease liability in the balance sheet. Finance costs representing the difference between the total lease liability and the fair value of acquired assets are recognised through profit or loss over the lease term (IFRS 16). IFRS 16 “Leases” - issued by IASB on 13 January 2016 - effective for the annual period beginning on or after 1 January 2019 defines a lease as a contract, or part of a contract, that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At the inception of a contract, the Group assesses whether the 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. The Group recognises right - of - use assets and a lease liability in accordance with IFRS 16 where the Group is a lessee. An exemption is applied to short - term leases with the lease term of 12 months or less and to leases where the underlying asset is of low value. Upon the initial recognition under IFRS 16, the Group applied a partially retrospective approach. The right - of - use asset ismeasured atthesameamount asthe lease liability adjustedforthe lease payments recognised before or atthe date of initial application, less lease payments received and initial direct expenses. Subsequently, the right - of - use asset is measured at cost less accumulated depreciation and provisions. The right - of - use asset is depreciated over the shorter of the term of a lease contract and the useful life of the underlying asset. If the ownership title to the underlying asset is transferred to the lessee at the end of the lease term or if it is probable that the lessee will exercise an option to purchase the underlying asset, the right - of - use asset is depreciated over the useful life of the underlying asset. Assets are depreciated starting on the first day of the lease contract. (iii) Subsequent expenditures Anysubsequent expenditures incurredto replaceacomponent of non - currenttangibleassetsthat is recognisedseparately, including inspectionsand general overhauls, are capitalised provided that they meet the basic criteria for the recognition of non - current tangible assets, and the cost of the component can be measured reliably. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of assets exceeding their original performance. All other expenditure made after the acquisition of non - current tangible assets to restore or maintain the extent of future economic benefits is recognised as an expense when incurred (insignificant repairs and maintenance). (h) Intangible assets (i) Goodwill Goodwill arising on an acquisition is initially measured at cost, as stated above in paragraph (c) (i). When adopting IFRS 3, the cost of goodwill is adjusted for impairment losses, if any. Goodwill that arose on business combination is allocated upon an acquisition to cash - generating units (CGU) that are expected to benefit from the synergies of the business combination. The impairment of goodwill is tested annually or more frequently when there is an indication that the unit may be impaired. The recoverable amount of the cash - generating unit is determined based on the value in use calculation. Underlying assumptions used incalculating thevalue inuseareassumptions relatedtothediscount rate,growth rateand estimated revenuesand expensesduring the period. The management estimates discount rates using pre - tax rates that reflect current market assessments of the time value of money and the risks specific to the relevant CGU. (ii) Software Software is measured at cost less accumulated depreciation. Software is depreciated using linear depreciation over the expected useful life, which is 4 - 5 years. (iii) Research and development Costs of research and development are recognised as expenses except those costs incurred on development projects that are recognised as intangible assetstotheextentoffutureeconomicbenefits.However,developmentcosts initiallyrecognisedasanexpensearenotcapitalised insubsequentperiods. (iv) Subsequent expenditures Subsequent expenditures are capitalised only when it is assumed that they meet the definition of non - current intangible assets and the basic requirements for their recognition. All other expenditures are expensed as incurred. (i) Investment in securities Investments in securities are recognised as at the transaction date and are measured upon acquisition at cost less impairment losses, if any. Held - to - maturity investments are initially recognised at cost and subsequently at amortised cost using the effective interest ratemethod. Available - for - sale investments represent insignificant unconsolidated subsidiaries and insignificant participations in equity of various companies in which the Group neither holds, directly or indirectly, more than 20% of the voting rights nor exercises substantial influence. Available - for - sale investments are recognised as at the transaction date and are measured at cost at their acquisition. At the reporting date they are measuredatfairvaluebased onquotedmarket pricesassuming there isan activemarket.Unrealisedgainsand lossesarerecogniseddirectly in equity until such financial investments are sold or impaired; at which time the accumulated gains and losses are recognised in the statement of comprehensive income. In the event the fair value of available - for - sale investments cannot be reliably estimated, the investments are carried at cost less any items reflecting their permanent impairment. These provisions are recognised in the statement of comprehensive income. (j) Trade and other receivables Trade and other receivables are measured at expected realisable value, including provisions for bad and doubtful receivables. (k) Inventories Inventories are measured at the lower of cost, own costs, or net realisable value. Net realisable value represents the estimated selling price less the estimatedcosts ofcompletionandcostsof distribution.A provision is mainlycreatedforslow - moving and obsolete inventories based onan individual assessment. Material is measured by weighted average cost that includes the cost of acquisition of the material and other costs related to acquisition that arose on bringing the assets to their current condition and location. Work in progress, semi - finished goods and finished goods are measured at own costs, which include the costs of material, wages and salaries, other direct expenses and production overheads depending on the stage of completion of the inventory. A provision is created for slow - moving and obsolete inventories based on an individual assessment. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 (IN EUROS)