Burberry Group plc – Annual report – 2 April 2022
1. Basis of preparation (extract)
New standards, amendments and interpretations adopted in the period
There have been no new standards or interpretations issued and made effective for the financial period commencing 28 March 2021 that have had a material impact on the financial statements of the Group. The following amendment to IFRS 16 was applied in the financial statements for the 52 weeks to 27 March 2021 and continued to be applied in the financial statements for the 53 weeks to 2 April 2022.
IFRS 16 Leases – COVID-19-Related Rent Concessions
The COVID-19-Related Rent Concessions amendment to IFRS 16 Leases was adopted by the IASB on 28 May 2020 and endorsed by the United Kingdom on 12 October 2020. The amendment was intended to apply until 30 June 2021, but as the impact of the COVID-19 pandemic is continuing, on 31 March 2021, the IASB extended the period of application of the practical expedient to 30 June 2022. The amendment allows for a simplified approach to accounting for rent concessions occurring as a direct result of COVID-19 and for which the following criteria are met:
- The revised consideration is substantially the same, or less than, the consideration prior to the change
- The concessions affect only payments originally due on or before 30 June 2022 and
- There is no substantive change to other terms and conditions of the lease
Lessees are not required to assess whether eligible rent concessions are lease modifications, allowing the lessee to account for eligible rent concessions as if they were not lease modifications. During the period, the Group has agreed rent concessions both in the form of rent forgiveness in which the landlord has agreed to forgive all or a portion of rents due with no obligation to be repaid in the future, and rent deferrals in which the landlord has agreed to forego rents in one period with a proportional increase in rents due in a future period.
The Group has chosen to account for eligible rent forgiveness as negative variable lease payments. The rent concession has been recognised once a legally binding agreement is made between both parties by derecognising the portion of the lease liability that has been forgiven and recognising the benefit in the Income Statement. As a result, the Group has recognised £18 million (last year: £54 million) in COVID-19-related rent concessions in the Income Statement within “net operating expenses” in the current period. This has been presented as an adjusting item (refer to note 6). In the Statement of Cash Flows, the forgiveness results in lower payments of lease principal. The negative variable lease payments in the Income Statement is a non-cash item which is added back to calculate cash generated from operating activities.
Rent deferrals do not change the total consideration due over the life of the lease. Deferred rent payments are recognised as a payable until the period the original rent payment is due. As a result, the Group has recognised £nil million (last year: £4 million) within other payables. Payments relating to rent deferrals are recognised as payments of lease principal when the payment is made.