GlaxoSmithKline plc – Annual report – 31 December 2024
Industry: pharmaceuticals
2. Accounting principles and policies (extract)
Leases
The Group recognises right of use assets under lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. Rights to use assets owned by third parties under lease agreements are capitalised at the inception of the lease and recognised on the balance sheet. Right of use assets are initially measured at the amount of the corresponding lease liability plus lease payments made at or before the commencement day, initial incremental direct costs, asset retirement obligations and less any lease incentives received. They are subsequently measured at cost less accumulated depreciation and impairment losses.
The corresponding liability to the lessor is recognised as a lease obligation within short and long-term borrowings. The lease liability is initially measured at the discounted present value of the lease payments that are not paid at the commencement date. The carrying amount of the lease liability is subsequently increased to reflect interest on the liability and reduced by lease payments made.
For calculating the discounted lease liability on leases with annual payments of £2 million or more, or a non-cancellable term of more than 10 years, the implicit rate in the lease is used. If this is not available, the incremental borrowing rate with a lease specific adjustment is used. If neither of these is available, and for leases with annual payments of less than £2 million, or a non-cancellable term of 10 years or less, the incremental borrowing rate is used. The incremental borrowing rate is the rate of interest at which GSK would have been able to borrow for a similar term and with a similar security the funds necessary to obtain a similar asset in a similar market.
Finance costs are charged to the income statement so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.
Variable rents which are not linked to an index or a rate are not part of the lease liability and the right of use asset. These payments are charged to the income statement as incurred. Lease rental costs for short-term and low-value leases which are not capitalised are also charged to the income statement as incurred.
Non-lease components are accounted for separately from the lease components in plant and equipment leases. For land and buildings or vehicle leases the lease and non-lease components are accounted for together in the lease when the non-lease components can be reliably determined in advance and are charged directly by the lessor.
If modifications or reassessments of lease obligations occur, the lease liability and right of use asset are remeasured.
Right of use assets where title is expected to pass to GSK at a point in the future are depreciated on a basis consistent with similar owned assets. In other cases, right of use assets are depreciated over the shorter of the useful life of the asset or the lease term.
8. Operating profit (extract)
12. Finance expense
18. Right of use assets
Commitments for future payments related to leases not yet commenced but which we have committed to, leases of low-value assets and leases which are less than twelve months are not material.
An analysis of lease liabilities is set out in Note 30, ‘Net debt’.
30. Net debt (extracts)
Lease liabilities
The total cash outflow for leases for the year ended 31 December 2024 was £256 million (2023: £197 million).
The maturity analysis of discounted lease liabilities recognised on the Group balance sheet is as follows:
44. Financial instruments and related disclosures (extract)
(h) Contractual cash flows for non-derivative financial liabilities and derivative instruments (extract)
The following tables provide an analysis of the anticipated contractual cash flows including interest payable for the Group’s nonderivative financial liabilities on an undiscounted basis. For the purpose of this table, debt is defined as all classes of borrowings except for lease liabilities. Interest is calculated based on debt held at 31 December without taking account of future issuance. Floating rate interest is estimated using the prevailing interest rate at the balance sheet date. Cash flows in foreign currencies are translated using spot rates at 31 December.
Accounts examples 