Changes in Accounting as a Result of the Initial Application of IFRS 16

The new financial reporting standard IFRS 16 (Leases) was adopted on January 1, 2019, and replaces the previous regulations addressing the topic of leases. IFRS 16 was applied using the modified retrospective approach. For this reason, the reference information was not restated. These continue to be presented in accordance with the previous accounting rules (for further details, see the Annual Report 2018, Notes 2.2 and 3).

The IFRS 16 transition rules stipulate that no new assessment must be made at the date of initial application as to whether an existing agreement meets the definition of a lease according to IFRS 16. Instead, existing assessments of leases can continue to be applied. Covestro made use of this exemption provision when applying IFRS 16 for the first time.

With regard to lessees, right-of-use assets required upon initial application of IFRS 16 were generally recognized by Covestro in the amount of the corresponding lease liabilities. In specific cases, an adjustment was made to the right-of-use asset by the amount of the deferred advance payments or liabilities recognized in the financial statements as of the end of fiscal 2018. The initial application did not affect equity. The corresponding lease liability was measured using the incremental borrowing rate at the date of initial application. In addition, Covestro took advantage of the optional exemptions regarding the carrying amount of short-term leases and leases on low-value assets.

The following reconciliations of the carrying amounts of the right-of-use assets and lease liabilities as of January 1, 2019, to the carrying amounts as of March 31, 2019, are broken down into the former finance leases already recognized in the statement of financial position under IAS 17 in conjunction with IFRIC 4 and the former operating leases recognized for the first time as a result of the adoption of IFRS 16.

As of January 1, 2019, property, plant and equipment and financial liabilities increased by €660 million and €656 million, respectively, due to the initial application of IFRS 16. The underlying leases relate mainly to real estate leases and to leases for production and logistics infrastructure.