■ 4.2 Tangible assets
Accounting principles Property, plant and equipment are measured at acquisition cost less accumulated depreciation and impairment losses. The acquisition cost includes costs that are directly incurred in the acquisition of an item of property, plant or equipment. Qualifying external borrowing costs resulting directly from the acquisition, con- struction or manufacture of an item of property, plant or equipment are capitalised as part of the acquisition cost of property, plant and equipment. If a piece of property, plant or equipment consists of several components with differing useful lives, each component is handled as a separate item. In that case, the expenses related to replacing the component are capitalised, and any book value remaining at the time of replacement is derecognised on the balance sheet. Spare parts, spare equipment and maintenance supplies are recog- nised in property, plant and equipment when they fulfill the criteria for recognition of property, plant and equipment. Otherwise, such commodities are classified as inventories. Significant investments in refurbishments and improvements are capitalised on the balance sheet and depreciated over the remaining useful life of the main asset related to such investments. Repair and maintenance costs are recognised as expenses when they are incurred. Property, plant and equipment is depreciated on a straight-line basis over the estimated useful lives. Depreciation is not recognised for owned land and water.
Leases The Group has leased various land areas, properties, equipment and vehicles. When the leased asset is available for the Group’s use, A fixed asset item and a corresponding liability of the lease is recognised. Paid rents are divided into liabilities and finance costs. The finance cost is included in profit or loss over the lease term in such a way that the interest rate of the remaining debt balance is the same during each period. The leased fixed asset is subject to straight-line depreciations over the asset’s economic life or the lease term, depending on which of them is shorter. Assets and liabilities arising from leases are initially measured at the present value. Lease liabilities include fixed payments, less any lease incentives receivable; amounts expected to be payable by the lessee under residual value guarantees; the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined, or the Group’s incre- mental borrowing rate. The leased fixed assets are measured at cost, which includes the amount of the initial measurement of the lease lia- bility; any lease payments made at or before the commencement date, less any lease incentives received; any initial direct costs incurred; and any costs incurred by restoring the site on which it is located. Some of the leases include options to extend or terminate, which are largely available only for the Group, not the lessor. Payments related to short-term leases or leases where the value of the underlying asset is low are recognised as costs on a straight-line basis. A lease with a lease term of 12 months or less is considered a short-term lease. Assets of a low value include mainly ICT and office equipment. Key estimates and judgments Estimates concerning the residual value and useful life of property, plant and equipment, as well as the selection of the depreciation method, require significant management judgement. Leases When determining the lease term, the management accounts for all relevant facts and circumstances that create an economic incentive to exercise the option to extend the lease, or not to exercise the option to terminate the lease. Options to extend the lease (or the time subsequent to an option to terminate) are accounted for in the lease term only if the extension of the lease (or the decision not to terminate the lease) is reasonably certain. The possible future cash flows of EUR 2.0 million have not been included in the lease liability because the extension of the lease (or the decision not to terminate it) is not reasonably certain. The Group will conduct a reassessment upon the occurrence of either a significant event or a significant change in circumstances that is within the control of the lessee and affects the assessment.
Estimated useful lives Buildings and constructions Machinery and equipment Heavy power plant machinery
20–40 years
20–40 years
Other heavy machinery
15–20 years
Lightweight machinery and equipment
5–15 years
Other tangible assets
5–20 years
The residual value of an asset, the financial useful life and depreciation method are reviewed at least annually, at the end of each financial period, and adjustments are made when necessary to reflect changes in the expected financial benefit of the asset. Gains and losses arising from the sale and decommissioning of items of property, plant and equipment are recognised in other operating income and expenses. Sales gains or losses are calculated as the difference between the sales price and the remaining acquisition cost. Government grants related to the acquisition of assets are presented as adjustments of the acquisition cost on the balance sheet and recognised as income in the form of lower depreciation during the useful life of the asset.
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Consolidated financial statements | METSÄ BOARD ANNUAL AND SUSTAINABILITY REPORT 2022
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