CITIC Limited Half-Year Report 2019

43 CITIC Limited Half-Year Report 2019 For the six months ended 30 June 2019 2 Basis of preparation and changes in significant accounting policies (continued) (b) Changes in significant accounting policies (continued) Measurement of lease liabilities (continued) Note: The weighted average lessee’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 was from 3.10% to 6.00%. In applying HKFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard: • the use of a single discount rate to a portfolio of leases with reasonably similar characteristics; • The ROU assets should be adjusted according to the loss reserve amount included in the balance sheet before the initial application date; • the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases; • the exclusion of initial direct costs for the measurement of the ROU asset at the date of initial application; and • The lease term may be determined on the basis of the actual exercise of the option before the initial application date and other latest information. 3 Critical accounting estimates and judgements In addition to those described below, the accounting estimates and judgements required to be made in preparation of the Accounts are consistent with those set out in the Company’s annual financial statements for the year ended 31 December 2018. (a) Metallurgical Corporation of China (“MCC”) claim MCC was appointed as the EPC (engineering, procurement and construction) contractor for the processing area and related facilities at the Group’s Sino Iron project in Western Australia (“Sino Iron Project”). The fixed price contract amount was US$3.4 billion. On 30 January 2013, MCC announced that it had incurred costs over the value of the contract and had provided additional funding of US$858 million to MCC Mining (Western Australia) Pty Ltd (“MCC WA”), its wholly owned subsidiary company responsible for delivering MCC’s obligations under the contract. As at the date of issuance of the financial statements, MCC has not claimed any additional costs from Sino Iron Pty Ltd (“Sino Iron”) or its subsidiary companies, other than minor contract variations in the normal course of operations, and the Group believes it has satisfied all of its obligations under the contract. Under the contract, the Group has a right to claim liquidated damages from MCC WA for certain delays in the completion of their project scope at a daily amount of 0.15% of the value of the main contract (approximately US$5 million per day, with a cap of approximately US$530 million in total). As at balance sheet date the cumulative days delay that has been incurred has resulted in the contractual cap to the liquidated damages being reached. Notes to the Consolidated Financial Statements