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LEASING TRANSACTIONS | 12 Months Ended
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Dec. 31, 2021
LEASING TRANSACTIONS |
| 19. | LEASING TRANSACTIONS
The Company recognized a right to use and a lease liability for the following contracts which contain a lease in accordance with IFRS 16:
| § | Leasing of commercial real estate used for serving customers;
| § | Leasing of building used as administrative headquarter;
| § | Leasing of commercial vehicles used in operations.
The Company has elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (short-term leases), and lease contracts for which the underlying asset is of low value (low-value assets). Thus, these leasing agreements are recognized as an expense in the income statement on the straight-line basis, over the period of the leasing. Their effects on net income from January to December 2021 were immaterial. The discount rates were obtained by reference to the Company’s incremental borrowing rate. In August 2021 the Company reviewed the methodology for discount rates estimation, which is now based on the risk-free rate adjusted to the reality of the Company, in order to reflect more appropriately its credit risk, and the economic conditions on the date of the agreement, as follows:
Marginal rates |  |  | Annual rate (%) |  |  | Monthly rate (%)
Initial application |  |  |  |
Up to two years |  |  | 7.96 |  |  | 0.64
Three to five years |  |  | 10.64 |  |  | 0.85
Six to twenty years |  |  | 13.17 |  |  | 1.04
Contracts entered – 2019 at 2021 |  |  |  |  |  |
Up to three years |  |  | 6.87 |  |  | 0.56
Three to four years |  |  | 7.33 |  |  | 0.59
Four to twenty years |  |  | 8.08 |  |  | 0.65
Contracts entered – August at December 2021 (1) |  |  |  |  |  |
Up to five years |  |  | 5.81 |  |  | 0.47
Six to ten years |  |  | 5.89 |  |  | 0.48
Eleven to fifteen years |  |  | 5.95 |  |  | 0.49
Sixteen to thirty years |  |  | 5.95 |  |  | 0.49
| (1) | Monthly the Company calculates the addition to the rate to be applied to the new contracts. For the purposes of publication, these are presented at the average rates used.
| a) | Right-of-use assets
The right-of-use assets were valued at cost, corresponding to the amount of the initial measurement of the lease liabilities, adjusted by its remeasurements, and amortized on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets. Changes in the right-of-use assets are as follows:
|  |  | Real estate property |  |  | Vehicles |  |  | Total
Balances at December 31, 2019 |  |  | 206 |  |  |  | 71 |  |  |  | 277 |
Disposals (contracts terminated) |  |  | (9 | ) |  |  | — |  |  |  | (9 | )
Amortization |  |  | (25 | ) |  |  | (40 | ) |  |  | (65 | )
Addition |  |  | 6 |  |  |  | — |  |  |  | 6 |
Remeasurement |  |  | 7 |  |  |  | (4 | ) |  |  | 3 |
Balances at December 31, 2020 |  |  | 185 |  |  |  | 27 |  |  |  | 212 |
Disposals (contracts terminated) |  |  | (5 | ) |  |  | — |  |  |  | (5 | )
Amortization (1) |  |  | (8 | ) |  |  | (41 | ) |  |  | (49 | )
Addition |  |  | 11 |  |  |  | — |  |  |  | 11 |
Remeasurement (2) |  |  | 9 |  |  |  | 48 |  |  |  | 57 |
Balances at December 31, 2021 |  |  | 192 |  |  |  | 34 |  |  |  | 226 |
| (1) | Amortization of the right-of-use assets is recognized in the Income Statement is net of use of the credits of PIS, Pasep and Cofins taxes on leasing payments of R$1 (R$2 on December 31, 2020).
| (2) | The Company has identified events giving rise to modifications of their principal contracts. When occurred, the lease liabilities adjustments are recognized in counterpart of the right-of-use assets.
| b) | Lease liabilities
The liability for leasing agreements is measured at the present value of lease payments to be made over the lease term, discounted at the Company’s incremental borrowing rate. The liability carring amount is remeasured to reflect leases modifications as specified in IFRS 16. The changes in the lease liabilities are as follows:
|  | 2019
Balances at December 31, 2019 |  |  | 288 |
Addition |  |  | 6 |
Disposals (contracts terminated) |  |  | (10 | )
Accrued interest |  |  | 29 |
Payment of principal portion of lease liability |  |  | (84 | )
Payment of interest |  |  | (4 | )
Remeasurement (2) |  |  | 2 |
Balances at December 31, 2020 |  |  | 227 |
Addition |  |  | 11 |
Disposals (contracts terminated) |  |  | (5 | )
Accrued interest (1) |  |  | 27 |
Payment of principal portion of lease liability |  |  | (70 | )
Payment of interest |  |  | (3 | )
Remeasurement (2) |  |  | 57 |
Balances at December 31, 2021 |  |  | 244 |
Current liabilities |  |  | 62 |
Non-current liabilities |  |  | 182 |
| (1) | Financial expenses recognized in the income statement are net of PIS/Pasep and Cofins taxes credits on lease payments in the amounts of R$2 (R$2 on December 31, 2020).
| (2) | The Company identified events that give rise to modifications of their principal contracts. When occurred, the lease liabilities adjustments are recognized in counterpart of the right-of-use assets.
The potential right to recovery of PIS/Pasep and Cofins taxes embedded in the leasing consideration, according to the periods specified for payment, is as follows:
Cash flow |  | Nominal |  | Adjusted to present value
Consideration for the leasing |  |  | 663 |  |  |  | 244 |
Potential PIS/Pasep and Cofins (9.25%) |  |  | 56 |  |  |  | 18 |
The cash flows of the contracts containing a lease are, in their majority, indexed to the IPCA inflation index on an annual basis. Below is an analysis of maturity of lease contracts:
2022 |  |  |  | 65 |
2023 |  |  |  | 29 |
2024 |  |  |  | 29 |
2025 |  |  |  | 28 |
2026 |  |  |  | 28 |
2027 at 2046 |  |  |  | 484 |
Undiscounted values |  |  |  | 663 |
Embedded interest |  |  |  | (419 | )
Lease liabilities |  |  |  | 244 |

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- Definition The entire disclosure for leases. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Name IFRS -Number 16 -IssueDate 2021-01-01 -Section Presentation -URI http://eifrs.ifrs.org/eifrs/xifrs-link?type=IFRS&num=16&code=ifrs-tx-2021-en-r&doctype=Standard&dita_xref=IFRS16_g47-50_TI -URIDate 2021-03-24 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Name IFRS -Number 16 -IssueDate 2021-01-01 -Section Disclosure -URI http://eifrs.ifrs.org/eifrs/xifrs-link?type=IFRS&num=16&code=ifrs-tx-2021-en-r&doctype=Standard&dita_xref=IFRS16_g51-60_TI -URIDate 2021-03-24 + Details
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