condition required by the lessor. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. The lease payments are discounted using the Group’s incremental borrowing rate. Lease liabilities include the net present value of the following lease payments: • Fixed payments (including in-substance fixed payments), less any lease incentives receivable; • Variable lease payments that are based on an index or a rate; • 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 that option. NOTES TO THE FINANCIAL STATEMENTS31 December 2023 TENAGA NASIONAL BERHAD Integrated Annual Report 2023 226 Accounting Policy (continued) The Group and the Company as lessees (continued) (ii) Subsequent measurement After initial recognition, the Group and the Company measure ROU assets at cost: • Less any accumulated depreciation; • Less any accumulated impairment losses; and • Adjusted for any remeasurement of the lease liabilities. The Group and the Company measure the lease liability by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect lease payments made, and remeasuring the carrying amount to reflect any reassessments or lease modifications. The interest on the lease liability is recognised as finance cost in the statement of profit or loss. (iii) Extension and termination options Extension and termination options are included in a number of property and equipment leases across the Group. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably