34 IFRS 16 (Leases)

1. LESSEE ACCOUNTING

The Volkswagen Group is a lessee, mainly as a result of leasing office equipment, real estate and other means of production. The leases are negotiated individually and include a large number of contract terms and conditions. The following amounts for right-of-use assets resulting from leases are included in the balance sheet items:

Subleases of right-of-use assets generated income of €20 million in the fiscal year.

The measurement of right-of-use assets from leases and the associated lease liabilities is based on a best estimate regarding the exercise of extension and termination options. If there are material changes in circumstances or in the contract, this estimate is updated.

The tables below show how the lease liabilities are assigned in the balance sheet and give an overview of their contractual maturities:

Interest expenses of €230 million were incurred for lease liabilities in the fiscal year.

No right-of-use assets are recognized for low-value or short-term leases. Expenses for leasing low-value assets totaled €270 million in the fiscal year. This figure does not include any expenses for short-term leases, which totaled €333 million in the fiscal year. Variable lease expenses not included in the measurement of lease liabilities accounted for €1 million in the fiscal year.

Leases gave rise to cash outflows totaling €1,797 million in the fiscal year.

The table below shows a summary of potential future cash outflows, that have not been included in the measurement of the lease liabilities:

2. LESSOR ACCOUNTING

The Volkswagen Group is a lessor in both the finance lease business and the operating lease business. The subject of these transactions is primarily motor vehicles and, to a small extent, land and buildings and items of equipment for dealerships.

The Volkswagen Group fully accounts for the default risk on lease receivables by recognizing loss allowances, which are recognized in accordance with the requirements of IFRS 9. As lessor, the Volkswagen Group covers risks arising from the assets underlying the leases by, among other measures, taking account of residual value guarantees received for parts of the lease portfolio and by taking account of forward-looking residual values forecast on the basis of internal and external information as part of residual value management. The forecast residual values are regularly reviewed.

2.1 OPERATING LEASES

Assets leased under long-term operating leases amounted to €49,476 million at the end of the fiscal year. While €538 million is attributable to investment property, assets separately reported as lease assets in the balance sheet amount to €48,938 million. They relate primarily to vehicles in an amount of €48,853 million as well as land, land rights and buildings, including buildings on third-party land, in an amount of €78 million. The remaining assets relate to technical equipment and machinery as well as other equipment, operating and office equipment. More information on changes in value of investment property and lease assets can be found in the section entitled “Lease assets and investment property”.

The following cash inflows from expected outstanding, non-discounted operating lease payments are expected over the coming years:

2.2 FINANCE LEASES

Interest income from the net investment in the leases amounted to €2.4 billion in the fiscal year. Furthermore, a selling profit from the finance leases in the amount of €1.2 billion was recognized.

The following table shows the reconciliation of outstanding lease payments under finance leases to the net investment:

The following cash inflows from expected outstanding, non-discounted finance lease payments are expected over the coming years: