b'Notes to the consolidated financial statements continuedFor the year ended 31 March 20201. Accounting policies continuedBusiness combinationsThe Group accounts for business combinations using the acquisition method from the date that control is transferred to the Group. Both the identifiable net assets and the consideration transferred in the acquisition are measured at fair value and transaction costs are expensed as incurred. Goodwill arising on acquisitions is tested annually for impairment. Deferred consideration payable to the vendors is measured at fair value at acquisition and assessed annually with particular reference to the conditions upon which the consideration is contingent.Direct investmentsInvestments that are held as part of the Groups investment portfolio are carried in the balance sheet at fair value even though the Group may have significant influence over those companies. This treatment is permitted by IAS 28 Investments in Associates, which requires such investments to be excluded from its scope where those investments are designated upon initial recognition, as at fair value through profit or loss and accounted for in accordance with IFRS 9 Financial Instruments, with changes in fair value recognised in the relevant period.New standards, interpretations and amendments effective in the current financial yearThe following new standards became effective in the current financial year:Amendments to IFRS 3, Business CombinationsAmendments to IFRS 9, Financial InstrumentsAmendments to IAS 12, Income TaxesAmendments to IAS 19, Employee BenefitsAmendments to IAS 23, Borrowing CostsAmendments to IAS 28, Investments in Associates and Joint VenturesAnnual Improvements to IFRS Standards 2015-2017 CycleThere are no other IFRSs or IFRIC interpretations that are effective that would be expected to have a material impact on the Group.IFRS 16, Leases, is effective for accounting periods beginning on or after 1 January 2019. It replaces IAS 17, Leases, and introduces new or amended requirements with respect to lease accounting. The new standard introduces significant changes to lessee accounting by removing the distinction between operating and finance leases, requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low-value assets when such recognition exemptions are adopted. The impact of the adoption of IFRS 16 on the Groups consolidated financial statements is described below. The Group has applied IFRS 16 using the cumulative catch-up approach which:requires the Group to recognise the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance of retained earnings at the date of initial application; anddoes not require restatement of comparatives, which continue to be presented under IAS 17 and IFRIC 4.Impact of the new definition of a leaseThe Group has made use of the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease. Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to be applied to those leases entered into or changed before 1 January 2019.The change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. This is in contrast to the focus on risks and rewards in IAS 17 and IFRIC 4.The Group has applied the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or changed on or after 1 January 2019. In preparation for the first-time application of IFRS 16, the Group carried out an implementation project. The outcome of the project was that the new definition in IFRS 16 will not significantly change the scope of contracts that meet the definition of a lease for the Group.Impact on lessee accountingIFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet. Payments under operating leases were recognised in the Groups consolidated statement of comprehensive income on a straight-line basis over the term of the lease. Applying IFRS 16 for all leases except as noted below, the Group:recognises right-of-use assets and lease liabilities in the consolidated balance sheet, initially measured at the present value of the future lease payments, with the right-of-use assets adjusted by the amount of any prepaid or accrued lease payments in accordance with IFRS 16: C8(b)(ii);recognises depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of comprehensive income; andseparates the total amount of cash paid into a principal portion (presented within financing activities) and interest (also presented within financing activities) in the consolidated cash flow statement.80 Mercia Asset Management PLCAnnual Report and Accounts 2020'