2.4. Summary of material accounting policies
a. Use of Estimates
The preparation of the financial statements requires the
Management to make estimates and assumptions
considered in the reported amounts of assets and
liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and
expenses during the reporting period. Examples of such
estimates include provision for doubtful receivables
/advances, provision for employee benefits, useful lives of
property plant and equipment, assessment of control,
provision for contingencies etc. Management believes
that the estimates used in the preparation of the financial
statements are prudent and reasonable. Future results
may vary from these estimates. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised prospectively in
the year in which the estimate is revised and/or in future
years, as applicable.
b. Current versus non-current classification
The Company presents assets and liabilities in the
balance sheet based on current/non-current
classification. An asset is treated as current when it is:
• Expected to be realised or intended to be sold or
consumed in normal operating cycle
• Held primarily for the purpose of trading
• Expected to be realised within twelve months after the
reporting period, or
• Cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least
twelve months after the reporting period
All other assets are classified as non-current.
A liability is current when:
• It is expected to be settled in normal operating cycle
• It is held primarily for the purpose of trading
• It is due to be settled within twelve months after the
reporting period, or
• There is no unconditional right to defer the settlement
of the liability for at least twelve months after the
reporting period
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as
non-current assets and liabilities.
The operating cycle is the time between the acquisition of
assets for processing and their realisation in cash and
cash equivalents. The Company has identified twelve
months as its operating cycle.
Foreign Currencies
The Company’s financial statements are presented in
INR, which is also the company’s functional currency.
Transactions and balances
Transactions in foreign currencies are initially recorded by
the Company at the functional currency spot rate at the
date of the transaction first qualifies for recognition.
However, for practical reasons, the Company uses an
average rate if the average approximates the actual rate
at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot
rates of exchange at the reporting date.
Exchange differences arising on settlement or translation
of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using
the exchange rates at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the
date when the fair value is determined. The gain or loss
arising on translation of non-monetary items measured at
fair value is treated in line with the recognition of the gain
or loss on the change in fair value of the item (i.e.,
translation differences on items whose fair value gain or
loss is recognised in OCI or profit or loss are also
recognised in OCI or profit or loss, respectively).
c. Revenue Recognition
The Company derives revenue primarily from sale of milk
and milk products. Revenue is measured based on the
consideration specified in a contract with a customer and
excludes amounts collected on behalf of third parties.
Revenue is measured based on at the amount of
transaction price (net of variable consideration) allocated
to that performance obligation .The transaction price of
goods sold and services rendered is net of variable
consideration on account of customer return, various
discounts, rebates, schemes offered by the Company as
a part of the contract. The company recognises revenue
when it transfer control of product to a customer.
Revenues and costs relating to sales contracts are
recognised as the related goods are delivered, and titles
have passed, at which time all the following conditions
are satisfied-:
- the Company has transferred to the buyer the
control over the goods;
- the Company retains neither continuing managerial
involvement to the degree usually associated with
ownership nor effective control over the goods sold;
- the amount of revenue can be measured reliably;
- it is probable that the economic benefits associated
with the transaction will flow to the company ; and
- the costs incurred or to be incurred in respect of the
transactions can be measured reliably.
'The Company accounts for discounts and pricing
incentives to customers as a reduction of revenue based
on the ratable allocation of the discounts/ incentives to
each of the underlying performance obligation that
corresponds to the progress by the customer towards
earning the discount/ incentive."
Interest income
Interest income is recorded using the effective interest
rate (EIR). EIR is the rate that exactly discounts the
estimated future cash payments or receipts over the
expected life of the financial instrument or a shorter
period, where appropriate, to the gross carrying amount
of the financial asset or to the amortised cost of a financial
liability. When calculating the effective interest rate, the
Company estimates the expected cash flows by
considering all the contractual terms of the financial
instrument (for example, prepayment, extension, call and
similar options) but does not consider the expected credit
losses. Interest income is included in other income in the
statement of profit and loss.
d. Government grants
Government grants are recognised where there is
reasonable assurance that the grant will be received and
all attached conditions will be complied with. When the
grant relates to an expense item, it is recognised as
income on a systematic basis over the periods that the
related costs, for which it is intended to compensate, are
expensed. When the grant relates to an asset, it is
recognised as income in equal amounts over the
expected useful life of the related asset.
When the Company receives grants of non-monetary
assets, the asset and the grant are recorded at fair value
amounts and released to profit or loss over the expected
useful life in a pattern of consumption of the benefit of the
underlying asset i.e. by equal annual instalments. When
loans or similar assistance are provided by governments
or related institutions, with an interest rate below the
current applicable market rate, the effect of this
favourable interest is regarded as a government grant.
The loan or assistance is initially recognised and
measured at fair value and the government grant is
measured as the difference between the initial carrying
value of the loan and the proceeds received. The loan is
subsequently measured as per the accounting policy
applicable to financial liabilities.
e. Taxes
Current Income Tax
The tax payable for the current year is based on taxable
profit for the year .Taxable profit differs from net profit as
reported in profit or loss because it excludes items of
income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable
and deductible. Current income tax assets and liabilities
are measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax rates and
tax laws used to compute the amount are those that are
enacted or substantively enacted, at the reporting date.
Management periodically evaluates positions taken in the
tax returns with respect to situations in which applicable
tax regulations are subject to interpretation and
establishes provisions where appropriate. A provision is
recognised for those matters for which the tax
determination is uncertain but considered probable that
there will be future outflow of funds to a tax authority. The
provision is measured at the best estimate of the amount
expected to be payable. The Company measures its tax
balances either based on the most likely amount or the
expected value, depending on which method provides a
better prediction of the resolution of the uncertainty.
Deferred Tax
Deferred tax is recognised on temporary differences
between the carrying amounts of assets and liabilities in
the Financial Statements and the corresponding tax
bases used in the computation of taxable profit and is
accounted for using liability method. Deferred tax
liabilities are generally recognised for all taxable
temporary differences. Deferred tax assets are generally
recognised for all deductible temporary differences to the
extent that it is probable that taxable profits will be
available against which those deductible temporary
differences can be utilised. Such deferred tax assets and
liabilities are not recognised if the temporary difference
arises from the initial recognition (other than in a business
combination) of assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit.
In addition, deferred tax liabilities are not recognised if the
temporary difference arises from the initial recognition of
goodwill.
The carrying amount of deferred tax assets is reviewed at
the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to
be recovered.
Deferred tax liabilities and assets are measured at the tax
rates that are expected to apply in the period in which the
liability is settled or the asset realised, based on tax rates
(and tax laws) that have been enacted or substantively
enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets
reflects the tax consequences that would follow from the
manner in which the Company expects, at the end of the
reporting period, to recover or settle the carrying amount
of its assets and liabilities.
Deferred tax assets and liabilities are offset where there is
a legally enforceable right to offset current tax assets and
liabilities and where the deferred tax balances relate to the
same taxation authority. Current tax assets and tax
liabilities are offset where the entity has a legally
enforceable right to offset and intends either to settle on a
net basis, or to realise the asset and settle the liability
simultaneously.
Current and Deferred tax
Current and Deferred tax are recognised in Profit and
Loss except when they relate to items that are recognised
in other comprehensive income or directly in equity, in
which case, the current and deferred tax are also
recognised in other comprehensive income or equity or
directly in equity respectively
f. Property plant and equipment
Land and buildings held for use in the production or
supply of goods or services, or for administrative
purposes, are stated in the balance sheet at cost less
accumulated depreciation and accumulated impairment
losses. Freehold land is not depreciated.
Plant and equipment is stated at cost, net of accumulated
depreciation and accumulated impairment losses, if any.
Such cost includes the cost of replacing part of the plant
and equipment and borrowing costs for long-term
construction projects if the recognition criteria are met.
When significant parts of plant and equipment are
required to be replaced at intervals, the Company
depreciates them separately based on their specific
useful lives. Likewise, when a major inspection is
performed, its cost is recognised in the carrying amount
of the plant and equipment as a replacement if the
recognition criteria are satisfied. An item of PPE is
derecognised upon disposal or when no future economic
benefit are expected to arise from the continued use of
the asset. The gain or loss arising on the disposal or
retirement of an asset is determined as the difference
between the net disposal proceeds and the carrying
amount of the asset and is recognised in P&L.
Properties in course of construction for production,
supply or administrative purposes or for purposes not yet
determined, are carried at cost less any recognised
impairment loss. Cost includes professional fees and
qualifying assets borrowing cost capitalised in
accordance with Company's accounting policy.
Depreciation on these assets, determined on the same
basis as other property assets, commence when the
assets are ready for its intended use.
Cost of spares relating to specific Property Plant and
Equipment individually greater than ?1 Lakh per unit is
capitalised. All other are expensed as repair and
maintenance costs in profit or loss as incurred.
Furnitures and fixtures, Office equipments are stated at
cost less accumulated depreciation and accumulated
impairment losses, if any.
Leasehold Improvements thereon are amortised over the
primary period of lease.
Depreciation on assets is provided using the straight-line
method based on rates specified in Schedule II to the
Companies Act, 2013 or on estimated useful lives of
assets by the management, whichever is higher.
Depreciation is also accelerated on assets, based on their
condition, usability etc. as per the technical estimates of
the Management, wherever necessary.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate.
g. Intangible assets including Goodwill
Intangible assets acquired separately are measured on
initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortisation and accumulated impairment losses.
Intangible assets with finite lives are amortised over the
useful economic life and assessed for impairment
whenever there is an indication that the intangible asset
may be impaired. The amortisation period and the
amortisation method for an intangible asset with a finite
useful life are reviewed at least at the end of each reporting
period. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits
embodied in the asset are considered to modify the
amortisation period or method, as appropriate, and are
treated as changes in accounting estimates. The
amortisation expense on intangible assets with finite lives is
recognised in the statement of profit and loss unless such
expenditure forms part of carrying value of another asset.
Goodwill arising on an acquisition of a business is carried
at cost as established at the date of acquisition of the
business less accumulated impairment losses, if any.
h. Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily
takes a substantial period of time to get ready for its
intended use or sale are capitalised as part of the cost of
the asset. All other borrowing costs are expensed in the
period in which they occur. Borrowing costs consist of
interest and other costs that an entity incurs in connection
with the borrowing of funds. Borrowing cost also includes
exchange differences to the extent regarded as an
adjustment to the borrowing costs.
i. Leases
The Company’s lease asset classes primarily consist of
leases for land and buildings. The Company assesses
whether a contract contains a lease, at inception of a
contract. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. To
assess whether a contract conveys the right to control the
use of an identified asset, the Company assesses
whether: (i) the contract involves the use of an identified
asset (ii) the Company has substantially all of the
economic benefits from use of the asset through the
period of the lease and (iii) the Company has the right to
direct the use of the asset. "
Assets and liabilities arising from a lease are initially
measured on a present value basis. 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, initially measured using the index or
rate as at the commencement date
• amounts expected to be payable by the Company
under residual value guarantees
• the exercise price of a purchase option if the Company
is reasonably certain to exercise that option,
• lease payments to be made under an extension option
if the Company is reasonably certain to exercise the
option, and
Lease payments to be made under reasonably certain
extension options are also included in the measurement
of the liability
Lease payments are allocated between principal and
finance cost. The finance cost is charged to profit or loss
over the lease period so as to produce a constant
periodic rate of interest on the remaining balance of the
liability for each period.
Variable lease payments that depend on sales are
recognised in profit or loss in the period in which the
condition that triggers those payments occurs
At the date of commencement of the lease, the Company
recognises a right-of-use asset (“ROU”) and a
corresponding lease liability for all lease arrangements in
which it is a lessee, except for leases with a term of twelve
months or less (short-term leases) and low value leases.
For these short-term and low value leases, the Company
recognises the lease payments as an operating expense
on a straight-line basis over the term of the lease.
Certain lease arrangements includes the options to
extend or terminate the lease before the end of the lease
term. ROU assets and lease liabilities includes these
options when it is reasonably certain that they will be
exercised.
The right-of-use assets are initially recognised at cost,
which comprises the initial amount of the lease liability
adjusted for any lease payments made at or prior to the
commencement date of the lease plus any initial direct
costs less any lease incentives. They are subsequently
measured at cost less accumulated depreciation and
impairment losses.
Right-of-use assets are depreciated from the
commencement date on a straight-line basis over the
shorter of the lease term and useful life of the underlying
asset. Right of use assets are evaluated for recoverability
whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable. For
the purpose of impairment testing, the recoverable
amount (i.e. the higher of the fair value less cost to sell
and the value-in-use) is determined on an individual asset
basis unless the asset does not generate cash flows that
are largely independent of those from other assets. In
such cases, the recoverable amount is determined for the
Cash Generating Unit (CGU) to which the asset belongs.
The lease liability is initially measured at amortised cost at
the present value of the future lease payments. The lease
payments are discounted using the interest rate implicit in
the lease or, if not readily determinable, using the
incremental borrowing rates in the country of domicile of
these leases. Lease liabilities are re-measured with a
corresponding adjustment to the related right of use asset
if the Company changes its assessment if whether it will
exercise an extension or a termination option.
Lease liability and ROU asset have been separately
presented in the Balance Sheet and lease payments have
been classified as financing cash flows.
j. Inventories
Inventories are valued at the lower of cost and net
realisable value.
Costs incurred in bringing each product to its present
location and condition are accounted for as follows:
Raw materials: Cost includes cost of purchase and other
costs incurred in bringing the inventories to their present
location and condition. Cost is determined on weighted
average basis.
Finished goods and work in progress: Cost includes cost
of direct materials and labour and a proportion of
manufacturing overheads based on the normal operating
capacity, but excluding borrowing costs. Cost is
determined on weighted average basis.
Traded goods: Cost includes cost of purchase and other
costs incurred in bringing the inventories to their present
location and condition. Cost is determined on weighted
average basis.
Due allowance is estimated and made by the
Management for slow moving/non-moving items of
inventory of finished goods, wherever necessary, based
on the technical assessment and such allowances are
adjusted against the closing inventory value. Net
realisable value is the estimated selling price in the
ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make
the sale.
k. Impairment of non-financial assets
The Company assesses, at each reporting date, whether
there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for
an asset is required, the Company estimates the asset’s
recoverable amount. An asset’s recoverable amount is
the higher of an asset’s or cash-generating unit’s (CGU)
fair value less costs of disposal and its value in use.
Recoverable amount is determined for an individual
asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets or
groups of assets. When the carrying amount of an asset
or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its
recoverable amount.
In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of
the time value of money and the risks specific to the
asset. In determining fair value less costs of disposal,
recent market transactions are taken into account. If no
such transactions can be identified, an appropriate
valuation model is used. These calculations are
corroborated by valuation multiples, quoted share prices
for publicly traded companies or other available fair value
indicators.
The Company bases its impairment calculation on
detailed budgets and forecast calculations, which are
prepared separately for each of the Company’s CGUs to
which the individual assets are allocated. These budgets
and forecast calculations generally cover a period of five
years. For longer periods, a long-term growth rate is
calculated and applied to project future cash flows after
the fifth year. To estimate cash flow projections beyond
periods covered by the most recent budgets/forecasts,
the Company extrapolates cash flow projections in the
budget using a steady or declining growth rate for
subsequent years, unless an increasing rate can be
justified. In any case, this growth rate does not exceed the
long-term average growth rate for the products,
industries, or country or countries in which the entity
operates, or for the market in which the asset is used.
Impairment losses are recognised in the statement of
profit and loss.
For assets excluding goodwill, an assessment is made at
each reporting date to determine whether there is an
indication that previously recognised impairment losses
no longer exist or have decreased. If such indication
exists, the Company estimates the asset’s or CGU’s
recoverable amount. A previously recognised impairment
loss is reversed only if there has been a change in the
assumptions used to determine the asset’s recoverable
amount since the last impairment loss was recognised.
The reversal is limited so that the carrying amount of the
asset does not exceed its recoverable amount, nor
exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss
been recognised for the asset in prior years. Such reversal
is recognised in the statement of profit or loss unless the
asset is carried at a revalued amount, in which case, the
reversal is treated as a revaluation increase.
Goodwill is tested for impairment annually as at reporting
date and when circumstances indicate that the carrying
value may be impaired.
Impairment is determined for goodwill by assessing the
recoverable amount of each CGU (or group of CGUs) to
which the goodwill relates. When the recoverable amount
of the CGU is less than its carrying amount, an
impairment loss is recognised. Impairment losses relating
to goodwill cannot be reversed in future periods.
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