1.3 SUMMARY OF MATERIAL ACCOUNTING POLICIES
a. Key accounting estimates and judgements
The preparation and presentation of financial statements requires management to make judgements,
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure
of contingent liabilities on the date of the financial statements and reported amounts of revenues
and expenses during the period.
Although these estimates are based on the management's best knowledge of current events and
actions, uncertainty about these assumptions and estimates could result in the outcomes requiring
a material adjustment to the carrying amounts of assets or liabilities in future periods. Accounting
estimates could change from period to period. Any revision to accounting estimates is recognized
prospectively in the current and future periods, and if material, their effects are disclosed in the
financial statements. Actual results could differ from the estimates. Any difference between the
actual results and estimates are recognized in the period in which the results are known/materialize.
Information about critical judgements in applying accounting policies, as well as estimates and
assumptions that have the most significant effect to the carrying amounts of assets and liabilities
within the next financial year, are included in the following notes:
1. Measurement of defined benefit obligations.
2. Measurement and likelihood of occurrence of contingencies.
3. Recognition of deferred tax assets/liabilities.
4. Impairment of intangible assets.
5. Determination of fair value of biological assets.
b. Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and
impairment losses, if any; except for land including lease hold land, which is stated at cost less
impairment, if any. Cost comprises of purchase price net of trade discounts and rebates, non¬
refundable duties and taxes, any directly attributable cost of bringing the asset to its working
condition for its intended use. Cost also includes borrowing cost directly attributable to acquisition
/ construction of a qualifying asset up to the date the asset is ready for its intended use.
Subsequent expenditures relating to property, plant and equipment is capitalized only when it is
probable that future economic benefits associated with these will flow to the Company and the cost
of the item can be measured reliably.
An item of property, plant and equipment and any significant part initially recognised is derecognised
upon disposal or when no future economic benefits are expected from its use or disposal. Any gain
or loss arising on derecognition of the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the statement of profit and loss when
the asset is derecognised.
Capital work-in-progress comprises the cost of property, plant and equipment that are yet not
ready for their intended use at the balance sheet date.
The depreciable amount of a depreciable property, plant and equipment is allocated on a systematic
basis to each accounting period over the useful life of the asset. Management's estimate of useful
life is as stipulated in Schedule II to the Companies Act, 2013.
The useful life is for the whole of the asset, except where cost of a part of the asset is significant to
total cost of the asset and useful life of that part is different from the useful life of the remaining
asset, useful life of that significant part (“component”) is determined separately and the depreciable
amount of the said component is allocated on a systematic basis to each accounting period during
the useful life of the asset
In arriving at the depreciable amount, residual values considered are not more than 5% of the
original cost of the asset. The residual values and useful lives of property, plant and equipment are
reviewed at each financial year end and adjusted if appropriate.
Leasehold improvements are amortised over a period of lease or useful life whichever is less.
Depreciation on assets acquired during the year is calculated on a pro-rata basis from the date of
addition. Similarly, depreciation on assets sold, discarded, demolished or destroyed during the
year is also calculated on a pro rata basis up to the date on which such asset has been sold,
discarded, demolished or destroyed. Depreciable assets costing up to Rupees 5,000/- are
depreciated fully in the year of acquisition.
c. Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of acquisition is
measured as the aggregate of the consideration transferred measured at acquisition date fair value.
Acquisition-related costs are expensed as incurred.
When the Company acquires a business, it assesses the financial assets and liabilities assumed
for appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the
acquisition date. Contingent consideration classified as an asset or liability that is a financial
instrument and within the scope of Ind AS 109 Financial Instruments, is measured at fair value with
changes in fair value recognised either in profit or loss or as a change to other comprehensive
income (herein after referred to as “OCI”). If the contingent consideration is not within the scope of
Ind AS 109, it is measured in accordance with the appropriate Ind AS. Contingent consideration
that is classified as equity is not re-measured and subsequent settlement is accounted for within
equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration
transferred over the net identifiable assets acquired and liabilities assumed. If the fair value of the
net assets acquired is in excess of the aggregate consideration transferred, the Company re¬
assesses whether it has correctly identified all of the assets acquired and all of the liabilities
assumed and reviews the procedures used to measure the amounts to be recognised at the
acquisition date. If the reassessment still results in an excess of the fair value of net assets
acquired over the aggregate consideration transferred, then the gain is recognised in OCI and
accumulated in equity as capital reserve. However, if there is no clear evidence of bargain purchase,
the entity recognises the gain directly in equity as capital reserve, without routing the same through
OCI.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Company's cash-generating units that are expected to
benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are
assigned to those units.
Where goodwill has been allocated to a cash-generating unit and part of the operation within that
unit is disposed of, the goodwill associated with the disposed operation is included in the carrying
amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these
circumstances is measured based on the relative values of the disposed operation and the portion
of the cash-generating unit retained.
d. Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is their fair value at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less any accumulated amortization
and accumulated impairment losses. Internally generated intangibles, excluding capitalised
development costs, are not capitalised and the related expenditure is reflected in profit or loss in
the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite. An intangible asset
shall be regarded by the entity as having an indefinite useful life when, based on an analysis of all
of the relevant factors, there is no foreseeable limit to the period over which the asset is expected
to generate net cash inflows for the entity. Indefinite life intangibles mainly consist of brands/ trade
mark/ Technical know-how etc. The assessment of indefinite life is reviewed annually to determine
whether the indefinite life continues. If not, it is impaired or changed prospectively basis revised
estimates.
Intangible assets with finite lives are amortized over the useful economic life and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. The
amortization period and the amortization 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 amortization period or method, as appropriate, and are treated as changes in accounting
estimates.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually,
either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed
annually to determine whether the indefinite life continues to be supportable. If not, the change in
useful life from indefinite to finite is made on a prospective basis.
The amortization expense on intangible assets is recognised in the statement of profit and loss.
Gains or losses arising from derecognition of an intangible asset are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognised in the
statement of profit or loss when the asset is derecognised.
Acquired intangible assets are amortized on a straight line basis over the useful lives of the intangible
assets, as estimated by the management. Management estimate of useful life of Intangible assets
are as follows:
Software - 3 years
Trade mark/Technical know-how/License cost - 5 years
e. Impairment of 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 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 projected future cash flows after the fifth year.
Impairment losses of continuing operations, including impairment on inventories, are recognised in
the statement of profit and loss.
If, in a subsequent period, the amount of the impairment loss decrease and the decrease can be
related objectively to an event occurring after the impairment loss was recognised, the reversal of
the previously recognised impairment loss is recognised in the statement of profit and loss.
f. Fair value measurement
The Company measures financial instruments such as Investments in Mutual Funds and certain
non-financial assets such as biological assets, at fair value at each balance sheet date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, In the most advantageous market for the asset or
liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their economic
best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability
to generate economic benefits by using the asset in its highest and best use or by selling it to
another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements
are categorised within the fair value hierarchy, described as follows, based on the lowest level input
that is significant to the fair value measurement as a whole:
- Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable.
- Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the
Company determines whether transfers have occurred between levels in the hierarchy by re-assessing
categorisation (based on the lowest level input that is significant to the fair value measurement as
a whole) at the end of each reporting period.
At each reporting date, the Company analyses the movements in the values of assets and liabilities
which are required to be re-measured or re-assessed as per the Company's accounting policies.
For this analysis, the Company verifies the major inputs applied in the latest valuation by agreeing
the information in the valuation computation to contracts and other relevant documents.
The Company, in conjunction with the Company's external valuers, also compares the change in
the fair value of each asset and liability with relevant external sources to determine whether the
change is reasonable.
For the purpose of fair value disclosures, the Company has determined classes of assets and
liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level
of the fair value hierarchy as explained above.
g. Income Taxes
Current income tax
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.
Current income tax relating to items recognised directly in equity is recognised in equity and not in
the statement of profit and loss. 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.
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases
of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting
date.
Deferred tax liabilities are recognised for all taxable temporary differences, except when the deferred
tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that
is not a business combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of
unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent
that it is probable that taxable profit will be available against which the deductible temporary
differences, and the carry forward of unused tax credits and unused tax losses can be utilised,
except when the deferred tax asset relating to the deductible temporary difference arises from the
initial recognition of an asset or liability in a transaction that is not a business combination and, at
the time of the transaction, affects neither the accounting nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of
the deferred tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each
reporting date and are recognised to the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss.
Deferred tax items are recognised in correlation to the underlying transaction either in OCI or
directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred taxes relate to the same
taxation authority.
h. Government grants
Government grants are recognized by the Company where there is reasonable assurance that the
grant will be received and all the attached conditions will be complied with. Revenue grants are
recognized in the statement of profit and loss in the same period, in which the related costs are
incurred are accounted for.
Government grants related to assets are recognized / presented as deferred income, i.e. wherever
the Company receives capital grants towards asset acquisition, the grant received thereon are
recognized as an income in the statement of profit and loss over the useful life of the asset.
i. Inventories
Inventories are valued at lower of cost and net realizable value (except as otherwise stated) on an
item-by-item basis, as under:
Raw materials, packing materials, stores and spares:
Cost of inventory comprises all costs of purchase, duties and taxes (other than those subsequently
recoverable from tax authorities) and all other costs incurred in bringing the inventories to their
present location and condition. Raw materials and other items held for use in the production of
inventories are not written down below cost if the finished products in which they will be incorporated
are expected to be sold at or above cost. Cost is determined on a first-in first-out formula.
Cost of oilseeds inventories is determined on quarterly moving weighted average basis.
Work-in-progress and finished goods:
Cost includes direct materials and costs of conversion in the form of Labour and a systematic
allocation of fixed and variable production overheads. It also includes other costs which are incurred
in bringing the inventories to their present location and condition. The allocation of fixed production
overheads is based on normal capacity of production. Realisable value of pre-determined normal
rate of scrap is deducted from the cost of inventories. However, cost of inventories neither includes
abnormal amounts of wasted material nor any scrap realisations there from.
By products and scrap are recognised at their net realisable value.
For the production processes which result in more than one product being produced, costs of
conversion are allocated between the joint products based on relative sales value of each product
at the stage when the products become separately identifiable. Net realizable value of by-products
as well as scrap is deducted from the cost of main product.
Stock-in-trade:
Cost includes cost of purchases, duties and taxes (other than those subsequently recoverable
from authorities) and other costs which are incurred in bringing the inventories to their present
location and condition. Cost is determined on a first-in first-out formula.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated
costs of completion and estimated costs necessary to make sale.
j. Biological Assets
Biological assets include Poultry for live-stock breeding parent (Broiler and Layer), hatching eggs
and live commercial broiler birds.
Biological assets, except breeder flocks are measured at fair value less cost to sell.
The valuation of the Breeder biological assets is determined on the following basis:
Birds are used for captive consumption, it is uncommon to be sold before the end of its useful life
and as such, there is no active market for the Company's useful breeding stock. Other references
to market prices such as market prices for similar assets are also not available due to the uniqueness
of the breed. Valuation based on a discounted cash flow method is considered to be unreliable
given the uncertainty with respect to mortality rates and production. Consequently, breeder flocks
are measured at cost, less depreciation and impairment losses.
Breeder flocks are depreciated over the production cycle which is estimated to be ten to twelve
months on average based on anticipated output month to month.
The fair value of the consumable biological assets is determined on the following basis:
The fair values of biological assets are level 3 fair values and are determined based on market
prices or where market prices are not available, by reference to sector benchmarks.
Level 1 inputs could not be used due to the unique breed used by the Company due to which
identical products are not available in the market.
Level 2 inputs require adjustments to be made in quoted or unquoted prices available for similar
products. The qualitative adjustments are highly subjective and may not show the true & fair picture.
Hence, Level 2 inputs are ruled out from the selection criteria of valuation.
Gain and losses arising on the initial recognition of biological asset at fair value less estimated
point of sale costs and from a change in fair value less estimated point-of-sale costs are recognised
in the statement of profit and loss in the period in which they arise.
k. Investments and other financial assets
Classification
The Company classifies its financial assets in the following measurement categories:
- those to be measured subsequently at fair value (either through other comprehensive income,
or through profit or loss), and
- those measured at amortized cost
The classification depends on the entity's business model for managing the financial assets and
the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit and loss or
other comprehensive income. For investments in debt instruments, this will depend on the business
model in which the investment is held.
The Company reclassifies debt investments when and only when its business model for managing
those assets changes.
Measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not
recorded at fair value through profit or loss, transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial assets carried at fair value through
profit or loss are expensed in profit or loss account.
Debt instruments
Subsequent measurement of debt instruments depends on the Company's business model for
managing the assets and the cash flow characteristics of the asset. There are three measurement
categories into which the Company classifies its debt instruments:
- Amortized cost
Assets that are held for collection of contractual cash flows where those cash flows represent
solely payments of principal and interest are measured at amortized cost. A gain or loss on a
debt investment that is subsequently measured at amortized cost and is not part of a hedging
relationship is recognised in profit or loss when the asset is derecognised or impaired. Interest
income from these financial assets is included in interest income using the effective interest
rate method.
- Fair value through other comprehensive income (FVTOCI)
Assets that are held for collection of contractual cash flows and for selling the financial assets,
where the asset's cash flows represent solely payments of principal and interest, are measured
at fair value through other comprehensive income (FVTOCI). Movements in the carrying amount
are taken through OCI, except for recognition of impairment gains or losses, interest revenue
and foreign exchange gains and losses which are recognised in profit or loss. When the
financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is
reclassified from equity to profit or loss and recognised in other gains/ (losses). Interest
income from these financial assets is included in other income using the effective interest rate
method.
- Fair value through profit or loss
Assets that do not meet the criteria for amortized cost or FVTOCI are measured at fair value
through profit or loss. A gain or loss on a debt instrument that is subsequently measured at
fair value through profit or loss and is not part of hedging relationship is recognised in profit or
loss and presented net in the statement of profit and loss within other gains/(losses) in the
period in which it arises. Interest income from these financial assets is included in other
income.
Impairment of financial assets
The Company assesses on a forward looking basis the expected credit losses associated with its
assets carried at amortized cost and FVTOCI debt instruments. Note 7.3 details how the Company
assesses the impairment losses.
Derecognition of financial assets
A financial asset is derecognised only when
- The Company has transferred the rights to receive cash flows from the financial asset or
- Retains the contractual rights to receive the cash flows of the financial asset but assumes a
contractual obligation to pay the cash flows to one or more recipients.
Where the Company has transferred an asset, the Company evaluates whether it has transferred
substantially all risks and rewards of ownership of the financial asset. In such cases, the financial
asset is derecognised. Whether the Company has not transferred substantially all risks and rewards
of ownership of financial asset, the financial asset is not derecognised.
Where the Company has neither transferred a financial asset nor retains substantially all risks and
rewards of ownership of the financial asset, the financial asset is derecognised if the Company has
not retained control of the financial asset. Where the Company retains control of the financial
asset, the asset is continued to be recognised to the extent of continuing involvement in the
financial asset.
l. Offsetting financial instruments
Financial assets and liabilities are offset and the net amount is reported in the balance sheet where
there is a legally enforceable right to offset the recognised amounts and there is intention to settle
on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable
right must not be contingent on future events and must be enforceable in the normal course of
business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.
m. Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised
cost using the effective interest method, less provision for impairment.
n. Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes
cash on hand, cash on deposit with banks, other short term highly liquid investments with original
maturities of three months or less that are readily convertible to known amounts of cash and which
are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are
shown in current liabilities in the balance sheet.
o. Borrowings
Borrowings are initially recognised at fair value, net of transactions cost incurred. Borrowings are
subsequently measured at amortised cost. Any difference between the proceeds (net of transaction
costs) and the redemption amount is recognised in profit or loss over the period of the borrowings
using the effective interest method. Fees paid on the establishment of loan facilities are recognised
as transaction costs of the loan to the extent that it is probable that some or all of the facility will
be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent, there is
no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised
as a prepayment for liquidity services and amortised over the period of the facility to which it
relates.
Borrowings are removed from the balance sheet when the obligation specified in the contract is
discharged, cancelled or expired. The difference between the carrying amount of a financial liability
that has not extinguished or transferred to another party and the consideration paid, including any
non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other gains/
(losses).
p. Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying
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 till the asset is ready for its intended use or sale. All
other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of
interest expense recognised in the profit and loss account over the period of borrowing using
effective interest method 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.
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