Heritage Foods Limited

Heritage Foods Limited 166 At the date of commencement of the lease, the Company recognizes a right-of-use (ROU) asset and a corresponding lease liability for all lease arrangements in which it is a lessee, except for leases with a term of 12 months or less (short-term leases) and low value leases. For these short- term and low-value leases, the Company recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease. Certain lease arrangements include the options to extend or terminate the lease before the end of the lease term. ROU assetsand lease liabilities includes theseoptionswhen it is reasonably certain that they will be exercised. The ROU assets are initially recognized 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. ROU 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. ROU 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 fl ows 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 Company measures the lease liability at the present value of the lease payments that are not paid at the commencement date of the lease. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Company uses incremental borrowing rate. For leases with reasonably similar characteristics, the Company, on a lease by lease basis, may adopt either the incremental borrowing rate speci fi c to the lease or the incremental borrowing rate for the portfolio as a whole. The lease payments shall include fi xed payments, variable lease payments, residual value guarantees, exercise price of a purchase option where the Company is reasonably certain to exercise that option and payments of penalties for terminating the lease, if the lease term re fl ects the lessee exercising an option to terminate the lease. The lease liability is subsequently remeasured by increasing the carrying amount to re fl ect interest on the lease liability, reducing the carrying amount to re fl ect the lease payments made and remeasuring the carrying amount to re fl ect any reassessment or lease modi fi cations or to re fl ect revised in-substance fi xed lease payments. The Company recognises the amount of the remeasurement of lease liability due to modi fi cation as an adjustment to the Right-of-use asset and Statement of Pro fi t and Loss depending upon the nature of modi fi cation. Where the carrying amount of the Right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the Company recognises any remaining amount of the re- measurement in the Statement of Pro fi t and Loss. The Company as a lessor Leases for which the Company is a lessor is classi fi ed as a fi nance or operating lease. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classi fi ed as a fi nance lease. All other leases are classi fi ed as operating leases. For operating leases, rental income is recognized on a straight-line basis over the term of the relevant lease. l. Assets held for sale Non-current assets and disposal group are classi fi ed as “Held for Sale” if their carrying amount is intended to be recovered principally through sale rather than through continuing use. The condition for classi fi cation of “Held for Sale” is met when the non-current asset or the disposal group is available for immediate sale and the same is highly probable of being completed within one year from the date of classi fi cation as “Held for Sale”. Non-current assets and disposal group held for sale are measured at the lower of carrying amount and fair value less cost to sell. Non-current assets and disposal group that ceases to be classi fi ed as “Held for Sale” shall be measured at the lower of carrying amount before the non- current asset and disposal group was classi fi ed as “Held for Sale” adjusted for any depreciation/ amortization and its recoverable amount at the date when the disposal group no longer meets the “Held for sale” criteria. m. Inventories All inventories except stores, spares, consumables and packaging material, are valued at lower of cost and net realisable value. Stores, spares and consumables and packing material held for use in the production of fi nished products are not written down below cost except in cases where material prices have declined and it is estimated that the cost of the fi nished products will exceed their net realisable value.