Heritage Foods Limited

Heritage Foods Limited 170 The Company follows ‘simpli fi ed approach’ for recognition of impairment loss allowance on trade receivables that do not contain a signi fi cant fi nancing component. The application of simpli fi ed approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. For recognition of impairment loss on other fi nancial assets and risk exposure, the company determines that whether there has been a signi fi cant increase in the credit risk since initial recognition. If credit risk has not increased signi fi cantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased signi fi cantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a signi fi cant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL. Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a fi nancial instrument. The 12-month ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date. ECL is the di ff erence between all contractual cash fl ows that are due to the Company in accordance with the contract and all the cash fl ows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR. When estimating the cash fl ows, an entity is required to consider • All contractual terms of the fi nancial instrument (including prepayment, extension, call and similar options) over the expected life of the fi nancial instrument. However, in rare cases when the expected life of the fi nancial instrument cannot be estimated reliably, then the entity is required to use the remaining contractual term of the fi nancial instrument • Cash fl ows from the sale of collateral held or other credit enhancements that are integral to the contractual terms ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the standalone statement of pro fi t and loss. This amount is re fl ected under the head ‘other expenses’ in the standalone statement of pro fi t and loss. The standalone balance sheet presentation for various fi nancial instruments is described below: • Financial assets measured at amortised cost: ECL is presented as an allowance, i.e., as an integral part of the measurement of those assets in the standalone balance sheet. The allowance reduces the net carrying amount. Until the asset meets write-o ff criteria, the company does not reduce impairment allowance from the gross carrying amount. • Financial guarantee contracts: ECL is presented as a provision in the standalone balance sheet, i.e. as a liability. Financial liabilities Initial recognition and measurement Financial liabilities are classi fi ed, at initial recognition, as fi nancial liabilities at fair value through pro fi t or loss, loans and borrowings or payables, as appropriate. All fi nancial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Company’s fi nancial liabilities include trade and other payables, loans and borrowings including fi nancial guarantee contracts and derivative fi nancial instruments. Subsequent measurement The measurement of fi nancial liabilities depends on their classi fi cation, as described below: Financial liabilities at fair value through pro fi t or loss Financial liabilities at fair value through pro fi t or loss include fi nancial liabilities held for trading and fi nancial liabilities designated upon initial recognition as at fair value through pro fi t or loss. Financial liabilities are classi fi ed as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative fi nancial instruments entered into by the company that are not designated as hedging instruments in hedge relationships as de fi ned by Ind AS 109. Separated embedded derivatives are also classi fi ed as held for trading unless they are designated as e ff ective hedging instruments. Gains or losses on liabilities held for trading are recognised in the standalone statement of pro fi t and loss. Financial liabilities designated upon initial recognition at fair value through pro fi t or loss are designated as such