Heritage Foods Limited

FINANCIAL STATEMENTS Consolidated 29 th Annual Report 2020-21 | 229 The Group as a lessee The Group’s lease asset classes primarily consist of leases for land and buildings. The Group 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 identi fi ed asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identi fi ed asset, the Group assesses whether: (i) the contract involves the use of an identi fi ed asset (ii) the Group has substantially all of the economic bene fi ts from use of the asset through the period of the lease and (iii) the Group has the right to direct the use of the asset. At the date of commencement of the lease, the Group 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 Group 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 assets and lease liabilities includes these options when 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 Group 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, theGroupuses incremental borrowing rate. For leases with reasonably similar characteristics, the Group, 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 optionwhere the Group 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, reducingthecarryingamount tore fl ect the leasepayments 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 Group recognises the amount of the re-measurement of lease liability due to modi fi cation as an adjustment to the Right-of-use asset and Consolidated 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 Group recognises any remaining amount of the re-measurement in the Consolidated Statement of Pro fi t and Loss. The Group as a lessor Leases for which the Group 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. n. 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. • Raw material - Cost has been ascertained on weighted average cost method. • Finished goods - Cost has been ascertained on weighted average cost method. • Stores, spares and consumables - Cost has been ascertained on FIFO basis. • Work in progress - Cost has been ascertained on weighted average cost method basis.