Page 132 - FBL AR 2019-20

Fermenta Biotech Limited
Annual Report 2019-20

Notes to the Standalone financial statements for the year ended March 31, 2020

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective
interest method) and by reducing the carrying amount to reflect the lease payments made.

The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:
• The lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability
is remeasured by discounting the revised lease payments using a revised discount rate.
• A lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is
remeasured by discounting the revised lease payments using a revised discount rate.
The right-of-use 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. Whenever the Company incurs an obligation
for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition
required by the terms and conditions of the lease, a provision is recognised and measured under Ind AS 37. The costs are included in the
related right-of-use asset, unless those costs are incurred to produce inventories.

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.
Extension and termination options are included in many of the leases. In determining the lease term the management considers all facts
and circumstances that create an economic incentive to exercise an extension option, or not exercise 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.
Effective April 1, 2019, the Company has adopted IND AS 116 “Leases” and applied to lease contracts existing on April 1, 2019, by electing
‘retrospective approach with the cumulative effect at the date of initial application’. The impact of adoption of the standards is not
material on the profit after tax for the year ended March 31, 2020 in the standalone financial statements.
Also refer Note 44.
In respect of short-term leases and leases of low-value assets, the Company has elected not to recognise right-of-use assets and lease
liabilities for short-term leases of real estate properties that have a lease term of 12 months. The Company recognises the lease payments
associated with these leases as an expense on a straight-line basis over the lease term.
The Company as a lessor
Leases for which the Company is a lessor is classified as a finance or operating lease. Whenever the terms of the lease transfer substantially
all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating
leases. Ind AS 116 does not change substantially how a lessor accounts for leases. Under Ind AS 116, a lessor continues to classify leases
as either finance leases or operating leases and account for those two types of leases differently. However, Ind AS 116 has changed and
expanded the disclosures required, in particular with regard to how a lessor manages the risks arising from its residual interest in leased
assets.
When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sublease separately. The sublease is
classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease.

For operating leases, rental income is recognized on a straight line basis over the term of the relevant lease.
Accounting under Ind AS 17 “Leases” up to March 31, 2019
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases.
The Company as lessee:
Assets held under finance leases are initially recognised as assets of the Company at their fair value at the inception of the lease or, if
lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as
a finance lease obligation.

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