Page 192 - FBL AR 2019-20

Fermenta Biotech Limited
Annual Report 2019-20

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

(q) Inventories
Inventories consisting of raw materials and packing materials, work-in-progress, stock-in-trade and finished goods are measured at the
lower of cost and net realisable value. The cost of all categories of inventories is based on the weighted average method. Cost of raw
materials and packing materials and stock-in-trade comprises cost of purchases. Cost of work-in-progress and finished goods comprises
direct material, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the
basis of normal operating capacity. Costs of inventories also include all other costs incurred in bringing the inventories to their present
location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and costs
necessary to make the sale.

(r) Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instruments.
Financial assets
Initial recognition and measurement:
All financial assets are recognised initially at fair value. Transaction costs that are directly attributable to the acquisition of financial assets
are added to the fair value of the financial asset on initial recognition. Transaction costs directly attributable to the acquisition of financial
assets as at fair value through profit or loss are recognised immediately in profit or loss. All regular way purchases or sales of financial
assets are recognised or derecognised on a trade date basis. Regular way purchases or sales of financial assets are financial assets that
require delivery of assets within the time frame established by regulation or convention in the market place.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories -
(1) Debt instruments at amortised cost
(2) Debt instruments at fair value through other comprehensive income (FVTOCI)
(3) Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
(4) Equity instruments measured at fair value through other comprehensive income (FVTOCI)

(1) Debt instruments at amortised cost
A ‘debt instrument’ is measured at the amortised cost, if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI)
on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR)
method. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an
integral part of the EIR. The EIR amortisation is included in other income of the Statement of profit and loss. The losses arising from
impairment are recognised in the Statement of profit or loss.
(2) Debt instrument at FVTOCI
A ‘debt instrument’ is measured as at FVTOCI, if both of the following criteria are met:
- The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
the contractual terms of the instrument that give rise on specified dates to cash flows that are SPPI on the principal amount
outstanding.
- Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair
value movements are recognised in the other comprehensive income (OCI). However, the Group recognises interest income,
impairment losses and reversals and foreign exchange gain or loss in the profit or loss. On derecognition of the asset, cumulative
gain or loss previously recognised in OCI is reclassified from the equity to profit or loss. Interest earned whilst holding FVTOCI
debt instrument is reported as interest income using the EIR method.

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