Page 95 - Honeywell Annual Report 2021 comm 10 09 v17a.cdr

Notes to the Financial Statements

For the Year Ended 31 March, 2021 cont’d

30. Significant Judgment and Key Sources of Estimation

In preparing its financial statements, the Company has made significant judgments, estimates and assumptions
that impact on the carrying value of certain assets and liabilities, income and expenses as well as other information
reported in the notes. The Company periodically monitors such estimates and assumptions and make sure that they
incorporate all relevant information available at the date when financial statements are prepared. However, this
does not prevent actual figures differing from estimates.

The judgments made in the process of applying the Company's accounting policies that have the most significant
effect on the amounts recognized in the financial statements, and the estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial
year are addressed below.

Revenue recognition

The Company makes provisions for trade discounts, volume rebates and charge back for product returns allowed by the
sale contracts when recognizing the revenue derived from sales of its products. Such deductions represent estimates,
which are subject to judgments and assumptions based on past experience as well as the company's knowledge
available at the time the estimate is made.

Allowance for doubtful receivables
The determination of the recoverability of the amount due from customers involves the identification of whether
there is any objective evidence of impairment. In cases where that process is not feasible, a collective evaluation
of impairment is performed. As a consequence, the way individual and collective evaluations are carried out and the
timing relating to the identification of objective evidence of impairment require significant judgment and may
materially affect the carrying amount of receivables at the reporting date.

Asset impairment tests

A financial asset or a group of financial assets, other than those categorized at fair value through profit or loss, are
assessed for indicators of impairment at the end of each reporting period. Impairment exists only when the Company
ascertains that a "loss event" affecting the estimated future cash flows of the financial asset has occurred. It may not be
possible to identify a single, discrete event that caused the impairment and moreover to determine when a loss event
has occurred might involve the exercise of significant judgment.

The amount of impairment loss recognized for financial assets carried at amortized cost is the difference between
the assets' carrying amount and the present value of estimated future cash flows, discounted at the effective
interest rate.

Net realizable value of inventories
Inventories are stated at the lower of cost and net realizable value. The cost of inventories is written down to their
estimated realizable value when their cost may no longer be recoverable, such as when inventories are damaged or
become wholly or partly obsolete or their selling prices have declined. In any case, the realizable values represent the
best estimate of the recoverable amount, based on the most reliable evidence available at the reporting date and
inherently involve estimates regarding the future expected realizable value. The benchmarks for determining the
amount of write-downs to net realizable value include ageing analysis, technical assessment and subsequent events.

In general, such an evaluation process requires significant judgment and may materially affect the carrying amount
of inventories at the reporting date.

96 HONEYWELL FLOUR MILLS | ANNUAL REPORT | 2021 World of Possibilities