Hatsun Agro Products is the largest private player in the dairy milk industry in South India, with its corporate office in Chennai. The brands owned by it are well known, including Arokya, Komata, and Arun Ice Creams.

Following is an excerpt from the Annual Report of Hatsun Agro Product Ltd., for the year ended March 31, 2004.

Changes in Accounting Policies

During the year, the company has changed the method of depreciation from the written down value method to the straight-line method. This, in the opinion of the management, would result in a more appropriate presentation of the financial statements of the Company. In accordance with Accounting Standard 6–Depreciation Accounting, depreciation has been recalculated under the straight-line method with retrospective effect, that is, from the date of the asset coming into use. Accordingly, excess depreciation determined, amounting to ₹1,10,530, has been credited to the profit and loss account of the current year. Further, pursuant to this change, the net depreciation charge for the year is lower by ₹62,893. Consequently, the profit after tax and reserves and surplus are higher by ₹103,289, net fixed assets by ₹1,73,423, net deferred tax liabilities by ₹62,216 and provision for tax by ₹7,918.

Notes:

1. Includes cost of assets acquired under hire purchase - ₹11,491 (March 31, 2003: ₹5,003).

2. Includes interest capitalised - ₹558 (March 31, 2003: Nil) and exchange gain adjusted - ₹5,879 (March 31, 2003: Nil).

3. Includes prior period adjustment of ₹4,912 (March 31, 2003: Nil) arising out of amalgamation.

4. Represents depreciation written back arising on account of change in the method of depreciation.

5. Includes prior period adjustment - ₹710 (31 March 31, 2003: ₹30,313).

1. Mention the relevant accounts that have influenced in the presentation of the above profit and loss account of Hatsun Agro?

2. Analyse the impact of the change in the depreciation policy of Hatsun Agro? Is it correct for the company to change its depreciation policy? Comment.

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As at 1 April, Descrip- 2003 tion Intangible assets Goodwill Non- compete fee Brand ERP Software 32,488 23,947 21,198 4,918 Addi- tions on Amalga- mation Original Cost Addi- Deletions tions for the year (refer note 2) 7,024 7,500 - As at 31 March, 2004 32,488 23,947 Fixed Assets Accumulated depreciation As at 1 Addi- April, tions on 2003 Amal- 13,523 5,987 28,222 5,300 12,418 2,459 gama- tion (refer note 3) As at 31 Depre- For the Deletions As at 31 As at 31 ciation March, March, March, 2004 2004 2003 written back (refer note 4) year (refer note 5) 6,498 5,987 Net Block 5,417 1,283 20,021 12,467 18,965 11,974 11,973 17,960 10,717 17,505 15,898 3,742 8,676 2,459