Enterprising State of Indian Agriculture Industry The innovation and government support has put the agriculture industry on a growth trajectory. The…

Enterprising State of Indian Agriculture Industry The innovation and government support has put the agriculture industry on a growth trajectory. The Indian agricultural sector is predicted to increase to US$ 24 billion by 2025. Indian food and grocery market is the world's sixth largest, with retail contributing 70% of the sales. India's agricultural and processed food products exports stood at US$ 43.37 billion in FY23 (April 2022-January 2023). Rabi crop area has increased by 3.25% from 697.98 lakh hectares in 2021-22 to 720.68 lakh hectares in 2022-23. This is a 22.70 lakh hectare, a 13.71% increase over the average sown area in 2021-22. In the current crop year (July 2022-June 2023), India's horticulture output is expected to have hit a record 350.87 million tonnes (MT), as production of fruits, vegetables, spices, and plantation crops surged dramatically. Manju Agri Products Limited (MAPL) Manju, a postgraduate in agricultural sciences and management, was always interested in organic cultivation and she also had some 50 acres of agricultural land. She along with five other friends set up a company, Manju Agri Products Limited (MAPL) which was mainly into agriculture related products, specially millet based products. Wafer thin Margins and Bank Funding Though the Company has a good turnover, yet there have been lower margins due to inherent challenges specific to this industry. The Company has been evaluating to expand its operations and has borrowed 75 crores from Agri Bank as a credit facility. As the Company is agri based, it has challenges in making payment to farmers and other traders for procurement of millets. Finance Committee The Company has a Finance Committee which is chaired by Manju, as she is the Managing Director of the Company. This Committee meets every three months to discuss the concerns and key points relating to finance and reporting. In the Committee's meeting held in March 2024, the following points were discussed: Purchase of a Millet Processing Machinery MAPL wants to purchase millet processing machinery from KPL Limited, to increase its capacity of millet processing. As a part of the Government policies to provide impetus to agriculture and allied industry, government grants have been provided to eligible companies for procurement of machinery. MAPL, being also eligible for such government grant, has received an amount of 10 lakhs as grant. The following are the details of purchase: List price of machinery (exclusive of taxes and discount) 50,00,000 Corrugated Boxes used for packing the equipment (not included in price above) 1,00,000 Discount offered on the list price of the machine (recorded in the invoice of the machine). @2% As per the accounting policy, MAPL depreciates all its plant and machinery at 20% per annum on straight-line basis and also it does not claim depreciation on GST component included in the price of plant and machinery. Special Review of Internal Controls As the operations of the Company expanded, the Management is willing to strengthen its processes and procedures including documentation. The Company as such has not yet appointed any internal auditor for FY 2023-24 and is of the opinion that it will suffice if special review of controls is done and no other internal auditor is required to be appointed. The company was having turnover of 250 Crores in financial year 2022-23. Accordingly, it has appointed M/s AB & Co., Chartered Accountants for carrying out special review of the internal controls implemented in its processes and suggest them solutions to improve deficiencies in controls, or any management in competencies, if any, which may need improvement or refinement. The company is also not sure whether the company is required to have an internal auditor and if required, who should be appointed as an internal auditor. Gift to Manju Joey, a foreign citizen, is Manju's friend and has been her MBA classmate in University of Stanford. Joey has visited Manju's village when he had come to India for a friend's wedding. Since Joey is meeting his friend Manju, after a decade, he has gifted her a smart watch having a value of 75,000/-. However, before accepting his gift, she wants to confirm whether she can take such gift for her personal purposes without violating the provisions of Foreign Contribution (Regulation) Act, 2010. Sponsoring a Sports Event During the financial year 2023-24, MAPL sponsored a sports event for farmers by Jnaneshwar Shramik Club in Bellary. Jnaneshwar Shramik Club was established in the year 1995 for protecting and promoting the rights of farmers. The Company paid an amount of 25 lakhs for such sponsorship of the event. Employee Benefit Plans MAPL was evaluating the employee benefit related obligation funding for the current year: (In ₹) Contribution by employer during the year 95,000 Benefits paid during the year from the fund 65,000 Fair value of Plan Assets at the beginning of the year 2,75,000 Return expected on Plan Assets 35,000 Fair value of Plan Assets at the end of the year 4,00,000 Acquisition Proposal There is a proposal of ABC Limited (a subsidiary of MAPL) to acquire XYZ Limited and has offered a swap ratio of 1 : 2 (0.5 shares for every one share of XYZ Limited). The following are the financial information in this regard. Particulars ABC Ltd. XYZ Ltd. Profit after tax (₹) 18,00,000 3,60,000 Equity shares outstanding (Nos.) 6,00,000 1,80,000 EPS (₹) 3 2 P/E Ratio 10 Times 7 Times Market Price Per Share 30 14 Hedging Forex Risk The CFO of MAPL wants to decide whether to hedge with currency risks derivatives and what types of hedge instruments to choose for the same. There is an urgent need to address this issue as last year there has been breach on loan covenants due to currency exposures. MAPL has taken a loan of 50 billion JPY from a leading Bank, repayable in 10 years. The exposure is unhedged and hence it needs to be hedged so that both interest risks and currency risk is taken care of. For export transactions, MAPL wants 40% of the exposure to be hedged in a manner that should allow them to take advantage of favourable movement in exchange rate also and within that bracket some portion should be zero cost hedge. Lease MAPL has executed a 12 years lease of a machine with the following terms on 1st January 2023 with XYZ Ltd. (lessor): The lease commencement date is 1st February 2023. MAPL must pay XYZ Ltd. the first monthly rental payment of 25,000 upon execution of the lease. XYZ Ltd. will pay MAPL - 75,000 cash incentive to enter into the lease payable upon lease execution. MAPL incurred - 2,000 of initial direct costs, which are payable on 1st February 2023. MAPL calculated the initial lease liability of 10,00,000 as the present value of the future lease payments discounted using its incremental borrowing rate because the rate implicit in the lease could not be readily determined.