3. MATERIAL ACCOUNTING POLICIES
A) Financial instruments
i) Recognition and initial measurement
The Company initially recognises financial assets
and financial liabilities when it becomes a party
to the contractual provisions of the instrument.
All financial assets and liabilities are measured at
fair value on initial recognition which are initially
measured at transaction price. Transaction costs
that are directly attributable to the acquisition or
issue of financial assets and financial liabilities,
that are not at fair value through profit or loss,
are added to the fair value on initial recognition.
Regular way purchase and sale of financial assets
are accounted for at trade date.
ii) Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified
as measured at-
Financial assets carried at amortised cost
A financial asset is subsequently measured at
amortised cost if it is held within a business model
whose objective is to hold the asset in order to
collect contractual cash flows and the contractual
terms of the financial asset give rise on specified
dates to cash flows that are solely payments of
principal and interest on the principal amount
outstanding.
Financial assets at fair value through other
comprehensive income
A financial asset is subsequently measured at fair
value through other comprehensive income if it
is held within a business model whose objective
is achieved by both collecting contractual
cash flows and selling financial assets and the
contractual terms of the financial asset give rise
on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
Financial assets at fair value through profit or
loss
A financial asset which is not classified in any of
the above categories are subsequently fair valued
through profit or loss.
Financial liabilities
Financial liabilities are subsequently carried
at amortized cost using the effective interest
method. For trade and other payables maturing
within one year from the Balance Sheet date, the
carrying amounts approximate fair value due to
the short maturity of these instruments.
iii) Derecognition
Financial assets
The Company derecognises a financial asset
when the contractual rights to the cash flows
from the financial asset expire, or it transfers the
right to receive the contractual cash flows in a
transaction in which substantially all of the risks
and rewards of ownership of the financial assets
are transferred or in which the Company neither
transfers nor retains substantially all of the risks
and rewards of ownership and does not retain
control of the financial asset.
Financial liabilities
The Company derecognises a financial liability
when its contractual obligations are discharged
or cancelled, or expire.
The Company also derecognises a financial
liability when its terms are modified and the cash
flows under the modified terms are substantially
different. In this case, a new financial liability
based on the modified terms is recognised at
fair value. The difference between the carrying
amount of the financial liability extinguished and
a new financial liability with modified terms is
recognised in the Statement of profit and loss.
iv) Offsetting
Financial assets and financial liabilities are offset
and the net amount presented in the balance
sheet when, and only when, the Company
currently has a legally enforceable right to set off
the amounts and it intends either to settle them
on a net basis or realise the asset and settle the
liability simultaneously.
B) Property, plant and equipment (including capital
work in progress)
i) Recognition and measurement
The cost of an item of property, plant and
equipment shall be recognised as an asset if, and
only if it is probable that future economic benefits
associated with the item will flow to the Company
and the cost of the item can be measured reliably
Items of property, plant and equipment, are
measured at cost, which includes capitalised
borrowing cost, less accumulated depreciation
and accumulated impairment losses, if any.
Cost of an item of property, plant and equipment
comprises its purchase price, including import
duties and non-refundable purchase taxes, after
deducting trade discounts and rebates, any
directly attributable cost of bringing the item
to its working condition for its intended use and
estimated costs of dismantling and removing the
item and restoring the site on which it is located.
If significant parts of an item of property, plant
and equipment have different useful lives, then
they are accounted for as separate items (major
components) of property, plant and equipment.
Any gain or loss on disposal of an item of
property, plant and equipment is recognised in
the Statement of profit and loss.
ii) Subsequent expenditure
Subsequent expenditure is capitalised only if it
is probable that the future economic benefits
associated with the expenditure will flow to the
Company.
iii) Depreciation
Depreciation is calculated on cost of items
of property, plant and equipment less their
estimated residual values over their estimated
useful lives using the straight-line method, and
is recognised in the Statement of profit and loss.
Leasehold improvements are amortised over the
period of lease or the estimated useful life (3-10
years) whichever is lower. Freehold land is not
depreciated.
The estimated useful lives of items of property,
plant and equipment for the current and
comparative periods are as follows:
Depreciation/amortisation method, useful lives
and residual values are reviewed at each financial
year-end and adjusted if appropriate. Based on
technical evaluation and consequent advice,
the management believes that the estimates of
useful lives as given above best represent the
period over which management expects to use
these assets and are different from the useful lives
as prescribed under Part C of Schedule II of the
Companies Act, 2013 for some assets.
Depreciation on additions (disposals) is provided
on a pro-rata basis i.e. from (upto) the date on
which asset is ready for use (disposed of).
Capital work in progress includes cost of
property, plant & equipment under installation/
under development as at the balance sheet date.
C) Intangible assets
i) Internally generated : Research and development
Expenditure on research activities is recognised in
Statement of profit and loss as incurred.
Development expenditure is capitalised as part
of the cost of the resulting intangible asset only
if the expenditure can be measured reliably, the
product or process is technically and commercially
feasible, future economic benefits are probable,
and the Company intends to and has sufficient
resources to complete development and to use
or sell the asset. Otherwise, it is recognised
in statement of profit or loss as incurred.
Subsequent to initial recognition, the asset is
measured at cost less accumulated amortisation
and any accumulated impairment losses.
ii) Subsequent expenditure
Subsequent expenditure is capitalised only if it
is probable that the future economic benefits
associated with the expenditure will flow to the
Company.
iii) Others
Other intangible assets are stated at acquisition
cost. Such intangible assets are subsequently
measured at cost less accumulated amortisation
and any accumulated impairment losses.
Amortisation is calculated to write off the cost
of intangible assets less their estimated residual
values over their estimated useful lives using
the straight-line method, and is included in
depreciation and amortisation in Statement of
profit and loss. The amortisation rates used are:
D) Business combinations
Business combinations involving entities or businesses
in which all the combining entities or businesses are
ultimately controlled by the same party or parties
both before and after the business combination and
where that control is not transitory, are accounted for
as per the pooling of interest method. The business
combination is acccounted for as if the business
combination had occured at the beginning of the
earliest comparative period presented or, if later,
at the date the common control was established.
The assets and liabilities are carried acquired are
recognised at their carrying amounts.
E) Impairment
i) Financial assets
The Company recognizes loss allowances using
the expected credit loss (ECL) model for the
financial assets which are not fair valued through
profit or loss. Loss allowance for trade receivables
with no significant financing component is
measured at an amount equal to lifetime ECL. For
all other financial assets, expected credit losses
are measured at an amount equal to the 12-month
ECL, unless there has been a significant increase
in credit risk from initial recognition in which
case those are measured at lifetime ECL. The
amount of expected credit losses (or reversal)
that is required to adjust the loss allowance at the
reporting date to the amount that is required to be
recognised is recognized as an impairment gain or
loss in the Statement of profit and loss.
The Company at end of each reporting period
evaluates, if any indicators are present which
might require Company to impair its financial
assets.
Write off:
The gross carrying amount of a financial asset is
written off when the Company has no reasonable
expectations of recovering a financial asset in
its entirety or a portion thereof. The Company
individually makes an assessment with respect
to the timing and amount of write-off based on
whether there is a reasonable expectation of
recovery. The Company expects no significant
recovery from the amount written off. However,
financial assets that are written off could still
be subject to enforcement activities in order
to comply with the Company’s procedures for
recovery of amounts due.
ii) Non-financial assets
Intangible assets and property, plant and
equipment
Intangible assets and property, plant and
equipment 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 other than goodwill, 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 units (CGUs) to which the asset
belongs.
If such assets are considered to be impaired, the
impairment to be recognized in the Statement
of profit and loss is measured by the amount by
which the carrying value of the assets exceeds
the estimated recoverable amount of the asset.
An impairment loss is reversed in the statement
of profit and loss if there has been a change in
the estimates used to determine the recoverable
amount. The carrying amount of the asset is
increased to its revised recoverable amount,
provided that this amount does not exceed
the carrying amount that would have been
determined (net of any accumulated amortization
or depreciation) had no impairment loss been
recognized for the asset in prior years.
f) Inventories
Inventories are valued at the lower of cost and
estimated net realizable value, after providing for
cost of obsolescence and other anticipated losses,
wherever considered necessary. The costs of raw
materials and traded goods are ascertained on First-
In-First-Out basis, whereas manufactured work-
in-progress and finished goods are ascertained on
weighted average method.
Finished goods and work-in-progress include costs of
conversion and 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 the estimated costs necessary to
make the sale.
The comparison of cost and net realisable value is
made on an item-by-item basis.
The net realisable value of work-in-progress is
determined with reference to the selling prices of
related finished goods. Raw materials, components
and other supplies held for use in the production of
finished products are not written down below cost
except in cases when a decline in the price of materials
indicates that the cost of the finished products shall
exceed the net realisable value.
The provision for inventory obsolescence is arrived
on quarterly basis based on the policy determined by
the Company.
g) Foreign currency transactions
Transactions in foreign currencies are initially
recorded by the Company at their functional currency
spot rates at the date of the transaction. Monetary
assets and liabilities denominated in foreign currency
are translated at the functional currency spot rates
of exchange at the balance sheet date. Exchange
differences that arise on settlement of monetary
items or on reporting at each balance sheet date of
the Company’s monetary items at the closing rates
are recognised as income or expenses in the period
in which they arise. Non-monetary items which are
carried at historical cost denominated in a foreign
currency are reported using the exchange rates at the
date of transaction. Non-monetary items measured
at fair value in a foreign currency are translated using
the exchange rates at the date when the fair value is
determined.
h) Revenue recognition
Revenue is measured based on the consideration
specified in a contract with a customer after deduction
of any trade discount, volume rebate and taxes or
duties collected on behalf of the government such as
goods and services tax, etc. The Company recognises
revenue when it transfers control over a good or
service to a customer.
For sale of finished goods and traded goods, revenue
is recognised when the goods are delivered and
have been accepted by customers as per the terms
of the arrangement or at the time of dispatch in case
of ex-works, as the case may be. For contracts that
permit the customer to return an item, revenue is
recognised to the extent that it is highly probable
that a significant reversal in the amount of cumulative
revenue recognised will not occur.
The Company creates provision for the sales returns
based on the historical sales reversal trend.
For sale of services which includes income from
contract research and management support service
fee, revenue is recognized based on agreements/
arrangements with the customers as the service is
performed.
The Company has determined that the revenues as
disclosed in Note 19 are disaggregated into categories
that depict how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by
economic factors.
Other income primarily includes interest income which
is recognised using the effective interest rate (EIR)
method.
i) Employee benefits
Short-term employee benefits
Short-term employee benefits are measured on an
undiscounted basis and expensed as the related service
is provided. A liability is recognised for the amount
expected to be paid under short-term cash bonus,
if the Company has a present legal or constructive
obligation to pay this amount as a result of past service
provided by the employee and the obligation can be
estimated reliably.
Defined contribution plans
A defined contribution plan is a post-employment
benefit plan where the Company’s legal or constructive
obligation is limited to the amount that it contributes to
a separate legal entity. Obligations for contributions to
defined contribution plan are expensed as an employee
benefits expense in the statement of profit and loss in
period in which the related service is provided by the
employee.
Provident fund
Contribution towards provident fund for employees
is made to the regulatory authorities, where the
Company has no further obligations. Such benefits
are classified as Defined Contribution Schemes as the
Company does not carry any further obligations, apart
from the contributions made on a monthly basis.
Defined benefit plans
Gratuity
The Company has an obligation towards gratuity,
a defined benefit retirement plan covering eligible
employees. The Company has an Employees Gratuity
Fund where the investments are administered by a
Fund Manager. The Company accounts for the liability
of Gratuity Benefits payable in future based on an
independent actuarial valuation (using the Projected
Unit Credit method). Actuarial losses/ gains are
recognised in Statement of profit and loss under ‘Other
Comprehensive Income’ in the year in which they
arise. Current and non current classification based on
actuarial valuation report.
Compensated absences
The Company provides for the encashment/ availment
of leave with pay subject to certain rules. The
employees are entitled to accumulate leave subject
to certain limits, for future encashment/ availment.
The liability is provided based on the number of days
of unutilized leave at each balance sheet date on the
basis of an independent actuarial valuation (using the
Projected Unit Credit method). Actuarial losses / gains
are recognised in ‘Other Comprehensive Income’ in
the year in which they arise. The liability has been
classified as current as the Company does not have
unconditional right to defer the liability.
Termination benefits
Termination benefits are expensed at the earlier of
when the Company can no longer withdraw the offer
of those benefits and when the Company recognises
costs for a restructuring. If benefits are not expected
to be settled wholly within 12 months of the reporting
date, then they are discounted.
j) Share based payments
The eligible employees of the Company are allotted
share appreciation rights (SARs) and restricted stock
units (RSUs) pertaining to 3M Company, USA (Holding
Company). The fair value of the amount payable to
employees in respect of SARs and RSUs which are
settled in cash, is recognised as an expense with a
corresponding increase in liabilities, over the period
that the employees unconditionally become entitled to
the payment. The Company measures compensation
expense for SARs at their fair value determined using
Black-Scholes Model and RSUs based on fair market
value of shares of 3M Company, USA as at each
reporting date. Any change in the fair value of the
liability are recognised in the Statement of profit and
loss.
k) Income taxes
i) Current tax
Current income tax for the current and prior
periods are measured at the amount expected
to be recovered from or paid to the taxation
authorities based on the taxable income for
the period. The tax rates and tax laws used to
compute the current tax amount are those that
are enacted or substantively enacted by the
reporting date and applicable for the period. The
Company offsets current tax assets and current
tax liabilities, where it has a legally enforceable
right to set off the recognized amounts and where
it intends either to settle on a net basis or to realize
the asset and liability simultaneously.
ii) Deferred tax
Deferred income tax is recognized using the
balance sheet approach. Deferred income
tax assets and liabilities are recognized for
deductible and taxable temporary differences
arising between the tax base of assets and
liabilities and their carrying amount in financial
statements, except when the deferred income
tax arises from the initial recognition of goodwill
or an asset or liability in a transaction that is
not a business combination and affects neither
accounting nor taxable profits or loss at the time
of the transaction.
Deferred income tax asset are recognized to the
extent that it is probable that taxable profit will be
available against which the deductible temporary
differences, and the carry forward of unused tax
credits and unused tax losses can be utilized.
Deferred income tax liabilities are recognized for
all taxable temporary differences. The carrying
amount of deferred income tax assets is reviewed
at each reporting date and reduced to the extent
that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the
deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are
measured at the tax rates that are expected to
apply in the period when the asset is realized or
the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively
enacted at the reporting date. The Company
offsets, the current tax assets and liabilities (on
a year on year basis) and deferred tax assets and
liabilities, where it has a legally enforceable right
and where it intends to settle such assets and
liabilities on a net basis.
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