b) Summary of Material Accounting Policies
i. Statement of compliance
The financial statements have been prepared in accordance with Indian Accounting Standards
prescribed under section 133 of the Companies Act, 2013(“the Act”) read with the Companies
(Indian Accounting Standards) Rules, 2015 as amended and other accounting principles generally
accepted in India and guidelines issued by the Securities and Exchange Board of India (SEBI).
The Company has consistently applied accounting policies to all periods.
ii. Basis of preparation and presentation
The financial statements have been prepared on historical cost basis except for certain financial
instruments measured at fair value at the end of each reporting period as explained in the
accounting policies below.
Historical cost is generally based on the fair value of the consideration given in exchange for
goods and services at the time of their acquisition.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date, regardless of whether
that price is directly observable or estimated using another valuation technique. In estimating the
fair value of an asset or a liability, the Company takes into account the characteristics of the asset
or liability if market participants would take those characteristics into account when pricing the
asset or liability at the measurement date.
iii. Basis of preparation and presentation
These financial statements are presented in Indian Rupees (') which is the functional currency of
the Company and the currency of the primary economic environment in which the Company
operates.
Rounding of amounts All amounts disclosed in the financial statements which also include the
accompanying notes have been rounded off to the nearest lakhs as per the requirement of
Schedule III to the Companies Act 2013, unless otherwise stated.
iv. Use of estimates
The preparation of financial statements in conformity with Ind AS requires management to make
judgments, estimates and assumptions, that affect the application of accounting policies and the
reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the
date of these financial statements and the reported amounts of revenues and expenses for the
years presented. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed at each balance sheet date. Revisions to
accounting estimates are recognised in the period in which the estimate is revised and future
periods affected.
In particular information about material areas of estimation uncertainty and critical judgements in
applying accounting policies that have the most significant effect on the amounts recognized in the
financial statements are included in following notes:
• Useful lives of property, plant and equipment and intangible assets
• Assets and obligations relating to employee benefits
• Evaluation of recoverability of deferred tax assets
• Financial instruments
• Measurement of recoverable amounts of cash generating units
• Provisions and contingencies
• Expected credit losses
v. Revenue recognition
The Company derives revenue from sale of yarn and recognized when it transfers control over the
goods to the customers. Revenue towards satisfaction of a performance obligation is measured at
the amount of transaction price (net of variable consideration) allocated to that performance
obligation. The transaction price of goods sold is net of variable consideration on account of
various discounts and schemes offered by the Company as part of the contract.
Interest income
Interest income from a financial asset is recognized when it is probable that the economic benefits
will flow to the company and the amount of income can be measured reliably. Interest income is
accrued on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable.
vi. Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying
assets, which are assets that necessarily take a substantial period of time to get ready for their
intended use or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Interest income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
vii. Employee benefits
Employee benefits include provident fund, gratuity fund and compensated absences.
Defined Contribution Plans
The company’s contributions to provident fund are considered as defined contribution plans and
are charged as an expense based on the amount of contribution required to be made and when
services are rendered by the employees.
Defined Benefit Plans
For defined benefit retirement benefit plans, the cost of providing benefits is determined using the
projected unit credit method, with actuarial valuations being carried out at the end of each annual
reporting period. Re-measurement, comprising actuarial gains and losses, the effect of the
changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest), is
reflected immediately in the balance sheet with a charge or credit recognized in other
comprehensive income in the period in which they occur. Re-measurement recognised in other
comprehensive income is reflected immediately in retained earnings and is not reclassified to profit
or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net
interest is calculated by applying the discount rate at the beginning of the period to the net defined
benefit liability or asset. Defined benefit costs are categorised as follows:
• service cost (including current service cost, past service cost, as well as gains and losses
on curtailments and settlements);
• net interest expense or income; and
• re-measurement
Short-term employee benefits
I he undiscounted amount of short-term employee benefits expected to be paid in exchange for the
services rendered by employees are recognized during the year when the employees render the
service. These benefits include compensated absences which are expected to occur within twelve
months after the end of the period in which the employee renders the related service.
viii. Taxation
Income tax expense comprises current and deferred taxes. Income tax expense is recognized in
the Statement of Profit and Loss except when they relate to items that are recognized outside
profit or loss (whether in other comprehensive income or directly in equity), in which case tax is
also recognized outside profit or loss
Current tax
Current income taxes are determined based on respective taxable income of each taxable entity.
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of
taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences.
Deferred tax assets are generally recognized for all deductible temporary differences to the extent
that it is probable that taxable profits will be available against which those deductible temporary
differences can be utilized.
ix. Property, plant and equipment
Property, plant and equipment are carried at cost less accumulated depreciation and impairment
losses, if any. The cost of property, plant and equipment comprises its purchase price net of any
trade discounts and rebates, any import duties and other taxes (other than those subsequently
recoverable from the tax authorities), any directly attributable expenditure on making the asset
ready for its intended use, other incidental expenses and borrowings costs attributable to
acquisition of qualifying fixed assets up to the date the asset is ready for its intended use. Freehold
land is not depreciated.
Capital work-in-progress in the course of construction for production, supply or administrative
purposes are carried at cost, less any recognised impairment loss. Cost includes professional fees
and, for qualifying assets, borrowing costs capitalised in accordance with the Company’s
accounting policy. Such Capital works in progress are classified to the appropriate categories of
property, plant and equipment when completed and ready for intended use. Depreciation of these
assets, on the same basis as other property assets, commences when the assets are ready for
their intended use.
An item of property, plant and equipment is derecognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss
arising on the disposal or retirement of an item of property, plant and equipment is determined as
the difference between the sales proceeds and the carrying amount of the asset and is recognised
in profit or loss.
Depreciation is recognised so as to write off the cost of assets (other than freehold land and
properties under construction) less their residual values over their useful lives.
Depreciation on property, plant and equipment is provided on the straight line method based on
the useful life, in accordance with Schedule II of the Companies Act, 2013.
Depreciation on the revalued assets is adjusted against revaluation reserve without debiting to
Statement Profit & Loss. Depreciation on the revalued assets in accordance with INDAS is
adjusted against Other Comprehensive Income without debiting to Statement Profit & Loss.
x. Inventories ^
Inventories are valued at the lower of cost and net realizable value after providing for
obsolescence and other losses, where considered necessary. Costs of inventories are ascertained
on a weighted average basis. Cost of work in progress and finished goods include appropriate
allocation of overheads cost. Net realizable value is the estimated selling price in the ordinary
course of business less estimated cost of completion and selling expenses.
xi. A Cash and cash equivalents (for purposes of Cash Flow Statement)
Cash comprises cash on hand, in bank and demand deposits with banks. Cash equivalents are
short-term balances (with an original maturity of three months or less from the date of acquisition),
highly liquid investments that are readily convertible into known amounts of cash and which are
subject to insignificant risk of changes in value.
Cash flows are reported using indirect method whereby profit/ (loss) after tax is adjusted for the
effects of transaction of non-cash nature and any deferrals or accruals of past or future cash
receipts and payments.
The cash flows from operating, investing and financing activities of the company are segregated
based on the available information.
xii. Financial Instruments
(A) Initial recognition
Financial assets and financial liabilities are recognized when a Company becomes a party to the
contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that
are directly attributable to the acquisition or issue of financial assets and financial liabilities (other
than financial assets and financial liabilities at fair value through profit or loss) are added to or
deducted from the fair value of the financial asset or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of financial assets or
liabilities at fair value through profit or loss are recognized immediately in profit or loss.
(B) Subsequent measurement
a. 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.
b. 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.
c. 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.
d. Financial liabilities:
Financial liabilities are subsequently carried at amortised cost using the effective interest
method, except for contingent consideration recognized in a business combination which is
subsequently measured at fair value through profit and loss. 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.
(C) De-recognition of financial assets and liabilities
a. Financial assets:
The Company derecognizes a financial asset when the contractual rights to the cash flows
from the asset expire, or when it transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another party. If the Company retains substantially all the
risks and rewards of ownership of a transferred financial asset, the Company continues to
recognize the financial asset and also recognizes a collateralized borrowing for the proceeds
received.
On de-recognition of a financial asset in its entirety, the difference between the asset’s
carrying amount and the sum of the consideration received and receivable and the cumulative
gain or loss that had been recognized in other comprehensive income and accumulated in
equity is recognized in profit or loss if such gain or loss would have otherwise been recognized
in profit or loss on disposal of that financial asset.
b. Financial liabilities:
The Company derecognizes financial liabilities when, and only when, the Company’s
obligations are discharged, cancelled or have expired. The difference between the carrying
amount of the financial liability derecognized and the consideration paid and payable is
recognized in profit or loss.
xiii. Impairment of assets
a. 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 recognized is recognized as an impairment gain or loss in profit or loss.
For trade receivables only, the Company applies the simplified approach permitted by Ind AS 109
Financial Instruments, which requires expected lifetime losses to be recognized from initial
recognition of the receivables. As a practical expedient, the company uses a provision matrix to
determine impairment loss of its trade receivables. The provision matrix is based on its historically
observed default rates over the expected life of the trade receivable and is adjusted for forward
looking estimates. The ECL loss allowance (or reversal) during the year is recognized in the
statement of profit and loss.
b. 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, 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 CGU 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 amortisation or depreciation) had no impairment loss been recognized for the
asset in prior years.
xiv. Earnings per share
Basic earnings per share is computed by dividing the net profit / (loss) attributable to the equity
holders of the company by the weighted average number of equity shares outstanding during the
year.
Diluted earnings per share is computed by dividing the profit / (loss) attributable to the equity
holders of the company as adjusted for dividend, interest and other charges to expense or income
(net of any attributable taxes) relating to the dilutive potential equity shares, by the weighted
average number of equity shares considered for deriving basic earnings per share and the
weighted average number of equity shares which could have been issued on the conversion of all
dilutive potential equity shares
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