3 Material Accounting Policies
3.1 New Standards adopted by the
Company
On 24 July 2020, the Ministry of
Corporate Affairs (MCA) has issued
amendments to certain Ind AS as
summarised below:
Amendments to Ind AS 1 and Ind AS 8:
Definition of Material
The amendments provided a new
definition to the word material as follows:
‘Information is material if omitting,
misstating or obscuring it could
reasonably be expected to influence
decisions that the primary users of
general-purpose financial statements
make on the basis of those financial
statements, which provide financial
information about a specific reporting
entity.’The amendments clarify that
materiality will depend on the nature or
magnitude of information, either
individually or in combination with other
information, in the context of the financial
statements. A misstatement of information
is material if it could reasonably be
expected to influence decisions made by
the primary users.
An information is considered to be
obscured if it is communicated in a way that
would have a similar effect for primary
users of financial statements to omitting or
misstating that information. The
amendments provided examples of
circumstances that may result in information
being obscured.
An entity should apply the amendments
prospectively for annual periods
beginning on or after 1 April 2020.
The amendments to the definition of
material had no impact on the standalone
financial statements of the Company.
3.2 Revenue recognition
Revenue is recognized upon transfer of
control of promised licenses or services to
customers in an amount that reflects the
consideration which the company expects
to receive in exchange for those licenses or
services.
The company’s revenues are derived from
sale of goods and services.
• Revenue from sale of licenses is
recognized where control is transferred
to the company’s customers at the time
of receipt of licenses by the customers.
• Service income, is recognized as and
when the underlying services are
performed. Upfront non-refundable
payments received under these
arrangements continue to be deferred
and are recognized over the expected
period that related services are to be
performed.
• Dividend income is accounted for when
the right to receive the income is
established.
• Difference between the sale price and
carrying value of investment is
recognized as profit or loss on sale /
redemption on investment on trade date
of transaction.
• Interest income is accrued on, time basis,
by reference to the principal
outstanding and at the effective interest
rate applicable, which is the rate that
exactly discounts estimated future cash
receipts through the expected life of the
financial asset to that asset’s net
carrying amount on initial recognition.
3.3 Leases
A contract is, or contains, a lease if the
contract conveys the right to control the use
of an identified asset for a period of time
in exchange for consideration.
Company as a lessee
The Company accounts for each lease
component within the contract as a lease
separately from non-lease components of
the contract and allocates the
consideration in the contract to each lease
component on the basis of the relative
standalone price of the lease component
and the aggregate standalone price of the
non-lease components.
The Company recognizes right-of-use asset
representing its right to use the underlying
asset for the lease term at the lease
commencement date. The cost of the right
of-use asset measured at inception shall
comprise of the amount of the initial
measurement of the lease liability
adjusted for any lease payments made at
or before the commencement date less any
lease incentives received, plus any initial
direct costs incurred and an estimate of
costs to be incurred by the lessee in
dismantling and removing the underlying
asset or restoring the underlying asset or
site on which it is located. The right-of-use
assets is subsequently measured at cost less
any accumulated depreciation,
accumulated impairment losses, if any and
adjusted for any remeasurement of the
lease liability. The right-of-use assets is
depreciated using the straight-line method
from the commencement date over the
shorter of lease term or useful life of right-
of-use asset. The estimated useful lives of
right-of-use assets are determined on the
same basis as those of property, plant and
equipment. Right of-use assets are tested
for impairment whenever there is any
indication that their carrying amounts may
not be recoverable. Impairment loss, if any,
is recognized in the statement of profit and
loss.
The Company measures the lease liability
at the present value of the lease payments
that are not paid at the commencement
date of the lease. The lease payments are
discounted using the interest rate implicit in
the lease if that rate can be readily
determined. If that rate cannot be readily
determined, the Company uses
incremental borrowing rate. For leases
with reasonably similar characteristics, the
Company, on a lease by lease basis, may
adopt either the incremental borrowing
rate specific to the lease or the incremental
borrowing rate for the portfolio as a
whole. The lease payments shall include
fixed payments, variable lease payments,
residual value guarantees, exercise price
of a purchase option where the Company
is reasonably certain to exercise that
option and payments of penalties for
terminating the lease, if the lease term
reflects the lessee exercising an option to
terminate the lease. The lease liability is
subsequently remeasured by increasing
the carrying amount to reflect interest on
the lease liability, reducing the carrying
amount to reflect the lease payments
made and remeasuring the carrying
amount to reflect any reassessment or
lease modifications or to reflect revised in¬
substance fixed lease payments. The
Company recognizes the amount of the re¬
measurement of lease liability due to
modification as an adjustment to the right-
of-use asset and statement of profit and
loss depending upon the nature of
modification. Where the carrying amount
of the right-of-use asset is reduced to zero
and there is a further reduction in the
measurement of the lease liability, the
Company recognizes any remaining
amount of the re-measurement in
statement of profit and loss.
The Company has elected not to apply the
requirements of Ind AS 116 Leases to short
term leases of all assets that have a lease
term of 12 months or less and leases for
which the underlying asset is of low value.
The lease payments associated with these
leases are recognized as an expense on a
straight-line basis over the lease term.
3.4 Foreign Currencies
In preparing the Financial Statements of
the Company, transactions in currencies
other than the Company’s functional
currency (Foreign Currencies) are
recognized at the rates of exchange
prevailing at the dates of the transactions.
At the end of each reporting period,
monetary items denominated in Foreign
Currencies are retranslated at the rates
prevailing at that date. Non-monetary
items that are measured in terms of
historical cost in a Foreign Currency are not
retranslated. Exchange differences on
monetary items are recognized in Profit or
Loss in the period in which they arise
3.5 Borrowing Cos
Specific Borrowing Costs that are
attributable to the acquisition, construction
or production of a qualifying asset are
capitalized as part of the cost of such
asset till such time the asset is ready for its
intended use and borrowing costs are
being incurred. A qualifying asset is an
asset that necessarily takes a substantial
period of time to get ready for its
intended use. All other borrowing costs are
recognized as an expense in the period in
which they are incurred. Borrowing Cost
includes Interest Expense, Amortization of
Discounts, Ancillary Costs incurred in
connection with borrowing of funds and
exchange difference arising from Foreign
Currency Borrowings to the extent they are
regarded as an adjustment to the Interest
Cost.
3.6 Taxation
Income Tax expense consists of Current
and Deferred Tax. Income Tax expense is
recognized in the Income Statement
except to the extent that it relates to items
recognized directly in Equity, in which case
it is recognized in Equity.
Current tax
Current Tax is the expected tax payable
on the Taxable Income for the year, using
tax rates enacted or substantively
enacted at the reporting date, and any
adjustment to tax payable in respect of
previous years.
Deferred tax
Deferred Tax is recognized using the
Balance Sheet method, providing for
temporary differences between the
carrying amounts of Assets and Liabilities
for financial reporting purposes and the
amounts used for taxation purposes.
Deferred Tax is not recognized for the
following temporary differences: the
initial recognition of Assets or Liabilities in
a transaction that is not a business
combination and that affects neither
accounting nor taxable profit; differences
relating to investments in subsidiaries and
jointly controlled entities to the extent that
it is probable that they will not reverse in
the foreseeable future; and taxable
temporary differences arising upon the
initial recognition of goodwill. Deferred
Tax is measured at the tax rates that are
expected to be applied to the temporary
differences when they reverse, based on
the laws that have been enacted or
substantively enacted by the reporting
date. Deferred Tax Assets and Liabilities
are offset if there is a legally enforceable
right to offset Current Tax Liabilities and
Assets, and they relate to income taxes
levied by the same tax authority on the
same taxable entity, or on different tax
entities, but they intend to settle current
tax Liabilities and Assets on a net basis or
their Tax Assets and Liabilities will be
realized simultaneously.
A Deferred Tax Asset is recognized to the
extent that it is probable that future
taxable profits will be available against
which the temporary difference can be
utilized. Deferred Tax Assets are
reviewed at each reporting date and are
reduced to the extent that it is no longer
probable that the related tax benefit will
be realized.
3.7 Earnings Per Share
The Company presents Basic and Diluted
Earnings Per Share (“EPS”) data for its
ordinary Shares. The Basic Earnings Per
Share is computed by dividing the Net
Profit attributable to Equity Shareholders
for the period by the weighted average
number of Equity Shares outstanding
during the year.
Diluted earnings per share is computed by
dividing the Net Profit attributable to
Equity Shareholders for the year 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.
Potential Equity Shares are deemed to be
dilutive only if their conversion to Equity
Shares would decrease the Net Profit Per
Share.
3.8 Property, Plant and Equipment (PPE)
The initial cost of PPE comprises its
purchase price, including import duties and
non-refundable purchase taxes, and any
directly attributable costs of bringing an
asset to working condition and location for
its intended use, including relevant
borrowing costs and any expected costs of
decommissioning, less accumulated
depreciation and accumulated impairment
losses, if any. Expenditure incurred after
the PPE have been put into operation, such
as repairs and maintenance, are charged
to the Statement of Profit and Loss in the
period in which the costs are incurred.If
significant parts of an item of PPE have
different useful lives, then they are
accounted for as separate items (major
components) of PPE.Material items such as
spare parts, stand-by equipment and
service equipment are classified as PPE
when they meet the definition of PPE as
specified in Ind AS 16 — Property, Plant
and Equipment.
3.9 Expenditure during construction period
Expenditure during construction period
(including financing cost related to
borrowed funds for construction or
acquisition of qualifying PPE) is included
under Capital Work-in-Progress, and the
same is allocated to the respective PPE on
the completion of their construction.
Advances given towards acquisition or
construction of PPE outstanding at each
reporting date are disclosed as Capital
Advances under “Other Non-current
Assets”.
Depreciation is the systematic allocation of
the depreciable amount of PPE over its
useful life and is provided on a straight¬
line basis over the useful lives as
prescribed in Schedule II to the Act or as
per technical assessment.
Depreciable amount for PPE is the cost of
PPE less its estimated residual value. The
useful life of PPE is the period over which
PPE is expected to be available for use by
the Company, or the number of production
or similar units expected to be obtained
from the asset by the Company.
The Company has componentized its PPE
and has separately assessed the life of
major components. In case of certain
classes of PPE, the Company uses different
useful lives than those prescribed in
Schedule II to the Act. The useful lives have
been assessed based on technical advice,
taking into account the nature of the PPE
and the estimated usage of the asset on
the basis of management’s best estimation
of obtaining economic benefits from those
classes of assets.Such classes of Assets and
their estimated useful lives are as under:
installation or acquisition and in case of
Projects from the date of commencement
of commercial production. Depreciation on
deductions/disposals is provided on a pro¬
rata basis up to the date of deduction/
disposal.
3.11 Intangible Assets and Amortization
Intangible Assets are stated at cost less
accumulated amortization and
impairment. Intangible Assets are
amortized over their respective estimated
useful lives on a straight-line basis, from the
date that they are available for use.
Internally generated assets for which the
cost is clearly identifiable are capitalised
at cost. Research expenditure is
recognised as an expense when it is
incurred. Development costs are
capitalised only after the technical and
commercial feasibility of the asset for sale
or use has been established. Thereafter, all
directly attributable expenditure incurred
to prepare the asset for its intended use
are recognised as the cost of such assets.
Internally generated brands, websites and
customer lists are not recognised as
intangible assets.
Amortization
The estimated useful life of an identifiable
Intangible Asset is based on a number of
factors including the effects of obsolescence,
demand, competition and other economic
factors (such as the stability of the industry
and known technological advances) and
the level of maintenance expenditures
required to obtain the expected future
cash flows from the asset.
Software is amortized over a period of
three to five years.
3.12 Cash and Cash Equivalents
Cash and Cash Equivalents in the Balance
Sheet comprise Cash at Bank and in Hand
and Short-term Deposits with Banks that
are readily convertible into Cash which
are subject to insignificant risk of changes
in value and are held for the purpose of
meeting Short-term Cash commitments.
3.13 Cash Flow Statement
Cash Flows are reported using the indirect
method, whereby net Profit Before Tax is
adjusted for the effects of transactions of
a non-cash nature and any deferrals or
accruals of past or future cash receipts or
payments. The Cash Flows from
Operating, Investing and Financing
activities of the Company are
segregated.
3.14 Government Grants
Government grants are recognized
where there is reasonable assurance that
the grant will be received and all
attached conditions will be complied with.
Where the Company receives non¬
monetary grants, the asset and the grant
are accounted at fair value and
recognized in the Statement of Profit and
Loss over the expected useful life of the
Asset.
3.15 Impairment of non Financial Assets
The carrying amounts of the Company’s
Non-financial Assets, Inventories and
Deferred Tax Assets are reviewed at
each reporting date to determine
whether there is any indication of
impairment. If any such indication exists,
then the Asset’s recoverable amount is
estimated.
The recoverable amount of an Asset or
Cash-generating unit (as defined below)
is the greater of its value in use and its fair
value less costs to sell. In assessing value in
use, the estimated future Cash Flows are
discounted to their present value using a
Pre-tax Discount Rate that reflects current
market assessments of the time value of
money and the risks specific to the asset or
the cash-generating unit. For the purpose of
impairment testing, Assets are grouped
together into the smallest group of Assets
that generates Cash Inflows from continuing
use that are largely independent of the
Cash Inflows of other Assets or groups of
Assets (the “cash-generating unit”).
An Impairment Loss is recognized in the
Income Statement if the estimated
recoverable amount of an asset or its Cash¬
generating unit is lower than its carrying
amount. Impairment Losses recognized in
prior periods are assessed at each
reporting date for any indications that the
loss has decreased or no longer exists. An
Impairment Loss is reversed if there has
been a change in the estimates used to
determine the recoverable amount. An
Impairment Loss is reversed only to the
extent that the asset’s carrying amount
does not exceed the carrying amount that
would have been determined, net of
Depreciation or Amortization, if no
Impairment Loss had been recognized.
Goodwill that forms part of the carrying
amount of an Investment in an Associate is
not recognized separately, and therefore is
not tested for impairment separately.
Instead, the entire amount of the investment
in an associate is tested for impairment as a
single Asset when there is objective
evidence that the investment in an associate
may be impaired.
An Impairment Loss in respect of Equity
accounted investee is measured by
comparing the recoverable amount of
investment with its carrying amount. An
Impairment Loss is recognized in the Income
Statement, and reversed if there has been
a favourable change in the estimates used
to determine the recoverable amount.
Short-term Employee Benefits
Short-term Employee Benefits are
expensed as the related service is
provided. A Liability is recognized for the
amount expected to be paid 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
The Company’s contributions to Defined
Contribution Plans are charged to the
Income Statement as and when the services
are received from the employees.
Defined Benefit Plans
The liability in respect of Defined Benefit
Plans and other Post-employment Benefits
is calculated using the projected unit credit
method consistent with the advice of
qualified actuaries. The present value of
the defined benefit obligation is
determined by discounting the estimated
future cash outflows using interest rates of
high-quality Corporate Bonds that are
denominated in the currency in which the
benefits will be paid, and that have terms
to maturity approximating to the terms of
the related defined benefit obligation. In
countries where there is no deep market in
such bonds, the market rates on
Government Bonds are used. The current
service cost of the Defined Benefit Plan,
recognized in the Income Statement in
Employee Benefit expense, reflects the
increase in the Defined Benefit Obligation
resulting from employee service in the
current year, benefit changes, curtailments
and settlements. Past service costs are
recognized immediately in income. The net
interest cost is calculated by applying the
discount rate to the net balance of the
Defined Benefit Obligation and the fair
value of Plan Assets. This cost is included in
employee benefit expense in the Income
Statement. Actuarial Gains and Losses
arising from experience adjustments and
changes in actuarial assumptions are
charged or credited to Equity in Other
Comprehensive Income in the period in
which they arise.
Termination Benefits
Termination Benefits are recognized as an
expense when the Company is
demonstrably committed, without realistic
possibility of withdrawal, to a formal
detailed plan to either terminate
employment before the normal retirement
date, or to provide termination benefits as
a result of an offer made to encourage
voluntary redundancy. Termination
benefits for voluntary redundancies are
recognized as an expense if the Company
has made an offer encouraging voluntary
redundancy, it is probable that the offer
will be accepted, and the number of
acceptances can be estimated reliably.
Other Long Term Employee Benefits
The Company’s net obligation in respect of
other Long Term Employee Benefits is the
amount of future benefit that employees
have earned in return for their service in
the current and previous periods. That
benefit is discounted to determine its
present value. Re-measurements are
recognized in the Statement of Profit and
Loss in the period in which they arise.
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