2 MATERIAL ACCOUNTING POLICIES
2.1 Statement of compliance and basis of
preparation
The financial statements of the Company
have been prepared in accordance with Indian
Accounting Standards (Ind AS) notified under
the Companies (Indian Accounting Standards)
Rules, 2015 (as amended from time to time)
and presentation requirements of Division II
of Schedule III to the Companies Act, 2013, (Ind
AS compliant Schedule III), as applicable to the
financial statements.
The financial statements have been prepared on
a historical cost basis, except for the following
assets and liabilities which have been measured
at fair value:
• certain financial assets and liabilities
measured at fair value / amortised cost; and
• defined benefits plans - plan assets
measured at fair value
The financial statements are presented in Indian
Rupees (?) and all the values are rounded off to
the nearest million up to two decimal places,
unless otherwise stated.
2.2 Summary of material accounting policies
(a) Current versus non-current classification
The Company presents assets and liabilities
in the financial Statements based on current/
non current classification.
An asset is current when it is:
Ý Expected to be realised or intended
to be sold or consumed in normal
operating cycle.
Ý Held primarily for the purpose of
trading.
Ý Expected to be realised within twelve
months after the reporting period; or
Ý Cash or cash equivalent unless restricted
from being exchanged or used to settle
a liability for at least twelve months after
the reporting period.
All other assets are classified as non-current.
A liability is current when:
Ý It is expected to be settled in normal
operating cycle.
Ý It is held primarily for the purpose of
trading.
Ý It is due to be settled within twelve
months after the reporting period; or
Ý There is no unconditional right to defer
settlement of the liability for at least
twelve months after the reporting
period.
The Company classifies all other liabilities as
non-current.
Deferred tax assets/liabilities are classified as
non-current assets and liabilities.
Based on the time involved between the
acquisition of assets for processing and their
realisation in cash and cash equivalents, the
Company has identified twelve months as
its operating cycle for determining current
and non-current classification of assets and
liabilities in the Balance sheet.
(b) Fair value measurement
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. The
fair value measurement is based on the
presumption that the transaction to sell
the asset or transfer the liability takes place
either:
• in the principal market for the asset or
liability, or
• in the absence of a principal market, in
the most advantageous market for the
asset or liability
The principal or the most advantageous
market must be accessible by the Company.
The fair value of an asset or a liability is
measured using the assumptions that
market participants would use when pricing
the asset or liability, assuming that market
participants act in their economic best
interest.
A fair value measurement of a non¬
financial asset takes into account a market
participant's ability to generate economic
benefits by using the asset in its highest and
best use or by selling it to another market
participant that would use the asset in its
highest and best use.
The Company uses valuation techniques
that are appropriate in the circumstances
and for which sufficient data are available
to measure fair value, maximising the use of
relevant observable inputs and minimising
the use of unobservable inputs.
All assets and liabilities for which fair value
is measured or disclosed in the financial
statements are categorised within the fair
value hierarchy, described as follows, based
on the lowest level input that is significant to
the fair value measurement as a whole:
• Level 1 - Quoted (unadjusted) market
prices in active markets for identical
assets or liabilities
• Level 2 - Valuation techniques for which
the lowest level input that is significant
to the fair value measurement is directly
or indirectly observable
• Level 3 - Valuation techniques for which
the lowest level input that is significant
to the fair value measurement is
unobservable
For assets and liabilities that are recognised
in the financial statements on a recurring
basis, the Company determines whether
transfers have occurred between levels in
the hierarchy by re-assessing categorisation
(based on the lowest level input that is
significant to the fair value measurement as
a whole) at the end of each reporting period.
For the purpose of fair value disclosures,
the Company has determined classes of
assets and liabilities on the basis of the
nature, characteristics and risks of the asset
or liability and the level of the fair value
hierarchy as explained above.
(c) Revenue from contract with customer
Revenue from contracts with customers is
recognised when control of the goods or
services are transferred to the customer at
an amount that reflects the consideration to
which the Company expects to be entitled
in exchange for those goods or services.
Information about the Company's
performance obligations are summarised
below:
Sale of machines and spare parts
Revenue from sale of machines and spare
parts is recognised at the point in time
upon transfer of control of promised goods
to customers at an amount that reflects
the consideration to which the Company
expects to be entitled for those machines
and spare parts. Revenue is recognised
to the extent that it is probable that the
economic benefits will flow to the Company
and the revenue can be reliably measured,
regardless of when the payment is being
made.
Revenue from the sale of machines and
spare parts is measured at the transaction
price which is the consideration received or
receivable, net of returns and allowances,
trade discounts and volume rebates/
incentives.
The transaction price includes consideration
for free services. Free services is considered
as a distinct performance obligation, for
which relative stand-alone selling price
method is used and a portion of the
transaction price is allocated. Using the
relative stand-alone selling price method, a
portion of the transaction price is allocated
to the free services.
Goods and Services Tax (GST) is not received
by the Company in its own account. Rather,
it is tax collected on value added to the
commodity by the seller on behalf of the
government. Accordingly, it is excluded
from revenue.
Sale of services
Service income primarily consists of
revenue from free services promised with
sale of machines. Revenue from services is
recognised over a period of time as and when
the services are rendered. The payments for
the services are generally received along
with the payments for the sale of machines
at contract inception. The transaction price
allocated to free services are recognised as
contract liability which is then recognised
as revenue as and when the services are
rendered.
Warranty obligations
The Company typically provides warranties
for general repairs of defects that existed at
the time of sale, as required by law. These
assurance-type warranties are accounted
for a warranty provision as per Ind AS
37 Provisions, Contingent Liabilities and
Contingent Assets.
Assets and liabilities arising from rights of
return
A majority of sales contract for spare parts
generally provide customer a right to return
an item for a limited period of time.
The amount of revenue recognised is
adjusted for expected returns, which are
estimated based on the historical data for a
specific type of customer, equipment, area,
etc. In these circumstances, a refund liability
and a right to receive returned goods (and
corresponding adjustment to cost of sales)
are recognised.
The entity measures right to receive
returned goods at the carrying amount of
the inventory sold less any expected costs
to recover goods. The Company reviews
its estimate of expected returns at each
reporting date and updates the amounts of
the asset and liability accordingly.
Contract balances
The Company has classified its contract
assets and contract liabilities as required
under Ind AS 115 and presented in the
financial statements.
Trade receivables: A trade receivable is
recognised if an amount of consideration
is unconditional (i.e., only the passage of
time is required before payment of the
consideration is due).
Contract liabilities: A contract liability is
recognised if a payment is received or a
payment is due (whichever is earlier) from
the customer before the Company transfers
the related goods or services. Contract
liabilities are recognised as revenue when
the Company performs under the contract
(i.e., transfers control of the related goods
or services to the customer). The Company
has classified advance from customers and
deferred revenue as contract liabilities.
Export benefits
Income from export benefits is accounted
for on export of goods if the entitlements
can be estimated with reasonable assurance
and conditions precedent to claim are
fulfilled.
Dividends
Revenue is recognised when the Company's
right to receive the payment is established.
(d) Taxes
Income tax expense comprises of current tax
expense and the net change in the deferred
tax asset or liability during the year. Current
and deferred tax are recognised in the
Statement of Profit and Loss, except when
they relate to items that are recognised
in Other Comprehensive Income (OCI) or
directly in equity, in which case, the current
and deferred tax are also recognised in other
comprehensive income or directly in equity,
respectively.
Current income tax
Current income tax for the current and prior
year are measured at the amount expected
to be paid to the taxation authorities based
on the taxable income for that period. The
tax rates and tax laws used to compute
the amount are those that are enacted or
substantively enacted at the balance sheet
date.
Management periodically evaluates
positions taken in the tax returns with
respect to situations in which applicable
tax regulations are subject to interpretation
and considers whether it is probable that a
taxation authority will accept an uncertain
tax treatment. The Company shall reflect
the effect of uncertainty for each uncertain
tax treatment by using either most likely
method or expected value method,
depending on which method predicts
better resolution of the treatment.
Deferred income tax
Deferred tax is provided using the liability
method on temporary differences between
the tax bases of assets and liabilities and their
carrying amounts for financial reporting
purposes at the reporting date.
Deferred tax liabilities are recognised for all
taxable temporary differences, except:
• When the deferred tax liability arises
from the initial recognition of goodwill
or an asset or liability in a transaction
that is not a business combination and,
at the time of the transaction, affects
neither the accounting profit nor
taxable profit or loss and does not give
rise to equal taxable and deductible
temporary differences.
• In respect of taxable temporary
differences associated with investments
in subsidiaries, associates and interests
in joint ventures, when the timing of the
reversal of the temporary differences
can be controlled and it is probable
that the temporary differences will not
reverse in the foreseeable future.
Deferred tax assets are recognised for all
deductible temporary differences, the
carry forward of unused tax credits and any
unused tax losses. Deferred tax assets are
recognised 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 utilised, except:
• When the deferred tax asset relating
to the deductible temporary difference
arises from the initial recognition of an
asset or liability in a transaction that is
not a business combination and, at the
time of the transaction, affects neither
the accounting profit nor taxable profit
or loss and does not give rise to equal
taxable and deductible temporary
differences.
• In respect of deductible temporary
differences associated with investments
in subsidiaries, associates and interests
in joint ventures, deferred tax assets are
recognised only to the extent that it is
probable that the temporary differences
will reverse in the foreseeable future and
taxable profit will be available against
which the temporary differences can be
utilised
The carrying amount of deferred 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
tax asset to be utilised. Unrecognised
deferred tax assets are re-assessed at each
reporting date and are recognised to the
extent that it has become probable that
future taxable profits will allow the deferred
tax asset to be recovered.
Deferred tax assets and liabilities are
measured at the tax rates that are expected
to apply in the year when the asset is realised,
or the liability is settled, based on tax rates
(and tax laws) that have been enacted or
substantively enacted at the reporting date.
Deferred tax relating to items recognised
outside profit or loss is recognised outside
profit or loss (either in other comprehensive
income or in equity). Deferred tax items are
recognised in correlation to the underlying
transaction either in OCI or directly in equity.
The Company offsets deferred tax assets
and deferred tax liabilities if and only if it
has a legally enforceable right to set off
current tax assets and current tax liabilities
and the deferred tax assets and deferred tax
liabilities relate to income taxes levied by the
same taxation authority which intend either
to settle current tax liabilities and assets on
a net basis, or to realise the assets and settle
the liabilities simultaneously, in each future
period in which significant amounts of
deferred tax liabilities or assets are expected
to be settled or recovered.
(e) Foreign currencies
Initial recognition
Foreign currency transactions are recorded
in the reporting currency by applying to
the foreign currency amount the exchange
rate between the reporting currency and
the foreign currency at the date of the
transaction.
Conversion
Foreign currency monetary items are
reported using the closing rate. Non¬
monetary items which are carried in terms
of historical cost denominated in a foreign
currency are reported using the exchange
rate at the date of the transaction. Non¬
monetary items, which are measured at fair
value or other similar valuation denominated
in a foreign currency, are translated using
the exchange rate at the date when such
value was determined.
Exchange difference
Exchange differences arising on the
settlement of monetary items or on
reporting monetary items of Company at
rates different from those at which they
were initially recorded during the year, or
reported in previous financial statements,
are recognised as income or as expenses
in the year in which they arise except those
arising from investments in non-integral
operations.
The Company's financial statements are
presented in Indian Rupee. The Company
determines the functional currency as Indian
Rupee on the basis of primary economic
environment in which the entity operates.
(f) Property, plant and equipment
Plant and equipment are stated at cost,
net of accumulated depreciation and
accumulated impairment losses, if any.
Capital work in progress is stated at cost,
net of accumulated impairment loss, if any.
Such cost includes the cost of replacing part
of the plant and equipment and borrowing
costs for long-term construction projects
if the recognition criteria are met. When
significant parts of plant and equipment
are required to be replaced at intervals,
the Company depreciates them separately
based on their specific useful lives. All
other repair and maintenance costs are
recognised in profit or loss as incurred.
Depreciation
Depreciation is provided for property, plant
and equipment on a straight-line basis so as
to expense the cost less residual value over
their estimated useful lives as prescribed
in Schedule II of the Companies Act, 2013
except in respect of certain categories of
assets, where the useful life of the assets
has been assessed based on a technical
evaluation.
The estimated useful lives are as mentioned
below:
* The Company believes that the technically
evaluated useful life is different from Schedule II
of the Companies Act, 2013, as it best represents
the period over which these assets are expected
to be used.
An item of property, plant and equipment
and any significant part initially recognised
is derecognised upon disposal or when no
future economic benefits are expected from
its use or disposal. Any gain or loss arising
on derecognition of the asset (calculated
as the difference between the net disposal
proceeds and the carrying amount of the
asset) is included in the statement of profit
and loss when the asset is derecognised.
The residual values, useful lives and methods
of depreciation of property, plant and
equipment are reviewed at each financial
year end and adjusted prospectively, if
appropriate.
(g) Intangible assets
Intangible assets acquired separately are
measured on initial recognition at cost.
The cost of intangible assets acquired in
a business combination is their fair value
at the date of acquisition. Following initial
recognition, intangible assets are carried at
cost less any accumulated amortisation and
accumulated impairment losses.
Intangible assets are amortised over
the useful economic life and assessed
for impairment whenever there is an
indication that the intangible asset may
be impaired. The amortisation period and
the amortisation method for an intangible
asset with a finite useful life are reviewed at
least at the end of each reporting period.
Changes in the expected useful life or the
expected pattern of consumption of future
economic benefits embodied in the asset
are considered to modify the amortisation
period or method, as appropriate, and are
treated as changes in accounting estimates.
The amortisation expense on intangible
assets is recognised in the statement of
profit and loss unless such expenditure
forms part of carrying value of another asset.
An intangible asset is derecognised upon
disposal (i.e., at the date the recipient
obtains control) or when no future economic
benefits are expected from its use or disposal.
Any gain or loss arising upon derecognition
of the asset (calculated as the difference
between the net disposal proceeds and the
carrying amount of the asset) is included in
the statement of profit and loss when the
asset is derecognised.
(h) Leases
The Company assesses at contract inception
whether a contract is, or contains, a lease.
That is, 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 applies a single recognition
and measurement approach for all leases,
except for short-term leases and leases of
low-value assets. The Company recognises
lease liabilities to make lease payments and
right-of-use assets representing the right to
use the underlying assets.
Right-of-use assets
The Company recognises right-of-use assets
at the commencement date of the lease (i.e.,
the date the underlying asset is available
for use). Right-of-use assets are measured
at cost, less any accumulated depreciation
and accumulated impairment losses, and
adjusted for any remeasurement of lease
liabilities. The cost of right-of-use assets
includes the amount of lease liabilities
recognised, initial direct costs incurred,
and lease payments made at or before
the commencement date less any lease
incentives received. Right-of-use assets are
depreciated on a straight-line basis over the
shorter of the lease term and the estimated
useful lives of the assets, as follows:
• Land 99 years
• Building 2 to 10 years
If ownership of the Right-of-use assets
transfers to the Company at the end of the
lease term or the cost reflects the exercise of
a purchase option, depreciation is calculated
using the estimated useful life of the asset.
The right-of-use assets are also subject to
impairment. Refer to the accounting policies
in section (j) Impairment of non-financial
assets.
Lease liability
At the commencement date of the lease,
the Company recognises lease liabilities
measured at the present value of lease
payments to be made over the lease term.
The lease payments include fixed payments
(including in substance fixed payments) less
any lease incentives receivable.
In calculating the present value of lease
payments, the Company uses its incremental
borrowing rate at the lease commencement
date because the interest rate implicit in the
lease is not readily determinable. After the
commencement date, the amount of lease
liabilities is increased to reflect the accretion
of interest and reduced for the lease
payments made. In addition, the carrying
amount of lease liabilities is remeasured
if there is a modification, a change in the
lease term, a change in the lease payments
(e.g., changes to future payments resulting
from a change in an index or rate used
to determine such lease payments) or a
change in the assessment of an option to
purchase the underlying asset.
Short-term leases and leases of low-value
assets
The Company applies the short-term lease
recognition exemption to its short-term
leases of premises (i.e., those leases that have
a lease term of 12 months or less from the
commencement date and do not contain
a purchase option). It also applies the lease
of low-value assets recognition exemption
to leases of premises that are considered
to be low value. Lease payments on short¬
term leases and leases of low-value assets
are recognised as expense on a straight-line
basis over the lease term.
(i) Inventories
Inventories are valued at the lower of cost
and net realisable value. Costs incurred in
bringing each product to its present location
and condition are accounted for as follows:
Raw materials: cost includes cost of
purchase and other costs incurred in
bringing the inventories to their present
location and condition. Cost is determined
on weighted average basis.
Work in progress and Finished goods:
cost includes cost of direct materials and
labour and a proportion of manufacturing
overheads based on the normal operating
capacity but excluding borrowing costs. Cost
is determined on weighted average basis.
Traded goods: cost i n c l u d es cost of p u rch ase
and other costs incurred in bringing the
inventories to their present location and
condition. Cost is determined on weighted
average basis.
Net realisable value is the estimated selling
price in the ordinary course of business,
less estimated costs of completion and the
estimated costs necessary to make the sale.
(j) Impairment
Financial assets (other than at fair value)
In accordance with Ind AS 109, the Company
applies expected credit loss (ECL) model
for measurement and recognition of
impairment loss on the financial assets
and credit risk exposure. The Company
follows 'simplified approach' for recognition
of impairment loss allowance on Trade
receivables. The application of simplified
approach does not require the Company
to track changes in credit risk. Rather, it
recognises impairment loss allowance
based on lifetime ECLs at each reporting
date, right from its initial recognition.
ECL impairment loss allowance (or reversal)
recognised during the period is recognised
as income/ expense in the statement of
profit and loss. This amount is reflected
under the head 'other expenses' in the
statement of profit and loss.
Non-financial assets
Property, plant and equipment, right-of-use
assets and intangible assets are evaluated
for recoverability whenever there is any
indication that their carrying amounts may
not be recoverable. If any such indication
exists, the recoverable amount (i.e. 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 unit (CGU) to which the
asset belongs.
If the recoverable amount of an asset (or
CGU) is estimated to be less than its carrying
amount, the carrying amount of the asset
(or CGU) is reduced to its recoverable
amount. An impairment loss is recognised
in the statement of profit and loss.
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