2 Material Accounting Policies
2.01 Statement of compliance
The standalone financial statements of the Company have been prepared in accordance with Indian Accounting
Standards (referred to as "Ind AS") notified under the Companies (Indian Accounting Standards) Rules, 2015 (as
amended from time to time) and the presentation requirements of Division II of Schedule III to the Companies
Act, 2013 (Ind AS Compliant Schedule III).
2.02 Basis of preparation and presentation
The financial statements have been prepared in accordance with Indian Accounting Standards (IND AS) under
the historical cost convention on the accrual basis except for the following-
(i) Certain financial assets and liabilities that is measured at fair value
(ii) Defined benefit plans - planned assets measured at fair value.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.
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 estimate using another valuation technique. 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, maximizing the use of relevant observable inputs and minimizing the use
of unobservable inputs.
2.03 Foreign currency transaction & translation
The functional currency of Akar Auto Industries Limited is Indian rupee (H).
On initial recognition, all foreign currency transactions are translated into the functional currency using the
exchange rates prevailing on the date of the transaction. As at the reporting date foreign currency monetary
assets and liabilities are translated at the exchange rate prevailing on the Balance Sheet date and the exchange
gains or losses are recognized in the statement of Profit and Loss for the year.
The company also uses foreign exchange forward contracts to hedge its exposure to movements in foreign
currency exchange rate. Exchange difference on such contracts is recognized in statement of profit & loss in
reporting period in which exchange rate change. Any profit or loss arising on cancellation or renewal of such
forward exchange contract is recognized as income or expense in the period in which same is cancelled or
rolled over.
2.04 Property, Plant and equipment (PPE)
Property plant and equipment (PPE) are recognized at cost. The initial cost of PPE comprises its purchases
price, including non-refundable duties and taxes net of any trade discounts and rebates. The cost of PPE
includes interest on borrowings (borrowing cost) directly attributable to acquisition, construction or production
of qualifying assets subsequent to initial recognition, PPE are stated at cost less accumulated depreciation (other
than freehold land, which are stated at cost) and impairment losses, if any.
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate,
only when 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. The carrying amount of any component accounted for as a
separate asset is derecognized when replaced. All other repairs and maintenance are charged to profit or loss
during the reporting period in which they are incurred.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned
assets. However when there is no reasonable certainty that ownership will be obtained by the end of the lease
term, assets are depreciated over the shorter of the lease term and useful lives.
Depreciation is recognized so as to write off the cost of assets (other than freehold land and capital work in
progress) less their residual values over the useful lives, using the straight-line method ("SLM"). Management
believes based on a technical evaluation (which is based on technical advice, taking into account the nature of
the asset, the estimated usage of the asset, the operating conditions of the asset, past history of replacement,
anticipated technological changes, manufacturers warranties and maintenance support, etc.)
Cost of lease hold assets are amortized over period of their respective lease.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes
in circumstances indicate that the carrying value may not be recoverable, either fully or partially. The residual
values, useful life and depreciation method are reviewed at each financial year-end to ensure that the amount,
method and period of depreciation are in consistent with the previous estimates and the expected pattern of
consumption of the future economic benefits embodied-in the items of property plant and equipment.
An item of property, plant and equipment is derecognized 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 disposal or retirement
of an item of property plant and equipment is determined as the difference between sales proceeds and the
carrying amount of the asset and is recognized in profit or loss. Fully depreciated assets still in use are retained
in financial statements.
2.05 Intangible Assets
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated
amortization, if any. Amortization is recognized on a straight-line basis over their estimated useful lives.
The estimated useful life and amortization method are reviewed at the end of each reporting period, with the
effect of any changes in estimate being accounted for on a prospective basis.
i) Technical knowhow is amortized over a period ranging from six to ten years;
ii) Software is amortized over a period of three years.
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.
2.06 Capital work-in-progress and intangible assets under development
Capital work -in-progress/ intangible assets under development are carried at cost, comprising direct cost,
related incidental expensed and attributable borrowing cost. Other expenditure incurred during the construction
period which are not related to the construction activity nor are incidental thereto, are charged to statement
of profit & loss.
2.07 Cash and cash equivalents
The Company considers all highly liquid financial instruments, which are readily convertible into known amounts
of cash that are subject to an insignificant risk of change in value and having original maturities of three months
or less from the date of purchase, to be cash equivalents. Cash and cash equivalents consist of balances with
banks which are unrestricted for withdrawal and usage.
2.08 Financial instruments
Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions
of the instrument. Financial assets and liabilities are initially measured at their respective fair value. Transaction
costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other
than the financial assets and financial liabilities at their respective fair value through profit or loss) are added to
or deducted from the fair value measured on initial recognition of financial asset or financial liability. IND AS
109 requires certain categories of financial assets and liabilities to be measured at amortized cost using effective
interest rate method. In accordance with IND AS 109 "effective interest rate" is the rate that exactly discounts
estimated future cash payments or receipt through the expected life of financial asset or financial liability to the
gross carrying amount of financial asset or to amortized cost of financial liability.
A Financial assets
Financial assets at amortized cost
Financial assets are subsequently measured at amortized cost if these financial assets are held within
a business whose objective is to hold these assets 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 (FVTOCI)
Financial assets are subsequently measured at fair value through other comprehensive income if these
financial assets are held within a business whose objective is achieved by both collecting contractual
cash flows that give rise on specified dates to solely payments of principal and interest on the principal
amount outstanding and by selling financial assets.
Financial assets at fair value through profit or loss (FVTPL)
Financial assets are subsequently measured at fair value through profit or loss; unless it is measured
at amortized cost or at fair value through other comprehensive income on initial recognition. The
transaction costs directly attributable to the acquisition of financial assets and liabilities at fair value
through profit or loss are immediately recognized in profit or loss.
B Financial liabilities
Financial liabilities are subsequently measured at amortized cost using the effective interest method.
Equity instruments
An equity instrument is a contract that evidences residual interest in the assets of the Company after
deducting all of its liabilities. Equity instruments recognized by the Company are measured at the
proceeds received net off direct issue cost.
2.09 Derivative financial instruments
The Company enters into certain derivative contracts with an intention to hedge assets & liabilities, firm
commitment and highly probable transactions. Such contracts are accounted as per the policy stated in foreign
currency transaction & translations.
2.10 Impairment of Assets
A Financial assets (other than at fair value)
The Company assesses on a forward looking basis the expected credit losses associated with its assets
carried at amortized cost and FVTOCI debt instruments. The impairment methodology applied depends
on whether there has been a significant increase in credit risk.
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.
B PPE and intangibles assets
Property, plant and equipment and intangible assets with finite life are evaluated for recoverability
whenever there is any indication that their carrying amounts may not be recoverable, either fully or
partially. 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
recognized in the Statement of Profit and Loss.
2.11 Inventories
Inventories are valued at lower of cost and net realizable value after providing for obsolescence and other
losses, where considered necessary. Cost includes all charges in bringing the goods to their present location
and condition, including octroi and other levies transit insurance and receiving charges. Work-in-progress
and finished goods include appropriate proportion of overheads. Stores & spared are valued at cost after
considering cost of obsolescence and estimated useful life. Scrap is valued at net realizable value. Net realizable
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.
2.12 Revenue from contract with customers
Revenue is measured at the fair value of the consideration received or receivable taking into account contractually
defined terms of payment and excluding taxes or duties collected on behalf of the government. Revenue is
reduced for estimated customer returns, rebates and other similar allowances.
A Sale of goods
Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at
which time all the following conditions are satisfied:
(i) The Company has transferred to the buyer the significant risks and rewards of ownership of the
goods;
(ii) The company retains neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold;
(iii) The amount of revenue can be measured reliably; and
(iv) It is probable that the economic benefits associated with the transaction will flow to the Company;
and the costs incurred or to be incurred in respect of the transaction can be measured reliably.
B Rendering of services
Income recognition for services takes place as and when the services are performed.
C Interest Income
Interest income from financial assets is recognized when it is probable that economic benefits will flow
to the Company and the amount of income can be measured reliable. Interest income is accrued on a
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
assets to the asset's net carrying amount on initial recognition.
D Dividend
Dividend income, if any, from investments is recognized when the shareholder's right to receive payment
has been established (provided that it is probable that the economic benefits will flow to the Company
and the amount of income can be measured reliably).
E PSI Incentive
PSI Incentive is accounted on basis of accrual concept based on eligibility certificate received from
Regional Joint Director of Industries, Chhatarpati Sambhaji Nagar, (Aurangabad), (Maharashtra).
2.13 Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. 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:
(i) The amount of the initial measurement of the lease liability;
(ii) Any lease payments made at or before the commencement date less any lease incentives received;
(iii) Any initial direct costs incurred; and
(iv) An estimate of costs to be incurred in dismantling and removing the underlying asset.
The ROU assets are subsequently depreciated using the straight-line method over the shorter of the lease term
and the useful life of the underlying asset. The lease liability is initially measured at the present value of lease
payments that are not paid at that date, discounted using the Company's incremental borrowing rate.
Lease payments include fixed payments, variable payments that depend on an index or a rate, and amounts
expected to be paid under residual value guarantees.
Company as a Lessor:
Leases for which the Company is a lessor are classified as finance or operating leases. A lease is classified as a
finance lease if it transfers substantially all the risks and rewards incidental to ownership of the underlying asset.
Otherwise, it is classified as an operating lease.
Short-term Leases and Leases of Low-Value Assets:
The Company has elected not to recognize ROU assets and lease liabilities for leases with a lease term of 12
months or less and leases of low-value assets. The lease payments associated with these leases are recognized
as an expense on a straight-line basis over the lease term.
2.14 Employee benefit
Employee benefits consist of contribution to provident fund, gratuity fund, and compensated absences.
A Post-employment benefit plans
(i) Defined Contribution plans
Employee benefit in form of contribution to provident fund managed by government authorities,
Employee state Insurance Corporation and labor welfare fund are considered as defined contribution
plans and are charge to statement of profit or loss statement for the year in which employee renders the
related services.
(ii) Defined benefit plans
The Company's gratuity fund scheme is considered as defined benefit plan. The company's liability is
determined on basis of actuarial valuation using projected unit credit method as at the balance sheet
date. The liability or asset recognized in the balance sheet in respect of its defined benefit plans is the
present value of the defined benefit obligation at the end of the reporting period less the fair value of
plan assets. The present value of the said obligation is determined by discounting the estimated future
cash outflows, using market yields of government bonds that have tenure approximating the tenures of
the related liability. The interest income / (expense) are calculated by applying the discount rate to the net
defined benefit liability or asset. The net interest income / (expense) on the net defined benefit liability or
asset is recognized in the Statement of Profit and loss.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial
assumptions are recognized in the period in which they occur, directly in other comprehensive income
they are included in retained earnings in the Statement of Changes in Equity and in the Balance Sheet.
Changes in the present value of the defined benefit obligation resulting from plan amendments or
curtailments are recognized immediately in profit or loss as past service cost.
B Short term employee benefit
Compensated absences which accrue to employees and which can be carried to future periods but are
expected to be encashed or availed in twelve months immediately following the year end are reported
as expenses during the year in which the employees perform the services that the benefit covers and the
liabilities are reported at the undiscounted amount of the benefits after deducting amounts already paid.
Where there are restrictions on availment of encashment of such accrued benefit or where the availment
of encashment is otherwise not expected to wholly occur in the next twelve months, the liability on
account of the benefit is actuarially determined using the projected unit credit method.
2.15 Borrowing costs
Borrowing costs are interest and ancillary costs incurred in connection with the arrangement of borrowings.
General and specific borrowing costs attributable to acquisition and construction of any qualifying asset (one
that takes a substantial period of time to get ready for its designated use or sale) are capitalized until such time
as the assets are substantially ready for their intended use or sale, and included as part of the cost of that asset.
Investment 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 the other borrowing costs
are recognized in the Statement of Profit and Loss within Finance costs of the period in which they are incurred.
2.16 Income tax
Income tax expense comprises current tax expense and the net change in the deferred tax asset or liability
during the year. Current and deferred taxed are recognized in statement of Profit and Loss, except when they
relate to items that are recognized in other comprehensive income or directly in equity, in which case, the
current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.
Current tax
Current tax is measured at the amount of tax expected to be payable on the taxable income for the year as
determined in accordance with the provisions of the Income Tax Act,1961.
Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the
recognized amounts and there is an intention to settle the asset and the liability on a net basis.
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, except when the deferred income tax arises from the initial recognition
of an asset or liability in a transaction that is not a business combination and affects neither accounting nor
taxable profit or loss at the time of the transaction.
Deferred tax assets are recognized only to the extent that it is probable that either future taxable profits or
reversal of deferred tax liabilities will be available, against which the deductible temporary differences, and the
carry forward of unused tax credits and unused tax losses can be utilized.
The carrying amount of a deferred tax asset shall be reviewed at the end of 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 tax assets and liabilities are measured using the tax rates and tax laws that have been enacted or
substantively reenacted by the end of the reporting period and are expected to apply when the related deferred
tax asset is realized or the deferred tax liability is settled.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority.
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