1.3 SIGNIFICANT ACCOUNTING POLICIES
A. Property, Plant and Equipment:
i. Recognition and measurement
Freehold land is carried at cost. All other items of property, plant and equipment are measured
at cost less accumulated depreciation and any accumulated impairment losses. Cost includes
expenditure that is directly attributable to the acquisition of the items.
Income and expenses related to the incidental operations, not necessary to bring the item to
the location and condition necessary for it to be capable of operating in the manner intended
by management, are recognized in the Statement of Profit and Loss.
If significant parts of an item of property, plant and equipment have different useful life, then
they are accounted and depreciated 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 recognized in the
Statement of Profit and Loss.
Capital work in progress is stated at cost and includes the cost of the assets that are not ready
for their intended use at the Balance Sheet date.
On transition to Ind AS, the Company has elected to continue with the carrying value of all
of its property, plant and equipment recognized as at April 1, 2016 measured as per the
Previous GAAP and use that carrying value as the deemed cost (except to the extent of any
adjustment permissible under other accounting standard) of the property, plant and
equipment.
ii. Subsequent Expenditure
Subsequent expenditure is capitalized only if it is probable that the future economic benefits
associated with the expenditure will flow to the Company.
iii. Depreciation
Depreciation on tangible fixed assets is provided in accordance with the provisions of
Schedule II of the Companies Act 2013. Depreciation on additions / deductions is calculated
on pro rata basis from/up to the month of additions/deductions. The estimated useful life,
residual values and depreciation method are reviewed at the end of each reporting period,
with the effect of any changes in estimate accounted for on a prospective basis.
B. Intangible Assets:
i. Intangible assets are recorded at the consideration paid for acquisition of such assets and are
carried at cost less accumulated amortization and impairment, if any.
C. Impairment:
i. Non - financial assets
At each balance sheet date, the Company assesses whether there is any indication that any
property, plant and equipment and intangible assets with finite life may be impaired. If any
such impairment exists, the recoverable amount of an asset is estimated to determine the
extent of impairment, if any. Where it is not possible to estimate the recoverable amount of
an individual asset, the Company estimates the recoverable amount of the cash-generating
unit to which the asset belongs.
D. Inventories:
i. Finished and Semi-Finished Products produced and purchased by the company are
carried at Cost and net realizable value, whichever is lower.
ii. Work in Progress is carried at lower of cost and net realizable value.
iii. Raw Material is carried at lower of cost and net realizable value.
iv. Stores and Spares parts are carried at cost. Necessary provision is made and expensed in
case of identified obsolete and nonmoving items.
Cost of Inventory is generally ascertained on the ‘Weighted average’ basis. Work in
progress, Finished and semi-finished products are valued at on full absorption cost basis.
Cost Comprises expenditure incurred in the normal course of business in bringing such
inventories to its location and includes, where applicable, appropriate overheads based on
normal level of activity. Packing Material is considered as finished goods. Consumable
stores are written off in the year of Purchase.
E. Foreign Currency Transactions
Transactions in Foreign Currency and Non-Monetary Assets are accounted for at the
Exchange Rate prevailing on the date of the transaction. All monetary items denominated
in Foreign Currency are converted at the Year-End Exchange Rate. The Exchange
Differences arising on such conversion and on settlement of the transactions are recognized
as income or as expenses in the year in which they arise.
F. Investments and Other Financial Assets:
Classification
The Company classifies its financial assets in the following measurement categories:
• Those to be measured subsequently at fair value (either through other comprehensive
income, or through Statement of Profit and Loss), and
• Those measured at amortized cost.
The classification depends on the Company’s business model for managing the financial
assets and the contractual terms of the cash flows. For assets measured at fair value, gains
and losses will either be recorded in Statement of Profit and Loss or other comprehensive
income. For investments in debt instruments, this will depend on the business model in
which the investment is held. For investments in equity instruments, this will depend on
whether the Company has made an irrevocable election at the time of initial recognition to
account for the equity investment at fair value through other comprehensive income.
The Company reclassifies debt or equity investments when and only when its business
model for managing those assets changes.
Measurement
At initial recognition, in case of a financial asset not at fair value through profit and loss,
the Company measures a financial asset at its fair value plus, transaction costs that are
directly attributable to the acquisition of the financial asset. Transaction costs of financial
assets carried at fair value through Statement of Profit and Loss are expensed in Statement
of Profit and Loss.
(a) Amortized cost: Assets that are held for collection of contractual cash flows where those
cash flows represent solely payments of principal and interest are measured at amortized
cost.
(b) Fair Value through Other Comprehensive Income (FVOCI): Assets that are held for
collection of contractual cash flows and for selling the financial assets, where the assets’
cash flows represent solely payments of principal and interest, are measured at FVOCI.
Movements in the carrying amount are taken through Other Comprehensive Income (OCI),
except for the recognition of impairment gains or losses, interest revenue and foreign
exchange gains and losses which are recognized in Statement of Profit and Loss. When the
financial asset is derecognized, the cumulative gain or loss previously recognized in OCI is
reclassified from equity to profit and loss and recognized in other gains/ losses. Interest
income from these financial assets is included in other income using the effective interest
rate method.
(c) Fair value through profit and loss: Assets that do not meet the criteria for amortized cost
or FVOCI are measured at fair value through Statement of Profit and Loss. Interest income
from these financial assets is included in other income.
Equity Instruments
The Company subsequently measures all equity investments at fair value. Where the
Company’s management has elected to present fair value gains and losses on equity
investments in OCI, there is no subsequent reclassification of fair value gains and losses to
Statement of Profit and Loss. Dividends from such investments are recognized in Statement
of Profit and Loss as other income when the Company’s right to receive payment is
established.
Changes in the fair value of financial assets at fair value through profit and loss are
recognized in other gain/losses in the Statement of Profit and Loss. Impairment losses (and
reversal of impairment losses) on equity investments measured at FVOCI are not reported
separately from other changes in fair value.
Derecognition
A financial asset is derecognized only when
(a) The Company has transferred the rights to receive cash flows from the financial asset or
(b) Retains the contractual rights to receive the cash flows of the financial asset, but assumes
a contractual obligation to pay the cash flows to one or more recipients.
G. Cash and Cash Equivalents:
Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and
highly liquid investments with an original maturity of three months or less, which are subject
to an insignificant risk of changes in value.
H. Financial Liabilities:
Measurement
All financial liabilities are recognized initially at fair value and in the case of loans,
borrowings and payables recognized net of directly attributable transaction costs.
The Company’s financial liabilities include trade and other payables, loans and borrowings
and derivative financial instruments.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or expires. Gains and losses are recognized in Statement of Profit and Loss when
the liabilities are derecognized as well as through the EIR amortization process.
I. Revenue recognition:
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.
Revenue from the sale of goods is recognized at the point in time when control of the asset
is transferred to the customer, generally on the delivery of the goods. Revenue is recognisable
to the extent of the amount that reflects the consideration (i.e. the transaction price) to which
the Company is expected to be entitled in exchange for those goods or services excluding
any amount received on behalf of third party (such as indirect taxes).
J. Other Income:
Other income is comprised primarily of interest income, dividend income, gain/loss on
investments and exchange gain/loss on forward and options contracts and on translation of
other assets and liabilities. Interest income is recognized using the effective interest method.
Claims for export incentives/ duty drawbacks, duty refunds and insurance are accounted
when the right to receive payment is established. Dividend Income is recognized when the
right to receive dividend is established.
K. Employee benefits:
A. Short term employee benefits:
All employee benefits payable wholly within twelve months of rendering the service are
classified as short-term employee benefits. Benefits such as salaries, wages, performance
incentives, etc. are recognized at actual amounts due in the period in which the employee
renders the related service.
B. Contribution towards defined benefit contribution Schemes
Gratuity plan
The Company has a defined benefit gratuity plan. Every employee who has completed five
years or more of service is eligible for gratuity on post-employment at 15 days salary (last
drawn salary) for each completed year of service as per the rules of the Company. The
aforesaid liability is provided for on the basis of an actuarial valuation on projected unit credit
method made at the end of the financial year. Current service cost, Past-service costs are
recognized immediately in Statement of profit or loss.
Re-measurement 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. They are included in retained earnings in the statement of changes
in equity and in the balance sheet. Re measurements are not reclassified to profit or loss in
subsequent periods.
L. Borrowing costs:
Borrowing costs directly attributable to the acquisition, construction or production of a
qualifying asset that necessarily takes a substantial period of time to get ready for its
intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs
are expensed in the period in which they occur.
M. Taxes on Income:
Income Tax expense comprises of current and deferred tax. Income Tax expense is
recognized in net profit in the Statement of Profit and Loss except to the extent that it relates
to items recognized directly in equity, in which case it is recognized in other comprehensive
income.
(i) Current Tax
Current Tax is the amount of income taxes payable (recoverable) in respect of the taxable
profit (tax loss) for a period. Current tax for current and prior periods is recognized at the
amount expected to be paid to or recovered from the tax authorities, using the tax rate and
tax laws that have been enacted or substantively enacted by the Balance Sheet date
Current tax assets and liabilities are offset if, and only if, the Company:
a) has a legally enforceable right to set off the recognized amounts; and
b) intends either to settle on a net basis, or to realize the asset and settle the liability
simultaneously.
Deferred tax is recognized in respect of temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible
temporary differences to the extent that it is probable that future taxable profits will be
available against which they can be used. 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; such reductions are reversed when the probability of future taxable profits
improves. Unrecognized deferred tax assets are reassessed at each reporting date and
recognized to the extent that it has become probable that future taxable profits will be
available against which they can be used.
The measurement of deferred tax reflects the tax consequences that would follow from the
manner in which the Company expects, at the reporting date, to recover or settle the carrying
amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if:
a) the entity has a legally enforceable right to set off current tax assets against current tax
liabilities; and
b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the
same taxation authority on the same taxable entity.
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