2. Summary of Material Accounting Policies:
i) Current versus Non-current classification
All assets and liabilities have been classified as current or non-current as per the company's
operating cycle and other criteria set out in the Schedule III to the Act. Based on the nature of
products/activities and the time between the sale of goods and their realization in cash and cash
equivalents, the company has fixed its operating cycle as twelve months for the purpose of current
and non-current classification of assets and liabilities.
The company presents assets and liabilities in the balance sheet based on current/ non-current
classification.
An asset is classified as current when it is:
• Expected to be realised or intended to be sold or consumed in normal operating cycle
• Held primarily for the purpose oftrading
• Expected to be realised within twelve months after the reporting period, or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at
least twelve months after the reporting period
A liability is classified as current when:
• It is expected to be settled in normal operating cycle
• It is held primarily for the purpose oftrading
• It is due to be settled within twelve months after the reporting period, or
• It does not have the right at the end of the reporting period to defer the settlement of the liability
for at least twelve months after the reporting period
Current assets / liabilities include the current portion of non-current assets / liabilities
respectively. All other assets / liabilities including deferred tax assets and liabilities are classified
as non-current.
ii) Fair value measurement
The company’s accounting policies and disclosures require the measurement of fair values, for
certain financial and non-financial assets and liabilities based on their classification.
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.
In estimating the fair value of an asset or 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.
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in
the valuation techniques as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
When measuring the fair value of an asset or a liability, the company uses observable market data as
far as possible. If the inputs used to measure the fair value of an asset or a liability fall into different
levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the
same level of the fair value hierarchy as the lowest level input that is significant to the entire
measurement.
The company recognises transfers between levels of the fair value hierarchy at the end of the
reporting period during which the change has occurred.
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.
iii) Property Plant and Equipment, CWIP and Depreciation:
a. Property Plant and Equipment are measured at cost less accumulated depreciation and
impairment losses.
b. The cost of property, plant and equipment includes those incurred directly for the construction or
acquisition of the asset, and directly attributable to bringing it to the location and condition
necessary for it to be capable of operating in the manner intended by the management and
includes the present value of expected cost for dismantling/ restoration wherever applicable.
c. The cost of major spares is recognised in the carrying amount of the item of property, plant and
equipment in accordance with the recognition criteria set out in the Standard. The carrying
amount of the replaced part is derecognised at the time of actual replacement. The cost of the day-
to-day servicing of the item are recognised in statement of profit and loss account.
d. Depreciation on Property, Plant and Equipment is provided under straight line method over the
useful life of the assets as specified in Part C of Schedule II to the Companies Act, 2013 and the
manner specified therein. Assets costing less than ? 10,000 are fully depreciated in the year of
purchase.
e. Expenditure attributable / relating to PPE under construction / erection is accounted as below:
• To the extent directly identifiable to any specific plant / unit, trail run expenditure net of
revenue is included in the cost of property plant and equipment.
• To the extent not directly identifiable to any specific plant / unit, it is kept under “expenditure
during construction” for allocation to property plant and equipment and is grouped under
capital work in progress.
• Advances paid towards the acquisition of property, plant and equipment outstanding at each
Balance Sheet date is classified as capital advances under other non-current assets.
iv) Intangible Assets:
a. Intangible Assets are recognised when it is probable that future economic benefits that are
attributable to the asset will flow to the enterprise and the cost of the asset can be measured
reliably. Expenditure incurred for creating infrastructure facilities where the ownership does not
rest with the company and where the benefits from it accrue to the company over a future period
is also considered as Intangible Asset.
b. New product development expenditure, software licences, technical knowhow fee,
infrastructure and logistic facilities etc., are recognised as Intangible Assets upon completion of
development and commencement of commercial production.
c. Intangible Assets are amortised on straight line method over their technically estimated useful
life.
d. Residual values and useful lives for all Intangible Assets are reviewed at each reporting date.
Changes if any are accounted for as changes in accounting estimates.
v) Impairment of Assets:
a. Financial Assets
The company applies expected credit loss (ECL) model for measurement and recognition of
impairment loss on the following financial assets and credit risk exposure:
• Financial assets that are debt instruments and are measured at amortised cost whether
applicable for e.g. loans debt securities, deposits, and bank balances.
• Trade Receivables
The company follows ‘simplified approach’ for recognition of impairment loss allowance on
trade receivables which do not contain a significant financing component. 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.
b. Non - financial assets
The Company assesses at each reporting date whether there is any objective evidence that a non¬
financial asset or a group of non-financial assets is impaired. If any such indication exists, the
Company estimates the amount of impairment loss.
vi) Inventories
Inventories are valued at lower of cost or net realisable value after providing for obsolescence, if any.
Cost of inventories comprises of cost of purchase, cost of conversion and other costs incurred in
bringing them to their respective present location and condition. Cost of raw material is determined
on FIFO method.
The factors that the company considers in determining the provision for slow moving, obsolete and
other non-saleable inventory include estimated shelf-life, ageing of inventory and to the extent each
of these factors impact the company’s business and markets. The company considers all these
factors and adjusts the inventory provision to reflect its actual experience on a periodic basis.
vii) Foreign Currency Transactions
a. Transactions relating to non-monetary items and purchase and sale of goods /services
denominated in foreign currency are recorded at the exchange rate prevailing or a rate that
approximates the actual rate on the date oftransaction.
b. Assets and liabilities in the nature of monetary items denominated in foreign currencies are
translated and restated at prevailing exchange rates as at the end of the reporting period.
c. Exchange differences arising on account of settlement / conversion of foreign currency
monetary items are recognised as expense or income in the period in which they arise.
d. Foreign currency gains and losses are reported on a net basis.
viii) Revenue Recognition
a) While recognizing the revenue under Ind AS-115, in respect of Contracts which meet the defined
criteria, due consideration has been given to identify all the performance obligations stated
therein including transfer of goods or services as well as terms of payment. The transaction price
is allocated to each distinct and identifiable performance obligation and is also adjusted for the
time value of money. In respect of goods, revenue is recognised on transfer of significant risks
and rewards of the ownership including effective control of the buyer. In respect of all other
services/performance obligations, revenue is recognised upon of completion of such
performance. The revenue so measured is stated net of trade discounts / rebates and other price
allowances, wherever applicable. Other income including interest is recognised on accrual
basis.
b) In appropriate circumstances, subject to fulfilment of requirements of Ind AS 115, the company
recognizes revenue under bill-and-hold arrangements, where goods are billed to customers but
the company retained the goods at the request of the customer. Revenue in such arrangements is
recognized when control of the goods is deemed to have been transferred to the customer, even
though physical delivery has not occurred, provided that all of the following conditions are
satisfied:
• The bill-and-hold arrangement is at the request of the customer and the reason is substantive;
• The goods are separately identified as belonging to the customer;
• The goods are ready for physical transfer to the customer; and
• The Company does not have the ability to use or redirect the goods to another customer.
c) Export Incentives:
Export incentives are recognised when the right to receive the credit is established in respect of
the exports made and where there is no significant uncertainty regarding the ultimate collection
of the relevant export proceeds and utilization of export incentives within its validity period.
ix) Government Grants:
The grant / concession / incentives received from Government under its schemes are deducted from
the respective expense head on receipt basis.
x) Employee Benefits:
a) Short term benefits:
All employee benefits falling due wholly within twelve months of rendering the service are
classified as short-term employee benefits. The cost of the benefits like salaries, wages, medical,
leave travel assistance, short term compensated absences, bonus, exgratia etc., are recognised as
an expense in the period in which the employee renders the related service.
b) Post -employment benefits and other long term employee benefits:
• Defined Contribution Plans
The contribution paid /payable under provident fund scheme, ESI scheme, and employee
pension scheme is recognised as expenditure in the period in which the employee renders the
related service.
• Defined Benefit Plans
The Company’s obligation towards gratuity is a defined benefit plan. The present value of
the estimated future cash flows of the obligation under such plan is determined based on
actuarial valuation using the projected unit credit method. Any difference between the
interest income on plan asset and the return actually achieved and any changes in the
liabilities over the year due to changes in actuarial assumptions or experienced adjustments
within the plan are recognised immediately in other comprehensive income and
subsequently not reclassified to the statement of profit and loss.
All defined benefit plans obligations are determined based on valuation as at the end of the
reporting period, made by independent actuary using the projected unit credit method. The
classification of the Company’s net obligation into current and non-current is as per the
actuarial valuation report.
c) Long term employee benefits:
The obligation for long term employee benefits such as long-term compensated absences, is
determined and recognised in the similar manner stated in the defined benefit plan.
xi) Borrowing Cost
a. Borrowing costs incurred for acquiring assets which take substantial period to get ready for their
intended use are capitalised to the respective assets wherever the costs are directly attributable to
such assets and in other cases by applying weighted average cost of borrowings to the
expenditure on such assets.
b. Other borrowing costs are treated as expense for the year.
c. Significant transaction costs in respect of long-term borrowings are amortised over the tenor of
respective loans using effective interest method.
xii) Taxes
a) Current Tax
The tax currently payable is based on taxable profit for the year. Taxable profits differ from the
profit as reported in the statement of profit and loss because of items of income or expense that
are taxable or deductible in other years and items that are never taxable or deductible. The
company’s current tax is calculated using tax rates that have been enacted or substantially
enacted by the end of the reporting period. In the event of Tax computed as stated is less than the
tax computed under section 115JB ofthe Income tax Act., 1961, provision for current tax will be
made in accordance with such provisions.
b) Deferred Tax
Deferred Tax is recognised 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 recognised for all taxable temporary
differences. Deferred Tax assets are generally recognised 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 utilised.
The carrying amount of Deferred Tax asset is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available
to allow all or part ofthe asset to be recovered.
Deferred Tax liabilities and assets are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end ofthe reporting period.
The measurement of Deferred Tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Company expects, at the end of the reporting period to
recover or settle the carrying amount of its assets and liabilities.
Deferred Tax resulting from “timing difference” between taxable and accounting income is
accounted for using the tax rates and laws that are enacted or substantively enacted as on the
balance sheet date. Deferred Tax asset is recognised and carried forward only to the extent there is
reasonably certain that there will be sufficient future income to recover such Deferred Tax Asset.
Current and deferred tax are recognised in profit and loss, except when they relate to items that
are recognised in other comprehensive income or directly in equity, in which case, the current
and deferred tax are also recognised in other comprehensive income or directly in equity
respectively.
c) Minimum Alternate Tax (MAT) Credit: MAT Credit Entitlement is recognized in the books of
account when there is convincing evidence that the company will pay normal income tax during
the specified period. The entitlement is reviewed at each balance sheet date with regard to the
correctness ofthe carrying amount.
xiii) Research and Development
Capital expenditure incurred on R&D activities has been disclosed under separate head of account
and revenue expenditure incurred on R&D is charged off as a distinct item in the Statement of Profit
and Loss.
xiv) Financial Instruments:
A Financial instrument is any contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
All Financial Instruments are recognized initially at fair value. The classification of Financial
Instruments depends on the objective of the business model for which it is held and the contractual
cash flows that are solely payments of principal and interest on the principal outstanding. For the
purpose of subsequent measurement, Financial Instruments of the company are classified into(a)
Non-Derivate Financial Instruments and (b) Derivative Financial Instruments.
a) Non-Derivative Financial Instruments:
• Security Deposits, Cash and Cash Equivalents, Other Advances, Trade Receivables and
Eligible Current and non-current financial assets are classified as financial assets under this
clause.
• Loans and borrowings, trade and other payables including deposits collected from various
parties and eligible current and non-current financial liabilities are classified as financial
liabilities under this clause.
• Financial instruments are subsequently carried at amortized cost.
• Transaction costs that are attributable to the financial instruments recognized at amortized
cost are included in the fair value of such instruments.
b) Derivative Financial Instruments:
• The policy in respect of Derivatives will be formulated as and when required.
xv) Claims
Claims by and against the Company, including liquidated damages, are recognised on acceptance
basis.
xvi) Leases:
The company’s lease asset classes primarily consist of leases for land and building. The company
assesses whether a contract contains a lease, at inception of a contract. 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. To assess whether a contract conveys the right to control the use of an
identified asset, the company assesses whether: (i) the contract involves the use of an identified asset
(ii) the company avails itself substantially all of the economic benefits from use of the asset through
the period of the lease and (iii) the company has the right to direct the use of the asset. At the date of
commencement of the lease, the company recognizes a right-of-use asset (“ROU”) and a
corresponding lease liability for all lease arrangements in which it is a lessee, except for leases with a
term of twelve months or less (short-term leases) and low value leases. For these short-term and low
value leases, the company recognizes the lease payments as an operating expense on a straight-line
basis over the term of the lease.
As a lessee, the company determines the lease term as the non-cancellable period of a lease adjusted
with any option to extend or terminate the lease, if the use of such option is reasonably certain.
Right-of-use assets are depreciated from the commencement date on a straight-line basis over the
shorter of the lease term and useful life of the underlying asset. The lease liability is initially
measured at amortized cost at the present value of the future lease payments. The lease payments are
discounted using the interest rate implicit in the lease.
Lease liability and Right to Use assets have been separately presented in the Balance Sheet and lease
payments have been classified as financing cash flows.
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