2 Material accounting policies 2.1 Basis of preparation of financial statements
These financial statements have been prepared in accordance Indian Accounting Standards (Ind As) according
to the notification issued by the Ministry of Corporate Affairs under section 133 of the Companies Act, 2013 ('the
act') read with rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian
Accounting Standards) Amendment Rules, 2016.
2.2 Summary of material accounting policiesAForeign Currency Transaction
Transactions in foreign currencies are initially recorded by the Company at their respective functional currency
spot rates at the date, the transaction first qualifies for recognition. However, for practical reasons, the
Company uses an average rate, if the average approximates the actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot
rates of exchange at the reporting date. Exchange differences arising on settlement or translation of monetary
items are recognised in the statement of profit and loss.
Non-monetary items that are measured based on historical cost in a foreign currency are translated at the
exchange rate at the date of the initial transaction.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was measured.
The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the
recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose
fair value gain or loss is recognised in other comprehensive income (“OCI”) or profit or loss are also recognised
in OCI or profit or loss, respectively).
B) Recognition and Measurement
The cost of an item of property, plant and equipment are recognised as an asset if, and only if 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.
Freehold land is carried at revlaued cost less any accumulated impairment losses.
Items of property, plant and equipment (including capital-work-in progress) are stated at cost of acquisition or
construction less accumulated depreciation and impairment loss, if any.
Cost includes expenditures that are directly attributable to the acquisition of the asset i.e., freight, duties and
taxes applicable and other expenses related to acquisition and installation. The cost of self-constructed assets
includes the cost of materials and other costs directly attributable to bringing the asset to a working condition for
its intended use. Borrowing costs that are directly attributable to the construction or production of a qualifying
asset are capitalized as part of the cost of that asset.
The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the
item if it is probable that the future economic benefits embodied within the part will flow to the Company and its
cost can be measured reliably. The carrying amount of the replaced part will be derecognized. The costs of
repairs and maintenance are recognized in the statement of profit and loss as incurred.
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.
Items of property, plant and equipment acquired through exchange of non-monetary assets are measured at
fair value, unless the exchange transaction lacks commercial substance or the fair value of either the asset
received or asset given up is not reliably measurable, in which case the asset exchanged is recorded at the
carrying amount of the asset given up.
Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the
expenditure will flow to the Company and the cost of the item can be measured reliably.
Depreciation on property, plant and equipment
Depreciation is provided using the Straight Line Method ('SLM') over the useful lives of the assets as estimated
by the Management. Depreciation on additions and deletions are restricted to the period of use. Depreciation is
charged to statement of profit and loss.
The Company, based on technical assessment and management estimate, depreciates certain items of property,
plant and equipment over estimated useful lives which are different from the useful life prescribed in Schedule II to
the Act. The Management believes that these estimated useful lives are realistic and reflect fair approximation of the
period over which the assets are likely to be used.
C) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset for one entity and a financial liability or
equity instrument for another entity.
a) Financial assets
- Initial recognition and measurement
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at
fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial
asset. Purchases or sales of financial assets that require delivery of assets within a time frame established
by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e.,
the date that the Company commits to purchase or sell the asset.
- Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
• Debt instruments at amortised cost
• Debt instruments at fair value through other comprehensive income (FVTOCI)
• Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL);
• Equity instruments measured at fair value through other comprehensive income (FVTOCI)
Debt instruments at amortised cost
A ‘debt instrument’ is measured at the amortised cost, if both of the following conditions are met:
(i) The asset is held within a business model whose objective is to hold assets for collecting contractual
cash flows; and
(ii) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of
principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the
effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or
premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is
included in finance income in the statement of profit and loss. The losses arising from impairment are
recognised in the statement of profit and loss. This category generally applies to trade and other
receivables.
Debt instrument at FVTOCI
A ‘debt instrument’ is classified as FVTOCI, if both of the following criteria are met:
(i) The objective of the business model is achieved both by collecting contractual cash flows and selling
the financial assets; and
(ii) The asset’s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date
at fair value. Fair value movements are recognized in OCI. However, the Company recognizes interest income,
impairment losses and foreign exchange gain or loss in the statement of profit and loss. On de-recognition of
the asset, cumulative gain or loss previously recognised in OCI is reclassified from the equity to statement of
profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income using the
EIR method.
Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for
categorization as at amortized cost or as FVTOCI, is classified as FVTPL. Debt instruments included within the
FVTPL category are measured at fair value with all changes recognized in the statement of profit and loss.
Equity Instruments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for
trading are classified as FVTPL. If the Company decides to classify an equity instrument as FVTOCI, then all
fair value changes on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of
the amounts from OCI to statement of profit and loss, even on sale of investment. Equity instruments included
within the FVTPL category are measured at fair value with all changes recognized in the statement of profit and
loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is
primarily derecognized (i.e., removed from the Company’s balance sheet) when:
a) The rights to receive cash flows from the asset have expired, or
b) The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation
to pay the received cash flows in fullwithout material delay to a third party under a ‘pass- through’
arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the
asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the
asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a
pass- through arrangement, it evaluates if and to what extent it has retained the risks and rewards of
ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the
asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to
the extent of the Company’s continuing involvement. In that case, the Company also recognises an
associated liability. The transferred asset and the associated liability are measured on a basis that reflects
the rights and obligations that the Company has retained.
Impairment of Financial Assets
The Company assesses at each balance sheet date whether a financial asset or a group of financial assets is
impaired.
In accordance with Ind AS 109, the Company uses “Expected Credit Loss” (ECL) model, for evaluating
impairment of Financial Assets other than those measured at Fair Value Through Profit and Loss (FVTPL).
Expected credit losses are measured through a loss allowance at an amount equal to
• The 12 months expected credit losses (expected credit losses that result from those default events on the
financial instrument that are possible within 12 months after the reporting date);
• Full lifetime expected credit losses (expected credit losses that result from all possible default events
over the life of the financial instrument)
The Company follows simplified approach for recognition of impairment loss allowance on trade receivables
and under the simplified approach, the Company does not track changes in credit risk. Rather, it recognizes
impairment loss allowance based on lifetime ECL at each reporting date right from its initial recognition. The
Company uses a provision matrix to determine impairment loss allowance on trade receivables. The provision
matrix is based on its historically observed default rates over the expected life of trade receivable and is
adjusted for forward looking estimates. At every reporting date, the historical observed default rates are
updated.
For other assets, the Group uses 12-month ECL to provide for impairment loss where there is no significant
increase in credit risk. If there is significant increase in credit risk full lifetime ECL is used.
b) Financial liabilities
- Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value i.e., loans and
borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as
appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings
and payables, net of directly attributable transaction costs.
The Company’s financial liabilities include trade and other payables, loans and borrowings including bank
overdrafts, financial guarantee contracts.
- Subsequent measurement
The measurement of financial liabilities depends on their classification.
Financial liabilities at fair value through profit or loss (FVTPL)
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as fair value through profit or loss. Financial liabilities are classified
as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also
includes derivative financial instruments entered into by the Company that are not designated as hedging
instruments in hedge relationships as defined by Ind As 109. Separated embedded derivatives are also
classified as held for trading, unless they are designated as effective hedging instruments. Gains or losses on
liabilities held for trading are recognised in the statement of profit and loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such
at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities designated as
FVTPL, fair value gains/losses attributable to changes in own credit risk are recognized in OCI. These gains/
loss are not subsequently transferred to the statement of profit and loss.
However, the Group may transfer the cumulative gain or loss within equity. All other changes in fair value of such
liability are recognised in the statement of profit and loss.
Loans and borrowings
Borrowings is the category most relevant to the Company. After initial recognition, interest-bearing borrowings
are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in the
statement of profit and loss when the liabilities are derecognized as well as through the EIR amortization
process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or
costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of
profit and loss.
De-recognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired.
When an existing financial liability is replaced by another from the same lender on substantially different terms,
or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the
de-recognition of the original liability and the recognition of a new liability. The difference in the respective
carrying amounts is recognized in the statement of profit and loss.
Reclassification of financial assets and liabilities
The Company determines classification of financial assets and liabilities on initial recognition. After initial
recognition, no re-classification is made for financial assets which are equity instruments and financial
liabilities. For financial assets which are debt instruments, a re-classification is made only if there is a change in
the business model for managing those assets. A change in the business model occurs when the Company
either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies
financial assets, it applies the re-classification prospectively from the re-classification date, which is the first day
of the immediately next reporting period following the change in business model. The Group does not restate
any previously recognized gains, losses (including impairment gains or losses) or interest.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet, if there is
a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net
basis, to realize the assets and settle the liabilities simultaneously.
D) Cash and cash equivalents
Cash and bank balances comprise of cash balance in hand, in current accounts with banks, demand deposit,
short-term deposits, Margin Money deposits and unclaimed dividend accounts. For this purpose, “short-term”
means investments having maturity of three months or less from the date of investment. Bank overdrafts that
are repayable on demand and form an integral part of our cash management are included as a component of
cash and cash equivalents for the purpose of the statement of cash flows. The Margin money deposits, balance
in dividend accounts which are not due and unclaimed dividend balances shall be disclosed as restricted cash
balances.
Cash flow statement
Cash flows are reported using the indirect method, whereby profit / (loss) before tax is adjusted for the effects of
transactions of 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 based on the
available information.
E) Inventories
Inventories are stated at the lower of cost or net realisable value after providing for obsolescence and other
losses where considered necessary. Costs include all non-refundable duties and all charges incurred in
bringing the goods to their present location and condition.
F) Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets, other than 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.
For goodwill and intangible assets that have indefinite lives or that are not yet available for use, an impairment
test is performed each year at March 31.
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 inflow of other assets or groups of assets (the “cash-generating unit”).
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are
prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These
budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth
rate is calculated and applied to project future cash flows after the fifth year. To estimate cash flow projections
beyond periods covered by the most recent budgets/forecasts, the Company extrapolates cash flow
projections in the budget using a steady or declining growth rate for subsequent years, unless an increasing
rate can be justified. In any case, this growth rate does not exceed the long-term average growth rate for the
products, industries, or country in which the entity operates, or for the market in which the asset is used.
An impairment loss is recognized in the statement of profit and loss if the estimated recoverable amount of an
asset or its cash-generating unit is lower than its carrying amount. Impairment losses recognized in respect of
cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and
then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.
Reversal of Impairment of Assets
An impairment loss in respect of goodwill is not reversed. In respect of other assets, 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.
G Employee Benefits
a) 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 Plan
The Company’s contribution to defined contribution plans are charged to the statement of profit and loss
as and when the services are received from the employees.
b) 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 interest rates on government bonds
are used. The current service cost of the defined benefit plan, recognized in the statement of profit and
loss 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 the statement of profit and loss.
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
statement of profit and loss. Actuarial gains and losses arising from experience adjustments and changes
in actuarial assumptions for defined benefit obligation and plan assets are recognized in OCI in the period
in which they arise. When the benefits under a plan are changed or when a plan is curtailed, the resulting
change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in
the statement of profit and loss. The company recognizes gains or losses on the settlement of a defined
benefit plan obligation when the settlement occurs.
c) 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 Group 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.
d) 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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