Note - 2 SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
(i) Compliance with Ind AS :
The financial statements comply in all material aspects with Indian Accounting Standards (Ind AS)
notified under Section 133 of the Companies Act, 2013 (the Act), Companies (Indian Accounting
Standards) Rules, 2015 and other relevant provisions of the Act.
(ii) Historical cost convention :
The financial statements have been prepared under the historical cost convention, except for the
following:
a) Certain financial assets and liabilities that is measured at fair value;
b) Net Defined Obligations
c) Assets held for sale
(iii) Current and Non -Current Classification
All assets and liabilities have been classified as current and non-current as per the company's operating
cycle and other criteria set out in the Division II of Schedule III to the Companies Act, 2013. The
company has ascertained its operating cycle as 12 months for the purpose of current and non-current
classifications.
2.2 Property, plant and equipment, Intangible Assets and Capital Work-in-progress
i) Recognition and Measurement
Freehold land is carried at historical cost. All other items of property, plant and equipment are stated
at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent, costs are included in the assets's carrying amount or recognized as a separate asset, as
appropiate, 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 as a separate asset is derecognized when replaced. All other repairs and maintainance are
charged to profit and loss during the reporting period in which they are incurred.
The cost of Property, plant and equipment not available for use as on each reporting date are disclosed
under capital work-in-progress.
ii) Depreciation methods, estimated useful lives and residual value
a) Depreciation is calculated using the Straight Line Method (SLM) to allocate their cost, net of their
residual values over their estimated useful life. The useful life has been determined based on the
technical evaluation done by the independent experts.
b) Any asset whose aggregate actual cost does not exceed five thousand rupees has been fully
charged off in the year of addition.
c) The residual values are not more than 3% (in case of vehicles) and 5% (in fixed assets other than
vehicles) of the original cost of the assets.The assets's residual values and useful life are reviewed
and adjusted at the end of each reporting period.
d) Depreciation on assets purchased/acquired during the year is charged from the date of purchase
of the assets. Assets that are acquired during the year are depreciated on pro rata basis from
the date of such addition or, as the case may be, upto the date on which such assets has been
derecognized.
e) An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount.
f) Gains and losses on disposals are determined by comparing proceeds with carrying amount. These
are included in profit or loss within other gains/(losses).
g) Leasehold land has been amortized over corresponding lease period.
2.3 Revenue recognition :
The company account for revenue from a contract with a customer only when all of the following criteria are met:
i) the parties to the contract have approved the contract (in writing, orally or in accordance with other
customary business practices) and are committed to perform their respective obligations;
ii) the company can identify each party’s rights regarding the goods or services to be transferred;
iii) the company can identify the payment terms for the goods or services to be transferred;
iv) the contract has commercial substance (i.e. the risk, timing or amount of the entity’s future cash flows
is expected to change as a result of the contract); and.
v) it is probable that the entity will collect the consideration to which it will be entitled in exchange for the
goods or services that will be transferred to the customer.
2.4 Other Incomes
i) Insurance claims has been recognized as revenue on cash basis.
ii) Dividends shall be recognised as revenue when the shareholder’s right to receive payment is
established.
iii) Interest shall be recognised as revenue using the effective interest method as set out in Ind AS 109.
iv) Revenue other than above is recognised only when it is probable that the economic benefits associated
with the transaction will flow to the entity. However, when an uncertainty arises about the collectibility
of an amount already included in revenue, the uncollectible amount or the amount in respect of which
recovery has ceased to be probable is recognised as an expense, rather than as an adjustment of the
amount of revenue originally recognised.
2.5 Inventories :
Raw materials, Stores and spares, Semi-finsihed goods, traded and finished goods
Inventories are valued as under -
i) Raw materials, Stores spares, loose tools and Erection materials are valued at cost or net realisable value;
ii) Finished goods are stated at lower of Cost or Net Realisable Value; and
iii) Saleable scraps, whose cost is not identifiable, are valued at estimated realisable value.
iv) Cost of raw materials and stores comprises cost of purchase.Cost of inventories also include all other
costs incurred in bringing the inventories to their present location and condition.
v) Net realizable value is the estimated selling price in the ordinary course of business after deduction of
the estimated cost of completion and the estimated costs necessary to make the sale.
2.6 Financial Instruments
Financial assets and liabilities are recognized when the company becomes a party to the contractual
provisions of the instrument.
Financial Assets
(i) Trade Receivables
Trade Receivables are recognized intially at fair value and subsequently measured at amortized costs
less provisions for impairment.
(ii) Other Financial Assets
a) Classifications
The company classifies its financial assets into the following catagories:
#Those to be measured subsequently at fair value (either through other comprhensive income or
through profit and loss)
#Those measured at amoritized costs
The classification depends upon the business model for managing the financial assets and
contractual characterstics of the cash flows.
b) Measurements
Intial Recognition:
Financial assets are initially measured at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial assets (other than financial assets at fair value through profit
or loss) are added to or deducted from the fair value measured on initial recognition of financial
assets. The transaction costs directly attributable to the acquisition of financial assets at fair value
through profit or loss are immediately recognized in profit or loss.
Subsequent Measurement:
There are three subsequent measurement categories into which the company classifies its debt
instrument financial assets:
# measured 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 to collect contractual cash flows and the
contractual terms of the financial assets give rise on specified dates to cash flow that are solely
payments of principal and interest on the principal amount outstanding.
## measured at fair value through other comprehensive income
Financial assets are 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
ows on specified dates that are solely payments of principal and interest on the principal amount
outstanding and selling financial assets.
### measured at fair value through profit or loss
Financial assets are measured at fair value through profit or loss unless it is measured at amortized
cost or fair value through other comprehensive income on initial recognition.
Equity instruments :
An equity instruments is a contract that evidences residual interest in the assets of the company
after deducting all of its liabilities. Equity instruments recognised at the proceeds received net off
direct issue cost.
All equity instruments classified under financial assets are subsequently measured at fair value.
The company has made an irrecoverable erection at the time of intial recognition to account for the
equity instrument at fair value through other comprehensive income.
c) Impairment of Financial Assets :
The company assesses on forward looking basis the expected credit losses associated with its assets
carried at amortized costs.The impairment methodlogy applied depends on whether there has been a
significant increase in credit risks.
For trade receivables only, the company applies the simplified approach permitted by Ind AS 109,
"Financial Instruments", which requires expected life time losses to be recognized from intial recognition
of the receivables.
d) Derecognition of Financial Assets :
A financial assets is derecognized only when :
The company has transferred the rights to receive cash flows from the financial assets or retains the
contractual rights to receive the cash flows of the financial assets but assumes a contractual obligation
to pay the cash flows to one or more recipients.
2.7 Financial Liabilities
i) Borrowings :
a) Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are
subsequently measured at amortized cost. Any difference between the proceeds (net of transaction
costs) and the redemption amount is recognized in profit or loss over the period of the borrowings
using the effective interest method.
b) Borrowings are removed from the balance sheet when the obligation specified in the contract is
discharged, cancelled or expired. The difference between the carrying amount of a financial liability
that has been extinguished or transferred to another party and the consideration paid, including
any non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other gains/
(losses).
c) Borrowings are classified as current liabilities unless the entity has an unconditional right to defer,
settlement of the liability for at least 12 months after the reporting period. Where there is a breach
of a material provision of a long-term loan arrangement on or before the end of the reporting
period with the effect that the liability becomes payable on demand on the reporting date, the entity
does not classify the liability as current, if the lender agreed, after the reporting period and before
the approval of the financial statements for issue, not to demand payment as a consequence of
the breach.
ii) Trade and other payables :
These amounts represent liabilities for goods and services provided to the entity prior to the end of
financial year which are unpaid. The amounts are unsecured and are usually paid within 45 days
of recognition. Trade and other payables are presented as current liabilities unless payment is not
due within 12 months after the reporting period. They are recognised initially at their fair value and
subsequently measured at amortized cost using the effective interest method.
iii) Other Financial Liabilities
Financial liabilities are measured at amortized cost using effective interest method. Financial liabilities
carried at fair value through profit or loss are measured at fair value with all changes in fair value
recognised in the statement of profit and loss.
Interest bearing loans and borrowings are subsequently measured at amortized cost using effective
interest rate method. Gain and losses are recognized in profit and loss when the liabilities are
derecognized.
iv) Offsetting of Financial Instruments:
A financial asset and a financial liability shall be offset and the net amount shall be presented in the
balance sheet when, and only when, an entity:
(a) currently has a legally enforceable right to set off the recognised amounts; and
(b) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
2.8 Employee benefits :
(i) Short-term employee benefit obligations
Liabilities for wages and salaries, including non-monetary benefits, that are expected to be settled wholly
within 12 months, after the end of the period, in which the employees render the related service, are
recognised in respect of employees’ services up to the end of the reporting period and are measured at
the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current
employee benefit obligations in the balance sheet.
All Short term employee benefits such as salaries, incentives, special award, medical benefits which
fall due within 12 months of the period in which the employee renders related services, which entitles
him to avail such benefits and non accumulating compensated absences (like maternity leave and sick
leave) are recognized on an undiscounted basis and charged to Profit and Loss Statement.
(ii) Post-employment obligations
The entity operates the following post-employment schemes:
(a) defined benefit plans such as gratuity, Super annuation and
(b) defined contribution plans such as provident fund.
Provident fund obligations
Contribution to the provident fund, which is a defined contribution plan, made to the Regional Provident
Fund Commissioner is charged to the Profit and loss Statement on accrual basis.
Gratuity obligations
The liability or assets recognized in the balance sheet in respect of defined benefit gratuity plan is the
present value of the defined benefit obligation at the end of the reporting period less the fair value of
plan assets. The defined benefit obligation is calculated annualy by actuaries using the projected unit
credit method.
The present value of the defined benefit obligations denominated in INR is determined by discounting
the estimated future cash flows by reference to market yields at the end of the reporting period on
government bonds that have terms approximating to the term of related obligations.
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 expenses in
statement of profit and loss.
Re-measurements gains and losses arising from experience adjustments and changes in acturial
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.
2.9 Foreign currency translation :
(i) Functional and presentation currency
Each items included in the financial statements are measured using the currency of the primary
economic environment in which the entity operates (‘the functional currency’). The financial statements
are presented in Indian rupee (INR), which is functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions i.e. Revenue, expense and cash-flow items denominated in foreign
currencies are translated into the functional currency using the exchange rates at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and
from the translation of monetary assets and liabilities denominated in foreign currencies at year end
exchange rates are generally recognised in profit or loss.
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 is determined.Transalation differences on assets and
liabilities carried at fair value are reported as part of fair value gain or loss.
2.10 Income tax :
i. The income tax expense or credit for the period is the tax payable on the current period’s taxable
income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred
tax assets and liabilities attributable to temporary differences and to unused tax losses.
ii. The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the end of the reporting period in the countries where the company and its subsidiaries and
associates operate and generate taxable income. Management periodically evaluates positions taken
in tax returns with respect to situations in which applicable tax regulation is subject to interpretation.
It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax
authorities.
iii. Current income tax expense comprises taxes on income from operations in India and is determined
in accordance with the provisions of the Income Tax Act, 1961.Minimum Alternate Tax (MAT) is paid
in accordance with the tax laws, which gives rise to future economic benefits in the form of tax credit
against future income tax liability. The company offsets on a year on basis, the current tax assets and
liabilities, where it intends to settle such assets and liabilities on a net basis. The current tax expense
recognized in the financial statements is net off MAT credit utilized during the period.
iv. Deferred income tax is provided in full, using the balance sheet approach, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the financial
statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition
of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset
or liability in a transaction other than a business combination that at the time of the transaction affects
neither accounting profit nor taxable profit (tax loss). Deferred income tax is determined using tax rates
(and laws) that have been enacted or substantially enacted by the end of the reporting period and are
expected to apply when the related deferred income tax asset is realized or the deferred income tax
liability is settled.
v. Deferred tax assets are recognised for all deductible temporary differences and unused tax losses only
if it is probable that future taxable amounts will be available to utilise those temporary differences and
losses.
vi. 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. Current
tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and
intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
vii. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items
recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised
in other comprehensive income or directly in equity, respectively.
2.11 Cash and cash equivalents :
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on
hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original
maturities of twelve months or less that are readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value, and bank overdrafts.
2.12 Borrowing costs :
i) General and specific borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset are capitalised during the period of time that is required to complete
and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a
substantial period of time to get ready for their intended use or sale.
ii) Other borrowing costs are expensed in the period in which they are incurred.
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