2 Material Accounting Policies
2.1 Basis of preparation
The financial statements of the company have been
prepared and presented in accordance with the Indian
Accounting Standards (Ind AS) as notified by Ministry of
Corporate Affairs pursuant to Section 133 of the Companies
Act, 2013 (“the Act”) read with the Companies (Indian
Accounting Standards) Rules, 2015 as amended and other
relevant provisions of the Act.
The financial statements have been prepared on a historical
cost basis, except for the following assets and liabilities
which have been measured at fair value or revalued amount:
- Certain financial assets and liabilities measured at
fair value or at amortised cost depending on the
classification(refer accounting policy regarding financial
instruments),
- Employee defined benefit assets/(obligations) are
recognised as the net total of the fair value of plan
assets, plus actuarial losses, less actuarial gains and
the present value of the defined benefit obligations
Accounting policies have been consistently applied except
where a newly issued accounting standard is initially adopted
or a revision to an existing accounting standard requires a
change in the accounting policy hitherto in use.
2.2 Summary of Material Accounting Policies
(a) Property, plant and equipment
Property, plant and equipment are stated at cost, net of
accumulated depreciation and accumulated impairment
losses, if any. Freehold land are stated at cost. The cost
comprises purchase price, borrowing costs if capitalization
criteria are met and directly attributable cost of bringing
the asset to its working condition for the intended use. Any
trade discounts and rebates are deducted in arriving at the
purchase price.
Each part of an item of property, plant and equipment with
a cost that is significant in relation to the total cost of the
item is depreciated separately. 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. Likewise, when a major inspection is
performed, its cost is recognized in the carrying amount of
the plant and equipment as a replacement if the recognition
criteria are satisfied. All other repair and maintenance costs
are recognized in profit or loss as incurred.
Subsequent expenditure related to an item of property, plant
and equipment is added to its book value only if it increases
the future benefits from its previously assessed standard of
performance. All other expenses on existing property, plant
and equipment, including day-to-day repair and maintenance
expenditure and cost of replacing parts, are charged to the
statement of profit and loss for the period during which such
expenses are incurred.
Borrowing costs directly attributable to acquisition of
property, plant and equipment which take substantial period
of time to get ready for its intended use are also included to
the extent they relate to the period till such assets are ready
to be put to use.
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.
An item of property, plant and equipment and any significant
part initially recognized is de-recognized upon disposal or
when no future economic benefits are expected from its use
or disposal. Any gain or loss arising on de-recognition 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 Property, plant
and equipment is de-recognized.
Expenditure directly relating to construction activity is
capitalized. Indirect expenditure incurred during construction
period is capitalized to the extent to which the expenditure
is indirectly related to construction or is incidental thereto.
Other indirect expenditure (including borrowing costs)
incurred during the construction period which is neither
related to the construction activity nor is incidental thereto is
charged to the statement of profit and loss.
Costs of assets not ready for use at the balance sheet date
are disclosed under capital work- in- progress.
Depreciation methods, estimated useful lives and
residual value
Depreciation is calculated on straight line basis using
the useful lives as prescribed under Schedule II to the
Companies Act, 2013. If the management's estimate of
the useful life of a item of property, plant and equipment
at the time of acquisition or the remaining useful life on
a subsequent review is shorter than the envisaged in the
aforesaid schedule, depreciation is provided at a higher
rate based on the management's estimate of the useful life/
remaining useful life.
The property, plant and equipment acquired under finance
leases is depreciated over the asset's useful life or over
the shorter of the asset's useful life and the lease term if
there is no reasonable certainty that the company will obtain
ownership at the end of the lease term. Leasehold assets
are amortised on a straight line basis over the balance
period of lease.
The assets' residual values and useful lives are reviewed,
and adjusted if appropriate, at the end of each reporting
period. 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.
(b) Intangible assets
Intangible assets that are acquired by the Company are
measured initially at cost. After initial recognition, an
intangible asset is carried at its cost less any accumulated
amortization and accumulated impairment loss.
Subsequent expenditure is capitalized only when it increases
the future economic benefits from the specific asset to which
it relates. An intangible asset is derecognized on disposal or
when no future economic benefits are expected from its use
and disposal.
Losses arising from retirement and gains or losses arising
from disposal of an intangible asset are measured as the
difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in the
statement of profit and loss.
Amortisation methods and periods
Intangible assets are amortized on a straight line basis
over the useful life of ten years which is estimated by the
management.
The estimated useful lives of intangible assets and the
amortisation period are reviewed at the end of each financial
year and the amortisation method is revised to reflect the
changed pattern, if any.
(c) Research and development
Revenue expenditure pertaining to research is charged
to the Statement of Profit and Loss. Development costs
of products are also charged to the Statement of Profit
and Loss in the year it is incurred, unless a product's
technological feasibility has been established, in which case
such expenditure is capitalised. These costs are charged to
the respective heads in the Statement of Profit and Loss in
the year it is incurred. The amount capitalised comprises of
expenditure that can be directly attributed or allocated on
a reasonable and consistent basis for creating, producing
and making the asset ready for its intended use. Fixed
assets utilised for research and development are capitalised
and depreciated in accordance with the policies stated for
Tangible Fixed Assets and Intangible Assets.
(d) Impairment of non financial assets
The Company assesses, at each reporting date, whether
there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for
an asset is required, the Company estimates the asset's
recoverable amount. An asset's recoverable amount is
the higher of an asset's or cash-generating unit's (CGU)
fair value less costs of disposal and its value in use.
Recoverable amount is determined for an individual asset,
unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups
of assets. When the carrying amount of an asset or CGU
exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount.
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. In
determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions
can be identified, an appropriate valuation model is used.
Impairment losses are recognized in the statement of profit
and loss. After impairment, depreciation is provided on the
revised carrying amount of the asset over its remaining
useful life.
When there is indication that an impairment loss recognised
for an asset (other than a revalued asset) in earlier accounting
periods no longer exists or may have decreased, such
reversal of impairment loss is recognised in the Statement
of Profit and Loss, to the extent the amount was previously
charged to the Statement of Profit and Loss.
(e) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of the entity 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 entity's functional and presentation
currency.
(ii) Transactions and balances
Foreign currency transactions 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 recognised in statement of profit or loss. Non
monetary assets and liabilities are carried at cost.
(f) Financial Instruments
Financial assets and financial liabilities are recognised when
a Company becomes a party to the contractual provisions of
the instruments.
Initial Recognition
Financial assets and financial liabilities are initially measured
at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial
liabilities (other than financial assets and financial liabilities
at fair value through profit or loss and ancillary costs related
to borrowings) are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate,
on initial recognition. Transaction costs directly attributable
to the acquisition of financial assets or financial liabilities at
fair value through profit or loss are recognised immediately
in Statement of Profit and Loss.
Classification and Subsequent Measurement: Financial
Assets
The Company classifies financial assets as subsequently
measured at amortised cost, fair value through other
comprehensive income (“FVOCI”) or fair value through profit
or loss (“FVTPL”) on the basis of following:
- the entity's business model for managing the financial
assets and
- the contractual cash flow characteristics of the financial
asset.
(i) Amortised Cost
A financial asset shall be classified and measured at
amortised cost if both of the following conditions are
met:
- the financial asset is held within a business model
whose objective is to hold financial 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.
(ii) Fair Value through other comprehensive income
A financial asset shall be classified and measured at fair
value through OCI if both of the following conditions are
met:
- the financial asset is held within a business model
whose objective is achieved by both collecting
contractual cash flows and selling financial assets
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.
(iii) Fair Value through Profit or Loss
A financial asset shall be classified and measured at
fair value through profit or loss unless it is measured at
amortised cost or at fair value through OCI.
All recognised financial assets are subsequently
measured in their entirety at either amortised cost or fair
value, depending on the classification of the financial
assets.
Classification and Subsequent Measurement: Financial
liabilities
Financial liabilities are classified as either financial liabilities
at FVTPL or 'other financial liabilities'.
(i) Financial Liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the
financial liability is held for trading or are designated
upon initial recognition as FVTPL. Gains or Losses
on liabilities held for trading are recognised in the
Statement of Profit and Loss.
(ii) Other Financial Liabilities:
Other financial liabilities (including borrowings and
trade and other payables) are subsequently measured
at amortised cost using the effective interest method.
The effective interest method is a method of calculating
the amortised cost of a financial liability and of allocating
interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated
future cash payments (including all fees and points paid
or received that form an integral part of the effective
interest rate, transaction costs and other premiums or
discounts) through the expected life of the financial
liability, or (where appropriate) a shorter period, to the
net carrying amount on initial recognition.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed
for indicators of impairment at the end of each reporting
period. The Company recognises a loss allowance for
expected credit losses on financial asset. In case of trade
receivables, the Company follows the simplified approach
permitted by Ind AS 109 - Financial Instruments for
recognition of impairment loss allowance. The application of
simplified approach does not require the Company to track
changes in credit risk. The Company calculates the expected
credit losses on trade receivables using a provision matrix
on the basis of its historical credit loss experience.
Derecognition of financial assets
The Company derecognises a financial asset when the
contractual rights to the cash flows from the asset expire, or
when it transfers the financial asset and substantially all the
risks and rewards of ownership of the asset to another party.
If the Company neither transfers nor retains substantially all
the risks and rewards of ownership and continues to control
the transferred asset, the Company recognises its retained
interest in the asset and an associated liability for amounts
it may have to pay. If the Company retains substantially all
the risks and rewards of ownership of a transferred financial
asset, the Company continues to recognise the financial
asset and also recognises a collateralised borrowing for the
proceeds received.
On derecognition of a financial asset in its entirety, the
difference between the asset's carrying amount and the
sum of the consideration received and receivable and the
cumulative gain or loss that had been recognised in other
comprehensive income and accumulated in equity is
recognised in profit or loss if such gain or loss would have
otherwise been recognised in profit or loss on disposal of
that financial asset.
Derecognition of financial liabilities
A financial liability is derecognized when the obligation under
the liability is discharged or cancelled or expires. 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 derecognition 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 or loss.
Equity investment in subsidiaries and Asscoiate
Investment in subsidiaries are carried at cost. Impairment
recognized, if any, is reduced from the carrying value.
Investment in associate are measured at fair value, with
value changes recognised in Other Comprehensive Income.
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 recognised amounts and
there is an intention to settle on a net basis, to realise the
assets and settle the liabilities simultaneously.
(g) Financial liabilities and equity instruments
Classification as debt or equity
Debt and equity instruments issued by the Company
are classified as either financial liabilities or as equity
in accordance with the substance of the contractual
arrangements and the definitions of a financial liability and
an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting all
of its liabilities. Equity instruments issued by a Company are
recognised at the proceeds received.
(h) Taxes
(i) Current income tax
Current income tax assets and liabilities are measured
at the amount expected to be recovered from or paid
to the taxation authorities. The tax rates and tax laws
used to compute the amount are those that are enacted
or substantively enacted, at the reporting date in the
countries where the company operates and generates
taxable income.
Current income tax relating to items recognised
outside profit or loss is recognised outside profit or loss
(either in other comprehensive income or in equity).
Current tax items are recognised in correlation to the
underlying transaction either in OCI or directly in equity.
Management periodically evaluates positions taken
in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation
and establishes provisions where appropriate.
(ii) Deferred tax
Deferred income tax is recognized using the balance
sheet approach, deferred tax is recognized on
temporary differences at the balance sheet date
between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes,
except when the deferred income tax arises from the
initial recognition of goodwill or 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 income tax assets are recognized for all
deductible temporary differences, carry forward of
unused tax credits and unused tax losses, to the extent
that it is probable that taxable profit 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 deferred income tax assets is
reviewed at each balance sheet 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 income tax assets and liabilities are measured
at the tax rates that are expected to apply in the period
when the asset is realized or the liability is settled, based
on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date.
Deferred tax assets and deferred tax liabilities are offset
if a legally enforceable right exists to set off current tax
assets against current tax liabilities and the deferred
taxes relate to the same taxable entity and the same
taxation authority.
(i) Inventories
Inventories are valued at the lower of cost and net realisable
value.
Costs incurred in bringing each product to its present
location and condition are accounted for as follows:
Raw materials: cost includes cost of purchase and other
costs incurred in bringing the inventories to their present
location and condition. Cost is determined on weighted
average basis.
Finished goods and work in progress: cost includes cost
of direct materials and labour and a proportion of direct
overheads. Cost is determined on weighted average basis.
Traded goods: cost includes cost of purchase and other
costs incurred in bringing the inventories to their present
location and condition. Cost is determined on weighted
average basis.
Net realisable value is the estimated selling price in the
ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make
the sale. The net realizable value of work-in-progress is
determined with reference to the selling prices of related
finished products. Raw materials and other supplies held
for use in production of finished products are not written
down below cost except in cases where material prices
have declined and it is estimated that the cost of the finished
products will exceed their net realizable value.
(j) Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable. Amounts disclosed as revenue
are net of returns, trade allowances, rebates, value added
taxes and amounts collected on behalf of third parties. The
company recognises revenue when the amount of revenue
can be reliably measured, it is probable that future economic
benefits will flow to the entity and specific criteria have been
met for each of the company's activities as described below.
The company bases its estimates on historical results,
taking into consideration the type of customer, the type of
transaction and the specifics of each arrangement.
Recognising revenue from major business activities
(i) Sale of goods
Revenue from the sale of goods is recognised when
the significant risks and rewards of ownership of the
goods have passed to the buyer, usually on delivery
of the goods. Revenue from the sale of goods is
measured at the fair value of the consideration received
or receivable, net of returns and allowances, trade
discounts and volume rebates.
(ii) Interest income
For all debt instruments measured either at amortised
cost or at fair value through other comprehensive
income, interest income is recorded using the effective
interest rate (EIR).
(iii) Dividend income
Revenue is recognised when the company's right to
receive the payment is established, which is generally
when shareholders approve the dividend.
(k) Employee benefits
(i) Short-term 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.
(ii) Other long-term employee benefit obligations
The earned leave obligations are presented as current
liabilities in the balance sheet as the entity does not have
an unconditional right to defer settlement for at least
twelve months after the reporting period, regardless of
when the actual settlement is expected to occur.
(iii) Post-employment obligations
The company operates the following post-employment
schemes:
(a) defined benefit plans viz gratuity,
(b) defined contribution plans viz provident fund.
Gratuity obligations
The liability or asset recognised in the balance sheet in
respect of defined benefit gratuity 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
defined benefit obligation is calculated annually by actuaries
using the projected unit credit method. The plan assets are
administered by the approved gratuity fund trust.
The present value of the defined benefit obligation is
determined by discounting the estimated future cash
outflows by reference to market yields at the end of the
reporting period on government bonds that have terms
approximating to the terms of the related obligation.
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.
Remeasurement gains and losses arising from experience
adjustments and changes in actuarial assumptions are
recognised 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 recognised immediately in profit or loss as past service
cost.
Defined contribution plans
The company pays provident fund contributions to approved
provident fund trust and publicly administered provident
funds. The company has no further payment obligations
once the contributions have been paid. The contributions
are accounted for as defined contribution plans and the
contributions are recognised as employee benefit expense
when they are due. Prepaid contributions are recognised as
an asset to the extent that a cash refund or a reduction in the
future payments is available.
Termination benefits
Termination benefits are payable when employment is
terminated by the company before the normal retirement
date, or when an employee accepts voluntary redundancy
in exchange for these benefits.
(l) Leases
The determination of whether an arrangement is, or contains,
a lease is based on the substance of the arrangement at
the inception of the lease. The arrangement is, or contains,
a lease if fulfillment of the arrangement is dependent on
the use of a specific asset or assets and the arrangement
conveys a right to use the asset or assets, even if that right
is not explicitly specified in an arrangement.
(i) Finance Lease
Leases where the Company has substantially all the
risks and rewards of ownership of the related assets
are classified as finance leases. Assets under finance
lease are capitalised at the commencement of the lease
at the lower of the fair value or the present value of
minimum lease payments and a liability is created for
an equivalent amount.
Each lease rental paid is allocated between the liability
and the interest cost, so as to obtain a constant periodic
rate of interest on the outstanding liability for each
period.
Assets given under a finance lease are recognized as a
receivable at an amount equal to the net investment in
the lease. Lease income is recognized over the period
of the lease so as to yield a constant rate of return on
the net investment in the lease.
(ii) Company under Operating Leases
The leases which are not classified as finance lease are
operating leases.
The Company as a lessee accounts for each lease
component within the contract as a lease separately
from non-lease components of the contract and
allocates the consideration in the contract to each lease
component on the basis of the relative stand-alone
price of the lease component and the aggregate stand¬
alone price of the non-lease components.
The Company recognises right-of-use asset
representing its right to use the underlying asset for
the lease term at the lease commencement date. The
cost of the right-of-use asset measured at inception
shall comprise of the amount of the initial measurement
of the lease liability adjusted for any lease payments
made at or before the commencement date less any
lease incentives received, plus any initial direct costs
incurred and an estimate of costs to be incurred by
the lessee in dismantling and removing the underlying
asset or restoring the underlying asset or site on which
it is located. The right of use assets is measured at
an amount equal to the lease liability, adjusted by the
amount of any prepaid or accrued lease payments
relating to that lease recognized in the balance sheet
immediately before the date of initial application.
The Company measures the lease liability at the
present value of the lease payments that are not paid
at the commencement date of the lease. The lease
payments are discounted using the interest rate implicit
in the lease, if that rate can be readily determined. If
that rate cannot be readily determined, the Company
uses incremental borrowing rate. For leases with
reasonably similar characteristics, the Company, on a
lease by lease basis, may adopt either the incremental
borrowing rate specific to the lease or the incremental
borrowing rate for the portfolio as a whole. The lease
payments shall include fixed payments, variable lease
payments, residual value guarantees, exercise price of
a purchase option where the Company is reasonably
certain to exercise that option and payments of
penalties for terminating the lease, if the lease term
reflects the lessee exercising an option to terminate the
lease. The lease liability is subsequently remeasured
by increasing the carrying amount to reflect interest
on the lease liability, reducing the carrying amount to
reflect the lease payments made and remeasuring
the carrying amount to reflect any reassessment or
lease modifications or to reflect revised in-substance
fixed lease payments. The Company recognises the
amount of the re-measurement of lease liability due to
modification as an adjustment to the right-of-use asset
and statement of profit and loss depending upon the
nature of modification. Where the carrying amount of
the right-of-use asset is reduced to zero and there is
a further reduction in the measurement of the lease
liability, the Company recognizes any remaining amount
of the re-measurement in statement of profit and loss.
The Company has elected not to apply the requirements
of Ind AS 116 Leases to short-term leases of all assets
that have a lease term of 12 months or less and leases
for which the underlying asset is of low value. The lease
payments associated with these leases are recognized
as an expense on a straight-line basis over the lease
term.
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