2. MATERIAL ACCOUNTING POLICIES
a) Basis of Preparation of Financial Statements
The financial statements have been prepared in
accordance with Ind AS notified under the Companies
(Indian Accounting Standards) Rules, 2015, and relevant
amendment rules issued thereafter read with Section
133 of the Companies Act, 2013, as amended and
presentation requirements of Division II of Schedule III
to the Companies Act, 2013, (Ind AS compliant Schedule
III). All accounting policies are consistently applied. The
Company has prepared the financial statements on the
basis that it will continue to operate as a going concern.
These financial statements are prepared under the accrual
basis and historical cost measurement except for certain
financial instruments (refer accounting policy on financial
instruments), which are measured at fair value and equity
settled employees stock options plans measured at fair
value as at grant date. The financial statements provide
comparative information in respect of the previous period.
The standalone financial statements are presented in
Indian National currency Rupee (?) which is the functional
currency of the Company, and all values are rounded to the
nearest Million (INR 000,000), except where otherwise
indicated. All amounts individually less than ? 0.5 Million
have been reported as ”0”.
b) Fair value:
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,
regardless of whether that price is directly observable or
estimated using another valuation technique.
The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability
takes place either:
- In the principal market for the asset or liabilities; or
- In the absence of a principal market in the most
advantageous market for the asset and liabilities.
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 value
for measurement and/or disclosure purposes in these
financial statements is determined on such a basis, except
for share based payment transaction that are within
the scope of Ind AS 102 Share-based Payment, leasing
transactions that are within the scope of Ind AS 116 Leases,
and measurements that have some similarities to fair value
but are not fair valued such as net realizable value in Ind
AS 2 or value in use in Ind AS 36 Impairment of assets.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorized
within the fair value hierarchy, described as follows, based
on the lowest level input that is significant to the fair value
measurement as a whole:
1) Level 1: Quoted (unadjusted) market prices in active
markets for identical assets or Liabilities.
2) Level 2: Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is directly or indirectly observable.
3) Level 3: Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is unobservable.
c) Use of Estimates
The presentation of the financial statements is in conformity
with the Ind AS which requires the management to make
estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, revenues and
expenses and disclosure of contingent liabilities. Such
estimates and assumptions are based on management's
evaluation of relevant facts and circumstances as on the
date of financial statements. The actual outcome may
differ from these estimates.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to the accounting estimates
are recognized in the period in which the estimates are
revised and in any future periods affected.
d) Inventories
Inventories are stated at lower of cost and net realizable
value after providing for obsolescence and other losses,
where considered necessary. Cost includes cost of
purchase and other expenses incurred in bringing the
inventories to their present location and condition. Raw
materials, Stock in Trade, Stores, Spares and Packing
materials are valued on weighted average costs.
Finished goods and work in progress includes an
appropriate share of production overheads along with the
material cost as defined above.
Net realizable value represents the estimated selling price
for inventories less all estimated costs of completion and
costs necessary to make the sale.
e) Cash and cash equivalents
Cash and Cash equivalents consists of cash in hand and
at bank and all highly liquid financial instruments, which
are readily convertible into known amounts of cash that
are subject to an insignificant risk of change in value and
having original maturities of three months or less from the
date of purchase. It also includes fixed deposits maintained
by the Company with banks, which can be withdrawn by
the Company at any point without penalty on the principal.
f) Revenue from contract with customer
Revenue from contracts with customers is recognised
when control of the goods or services are transferred
to the customer based on the terms of contract and
as per the business practice at an amount that reflects
the consideration to which the Company expects to be
entitled in exchange for those goods or services.
Sale of goods
Revenue from sale of goods is recognised at the point
in time when control of the asset is transferred to the
customer. In determining the transaction price for the sale
of goods, the Company considers the effects of variable
consideration, if any.
Variable consideration
If the consideration in a contract includes a variable amount
(like discounts, rebates and other scheme benefits), the
Company estimates the amount of consideration to which
it will be entitled in exchange for transferring the goods
to the customer. The variable consideration is estimated
at contract inception and constrained until it is highly
probable that a significant revenue reversal in the amount
of cumulative revenue recognised will not occur when the
associated uncertainty with the variable consideration is
subsequently resolved.
Contract Balances:
• Trade receivables
Trade receivables are initially recognised for revenue
from sale of goods. A receivable represents the
Company's right to an amount of consideration
that is unconditional (i.e., only the passage of time is
required before payment of the consideration is due).
• Advance from customers (Contract liability)
Advance received from customer before transfer of
control of goods to the customer is recognised as
contract liability.
Interest Income
Interest income from financial assets is recognized when
it is probable that the economic benefit will flow to the
Company and the amount of income can be measured
reliably. Interest income is recorded using the effective
interest rate (EIR). Interest income is accrued on a time
basis, by reference to the principal outstanding and the
interest rate applicable, which is the rate that exactly
discounts estimated future cash receipts through the
expected life of the financial asset to that asset's net
carrying amount on initial recognition.
Insurance claims
Insurance claims are accounted to the extent that there is
no uncertainty in receiving the claims.
g) Property, plant and equipment
The cost of an item of property, plant and equipment shall
be 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.
Property, Plant and Equipment are stated at cost less
accumulated depreciation and impairment losses, if
any. Cost of an item of property, plant and equipment
comprises its purchase price, including import duties,
freight, installation cost, and non-refundable purchase
taxes, after deducting trade discounts and rebates, any
directly attributable cost of bringing the item to its working
condition for its intended use.
Capital work in progress is stated at cost, net of
accumulated impairment loss, if any. All the directly
attributable expenditure related to construction incurred
during the period of construction of a project, till it is
commissioned, is accounted as Capital work in progress
(CWIP) and are classified to the appropriate categories of
property, plant and equipment when completed and ready
for intended use.
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any
gain or loss arising on the disposal or retirement of an item
of property, plant and equipment is determined as the
difference between the sales proceeds and the carrying
amount of the asset and is recognised in the statement of
profit and loss.
On transition to Ind AS (i.e. April 1, 2015), the Company has
elected to continue with the carrying value of all Property,
plant and equipment measured as per the previous
GAAP and use that carrying value as the deemed cost of
Property, plant and equipment.
Depreciation
Depreciable amount for assets is the cost of an asset,
or other amount substituted for cost, less its estimated
residual value. Depreciation on Property, Plant and
Equipment other than freehold land and properties under
construction are charged based on straight line method
on an estimated useful life as prescribed in Schedule II to
the Companies Act, 2013.
The estimated useful lives and residual values of the
property, plant and equipment are reviewed at the end of
each reporting period, with the effect of any changes in
estimate accounted for on a prospective basis.
Depreciation on items of property, plant and equipment
acquired/disposed off during the year is provided on pro¬
rata basis with reference to the date of addition/disposal.
h) Intangible assets
Intangible assets acquired separately
Intangible assets with finite useful lives that are
acquired separately are carried at cost less accumulated
amortization and accumulated impairment losses, if any.
Amortisation is recognised on a straight-line basis over
their estimated useful lives. The estimated useful life is
reviewed at the end of each reporting period, with the
effect of any changes in estimate being accounted for on
a prospective basis.
Derecognition of intangible assets
An intangible asset is de-recognised on disposal, or when
no future economic benefits are expected from use or
disposal. Gains or losses arising from derecognition of
an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of the
asset, are recognised in the statement of profit and loss
when the asset is de-recognised.
Useful lives of intangible assets
Intangible assets are Amortised over their estimated useful
life on a straight-line basis over a period of 5 years except
assets like Brand, Distribution Network which is amortised
over 7 years since as per the management's assessment
that the benefits will be available for that period.
On transition to Ind AS (i.e. April 1, 2015), the Company has
elected to continue with the carrying value of all Intangible
assets as per the previous GAAP and use that carrying
value as the deemed cost of the Intangible assets.
i) Leases
The company assesses at contract inception whether
a contract is, or contains, a lease. That is, if the contract
conveys the right to control the use of an identified asset
for a period of time in exchange for consideration.
Company as a lessee
The company applies a single recognition and
measurement approach for all leases, except for short¬
term leases and leases of low-value assets. The company
recognises lease liabilities to make lease payments and
right-of-use assets representing the right to use the
underlying assets.
a. Right-of-use assets
The company recognises right-of-use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or
before the commencement date less any lease incentives
received. Right-of-use assets are depreciated on a
straight-line basis over the shorter of the lease term and
the estimated useful lives of the assets.
Depreciation on leasehold land is charged over the lease
period. Depreciation on all leasehold improvements is
provided over the remaining lease period or over the useful
lives of the respective property, plant and equipment,
whichever is shorter.
b. Lease liabilities
At the commencement date of the lease, the company
recognises lease liabilities measured at the present value of
lease payments to be made over the lease term. The lease
payments include fixed payments (including in substance
fixed payments) less any lease incentives receivable,
and amounts expected to be paid under residual value
guarantees. Lease payments that do not depend on an
index or a rate are recognised as expenses (unless they
are incurred to produce inventories) in the period in which
the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the
company uses its incremental borrowing rate at the
lease commencement date because the interest rate
implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced
for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
lease payments (e.g., changes to future payments resulting
from a change in an index or rate used to determine such
lease payments) or a change in the assessment of an
option to purchase the underlying asset.
c. Short-term leases and leases of low-value assets
The company applies the short-term lease recognition
exemption to its short-term leases (i.e., those leases
that have a lease term of 12 months or less from the
commencement date and do not contain a purchase
option). It also applies the lease of low-value assets
recognition exemption to leases that are considered to
be low value. Lease payments on short-term leases and
leases of low value assets are recognised as expense on a
straight-line basis over the lease term.
j) Government grants
Government grants are recognised where there is
reasonable assurance that the grant will be received,
and all attached conditions will be complied with. When
the grant relates to an expense item, it is recognised as
income on a systematic basis over the periods that the
related costs, for which it is intended to compensate, are
expensed. When the grant relates to an asset, it is reduced
from the carrying amount of the asset.
k) Foreign Currencies
In preparing the financial statements of the Company, the
transactions in currencies other than the entity's functional
currency (INR) are recognised at the rates of exchange
prevailing at the dates of the transactions. At the end of
each reporting period, monetary items denominated in
foreign currencies are retranslated at the rate prevailing
at that date. Non-monetary items carried at fair value
that are denominated in foreign currencies are translated
at the rates prevailing at the date when fair value was
determined. Non-monetary items that are measured in
terms of historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction.
Exchange differences arising on monetary items are
recognised in the statement of profit and loss in the period
in which they arise.
l) Employee Benefits
Employee benefits include provident fund, pension fund,
employee state insurance scheme, gratuity fund and
compensated absences.
Defined Contribution Plan:
The Company's contribution to Provident Fund, ESIC and
Pension fund are considered as defined contribution plans
and are charged as an expense based on the amount of
contribution required to be made and when services are
rendered by the employees.
Defined benefit plans:
For defined benefit plans in the form of gratuity fund,
the cost of providing benefits is determined using
the Projected Unit Credit method, with actuarial
valuations being carried out at each balance sheet date.
Remeasurement, comprising actuarial gains and losses,
the effect of the changes to the return on plan assets
(excluding net interest), is reflected immediately in the
balance sheet with a charge or credit recognised in other
comprehensive income in the period in which they occur.
Remeasurement recognised in other comprehensive
income is reflected immediately in retained earnings and
is not reclassified to in the statement of profit and loss. Net
interest is calculated by applying the discount rate to the
net defined benefit liability or asset.
The Company recognizes the following changes in the net
defined benefit obligation as an expense in the statement
of profit and loss:
1) Service costs comprising past and current service
costs, gains and losses on curtailments and
settlements; and
2) Net interest expense or income.
The retirement benefit obligation recognised in the
Balance Sheet represents the present value of the defined
benefit obligation as adjusted for unrecognised past
service cost, as reduced by the fair value of scheme assets.
Any asset resulting from this calculation is limited to past
service cost, plus the present value of available refunds
and reductions in future contributions to the schemes.
Short-term employee benefits:
The undiscounted amount of short-term employee
benefits expected to be paid in exchange for the services
rendered by employees are recognised during the year
when the employees render the service. These benefits
include compensated absences which are expected to
occur within twelve months after the end of the period in
which the employee renders the related service.
Long-term employee benefits:
Compensated absences which are not expected to occur
within twelve months after the end of the period in which
the employee renders the related service are recognised
as a liability at the present value of the estimated future
cash outflows expected to be made by the Company in
respect of services provided by employees up to the
balance sheet date. The Company determines the liability
for such accumulated leaves using the Projected Unit
Credit Method with actuarial valuations being carried out
at each Balance Sheet date.
Share based payment:
Employees of the Company receive remuneration in
the form of share-based payments, whereby employees
render services as consideration for equity instruments
(equity-settled transactions). Equity settled share based
payments to employees are measured at the fair value
of the equity instruments at the grant date. The fair value
determined at the grant date of the equity settled share
based payments is expensed on a straight-line basis over
the vesting period, based on the Company's estimate
of equity instruments that will eventually vest, with a
corresponding increase in equity. The dilutive effect of
outstanding options is reflected as additional share
dilution in the computation of diluted earnings per share.
m) Borrowing costs
Borrowing cost includes interest, amortisation of ancillary
costs incurred in connection with arrangement of
borrowings and exchange differences arising from foreign
currency borrowings to the extent they are regarded as an
adjustment to the interest cost.
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are
assets that necessarily takes a substantial period of time
to get ready for their intended use or sale, are added to
the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Capitalization of borrowing cost is suspended and charged
to statement of profit and loss during the extended period
when active development on the qualifying asset is
interrupted.
All other borrowing costs are recognised in the statement
of profit and loss in the period in which they are incurred.
n) Earnings per share
Basic earnings per share is computed by dividing the profit/
(loss) for the year attributable to equity shareholders by the
weighted average number of equity shares outstanding
during the year. Diluted earnings per share is computed by
dividing the profit/(loss) for the year attributable to equity
shareholders by the weighted average number of equity
shares considered for deriving basic earnings per share
and the weighted average number of equity shares which
could have been issued on the conversion of all dilutive
potential equity shares.
Potential equity shares are deemed to be dilutive only
if their conversion to equity shares would decrease the
net profit per share from continuing ordinary operations.
Potential dilutive equity shares are deemed to be
converted as at the beginning of the period, unless they
have been issued at a later date. The dilutive potential
equity shares are adjusted for the proceeds receivable had
the shares been actually issued at fair value (i.e. average
market value of the outstanding shares). Dilutive potential
equity shares are determined independently for each
period presented.
o) Taxation
Tax expense comprises current tax expense and deferred
tax.
Current Tax
The tax currently payable is based on taxable profit for
the year. 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 recognized outside
profit or loss is recognized outside profit or loss (either
in other comprehensive income or in equity). Current
tax items are recognized 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 considers
whether it is probable that a taxation authority will accept
an uncertain tax treatment. The Company shall reflect the
effect of uncertainty for each uncertain tax treatment by
using either most likely method or expected value method,
depending on which method predicts better resolution of
the treatment.
Current income tax assets and liabilities are measured at
the amount expected to be recovered from or paid to the
taxation authorities.
Deferred tax
Deferred tax is provided using the balance sheet approach
on temporary differences between the tax bases of assets
and liabilities and their carrying amounts for financial
reporting purposes at the reporting date.
A deferred tax liability shall be recognised for all taxable
temporary differences, except to the extent that the
deferred tax liability arises from:
• the initial recognition of goodwill; or
• the initial recognition of an asset or liability in a
transaction which:
- is not a business combination; and
- at the time of the transaction, affects neither
accounting profit nor taxable profit (tax loss)
and does not give rise to equal taxable and
deductible temporary differences.
• In respect of taxable temporary differences associated
with investments in subsidiaries, associates and
interests in joint ventures, when the timing of
the reversal of the temporary differences can be
controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible
temporary differences, the carry forward of unused tax
credits and any unused tax losses. Deferred tax assets are
recognised 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 utilised, except:
• When the deferred tax asset relating to the
deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that
is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor
taxable profit or loss and does not give rise to equal
taxable and deductible temporary differences.
• In respect of deductible temporary differences
associated with investments in subsidiaries,
associates and interests in joint ventures, deferred
tax assets are recognised only to the extent that it is
probable that the temporary differences will reverse
in the foreseeable future and taxable profit will be
available against which the temporary differences
can be utilized.
The carrying amount of deferred tax assets is reviewed
at each reporting 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 tax asset to be
utilised. Unrecognised deferred tax assets are re-assessed
at each reporting date and are recognised to the extent
that it has become probable that future taxable profits will
allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset
is realised, or the liability is settled, based on tax rates (and
tax laws) that have been enacted or substantively enacted
at the reporting date.
Deferred tax relating to items recognised outside profit
or loss is recognised outside profit or loss (either in other
comprehensive income or in equity). Deferred tax items
are recognised in correlation to the underlying transaction
either in OCI or directly in equity.
The Company offsets deferred tax assets and deferred
tax liabilities if and only if it has a legally enforceable right
to set off current tax assets and current tax liabilities and
the deferred tax assets and deferred tax liabilities relate
to income taxes levied by the same taxation authority on
either the same taxable entity or different taxable entities
which intend either to settle current tax liabilities and
assets on a net basis, or to realise the assets and settle the
liabilities simultaneously, in each future period in which
significant amounts of deferred tax liabilities or assets are
expected to be settled or recovered.
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