2. MATERIAL ACCOUNTING POLICIESa) 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 (? 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, Consumables 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. Contract liabilities are recognised
as revenue when the Company performs under the
contract (i.e., transfers control of the related goods
to the customer).
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 except
for i) Assets given under operating lease (i.e Computerised
Colourant Dispenser Machines and Gyro Shakers) where
useful life as estimated by management is 5 years.
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 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.
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.
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.
Research costs are expensed as incurred, while
development costs are capitalised as an asset only when
technical feasibility, intention and ability to complete, future
economic benefits, resource availability, and reliable cost
measurement can be demonstrated.
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 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 Plan
For defined benefit plan 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.
Accumulated leave, which is expected to be utilized within
the next 12 months, is treated as short-term employee
benefit. The Company measures the expected cost of such
absences as the additional amount that it expects to pay as
a result of the unused entitlement that has accumulated at
the reporting date. The Company recognizes expected cost
of short-term employee benefit as an expense, when an
employee renders the related service.
The Company treats accumulated leave expected to be
carried forward beyond twelve months, as long-term
employee benefit for measurement purposes. Such long¬
term compensated absences are provided for based on the
actuarial valuation using the projected unit credit method
at the reporting date. Remeasurement gains/losses are
immediately taken to the Statement of Profit and Loss and
are not deferred. The obligations are presented as current
liabilities in the balance sheet if the Company does not have
a right to defer the settlement for at least twelve months after
the reporting date and vice versa it is it presented as non¬
current liabilities.
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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