2.2 Material accounting policiesa. Foreign currencies
The standalone financial statements are
presented in Indian rupees, which is the functional
currency of the Company and the currency of
the primary economic environment in which the
Company operates.
Initial recognition: On initial recognition, transactions
in currencies other than the Company's functional
currency (foreign currencies) are translated at
exchange rates on the date of the transactions.
Conversion: Monetary assets and liabilities
denominated in foreign currencies are reported at
functional currency spot rate of exchange on that
date. 'Non-monetary items that are measured in
terms of historical cost in a foreign currency are
translated using the exchange rates at the dates
of the initial transactions. Non-monetary items
measured at fair value in a foreign currency are
translated using the exchange rates at the date when
the fair value is determined.The gain or loss arising
on translation of non-monetary items measured at
fair value is treated in line with the recognition of
the gain or loss on the change in fair value of the
item (i.e., translation differences on items whose
fair value gain or loss is recognised in OCI or profit
or loss are also recognised in OCI or profit or loss,
respectively).
Exchange differences: Exchange differences arising
on the settlement of monetary items or on reporting
monetary items of the Company at rates different
from those at which they were initially recorded
during the year, or reported in previous standalone
financial statements, are recognised in profit or loss
in the year in which they arise.
b. Fair value measurement
The financial statements have been prepared on the
historical cost basis, except for:
(i) Certain financial instruments that are
measured at fair values at the end of each
reporting period;
(ii) Non-current assets classified as held for sale
which are measured at the lower of their
carrying amount and fair value less costs
to sell;
(iii) Derivative financial instrument and
(iv) Defined benefit plans - plan assets that are
measured at fair values at the end of each
reporting period
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. 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
liability, or
- In the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market
must be accessible by the Company.
The fair value of an asset or a liability is measured
using the assumptions that market participants
would use when pricing the asset or liability,
assuming that market participants act in their
economic best interest.
A fair value measurement of a non-financial asset
takes into account a market participant's ability to
generate economic benefits by using the asset in
its highest and best use or by selling it to another
market participant that would use the asset in its
highest and best use.
The Company uses valuation techniques that are
appropriate in the circumstances and for which
sufficient data are available to measure fair value,
maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is
measured or disclosed in the standalone financial
statements are categorised 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:
- Level 1 — quoted prices (unadjusted) in active
markets for identical assets or liabilities.
- Level 2 — inputs other than quoted prices
included in Level 1 that are observable for the
asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
- Level 3 — inputs for the asset or liability that
are not based on observable market data
(unobservable inputs).
For assets and liabilities that are recognised in the
standalone financial statements on a recurring
basis, the Company determines whether transfers
have occurred between levels in the hierarchy
by re-assessing categorisation (based on the
lowest level input that is significant to the fair
value measurement as a whole) at the end of each
reporting period.
The Company determines the appropriate valuation
techniques and inputs for fair value measurements.
In estimating the fair value of an asset or a liability,
the Company uses market observable data to the
extent it is available. Where Level 1 inputs are
not available, the Company engages third party
qualified valuers to perform the valuation. Any
change in the fair value of each asset and liability
is also compared with relevant external sources to
determine whether the change is reasonable.
For the purpose of fair value disclosures, the
Company has determined classes of assets and
liabilities on the basis of the nature, characteristics
and risks of the asset or liability and the level of the
fair value hierarchy as explained above.
c. Revenue recognition
The Company has concluded that it is the principal
in all of its revenue arrangements since it is the
primary obligor in all the revenue arrangements
as it has pricing latitude and is also exposed to
inventory and credit risks.
Sale of goods: Revenue from contract with
customers is recognised when a promise in a
customer contract (performance obligation) has
been satisfied upon transferring control over the
promised goods to the customer. Control is usually
transferred upon shipment, delivery to or upon
receipt of goods by the customer, in accordance
with the delivery and acceptance terms agreed
with the customers. The amount of revenue to be
recognised is based on the consideration expected
to be received in exchange for goods, net of trade
discounts, volume discounts, sales returns and
any taxes or duties collected on behalf of the
government which are levied on sales such as
sales tax, value added tax, goods and services tax,
etc., where applicable. Invoices are payable within
contractually agreed credit period. Any additional
amounts based on terms of agreement entered into
with customers, is recognised in the period when
the collectability becomes probable and a reliable
measure is available.
Profit Sharing Revenues:The Company has entered
into certain arrangements with its business
partners, where it sells its products at a base price
agreed upon in the arrangement and is also entitled
to a profit share which is over and above the base
price. The profit share is typically dependent on the
ultimate net sale proceeds, subject to any reductions
or adjustments that are required by the terms of
the arrangement. Revenue is an amount equal to
the base price plus the profit share component
recognised to the extent that is highly probable that
a significant reversal will not occur.
Rendering of services: Revenue from services
rendered is recognised in the profit or loss as the
underlying services are performed. Upfront non¬
refundable payments received are deferred and
recognised as revenue over the expected period
over which the related services are expected to
be performed.
Contract balances
Contract assets: Contract assets are recognised
when there are excess of revenues earned over
billings on contracts. Contract assets are classified
as unbilled receivables (only act of invoicing is
pending) when there is unconditional right to
receive cash, and only passage of time is required,
as per contractual terms.
Contract liabilities: A contract liability is the
obligation to transfer goods or services to a
customer for which the Company has received
consideration (or an amount of consideration is due)
from the customer. If a customer pays consideration
before the Company transfers goods or services
to the customer, a contract liability is recognised
when the payment is made or the payment is
due (whichever is earlier). Contract liabilities are
recognised as revenue when the Group performs
under the contract
Dividend and interest income
I nterest income: Interest income from a financial
asset is recognised when it is probable that the
economic benefits will flow to the Company and
the amount of income can be measured reliably.
Interest income is recognised with reference to the
Effective Interest Rate (EIR) method.
The 'effective interest rate' is the rate that discounts
estimated future cash payments or receipts through
expected life of the financial instrument to:
- the gross carrying amount of the financial
asset; or
- the amortised cost of the financial liability
Dividend income: Revenue is recognised when
the Company's right to receive the payment is
established, which is generally when shareholders
approve the dividend.
d. Property, plant and equipment
Freehold land and buildings (property) and other
plant and equipment held for use in the production
or supply of goods or services, or administrative
purposes are stated at cost less accumulated
depreciation and accumulated impairment. .
Plant and equipment is stated at cost, net of
accumulated depreciation and accumulated
impairment losses, if any. Such cost includes the
cost of replacing part of the plant and equipment and
borrowing costs for long-term construction projects
if the recognition criteria are met. When significant
parts of plant and equipment are required to be
replaced at intervals, the Company depreciates
them separately based on their specific useful life.
Likewise, when a major inspection is performed,
its cost is recognised 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 recognised in profit or loss
as incurred. The present value of the expected cost
for the decommissioning of an asset after its use
is included in the cost of the respective asset if the
recognition criteria for a provision are met.
The cost of an item of property, plant and equipment
comprises its purchase price, including import
duties and non-refundable purchase taxes, after
deducting trade discounts and rebates and any
costs directly attributable to bringing the asset
to the location and condition necessary for its
intended use.
Subsequent expenditure is capitalised only
when they increase the future economic benefits
embodied. In the specific asset to which they
relate. Such assets are classified to the appropriate
categories of property, plant and equipment when
completed and ready for intended use.
Assets in the course of construction (Capital work in
progress) for production, supply or administrative
purposes are carried at cost, less any recognised
impairment loss. Cost includes purchase price,
borrowing costs if capitalisation criteria are met and
directly attributable cost of bringing the asset to its
working condition for the intended use.
Depreciation is provided on the straight-line
method, based on the useful life of the assets as
estimated by the Management.
The Company, based on technical assessment
and Management estimate, depreciates property,
plant and equipment over estimated useful lives
which are different from the useful life prescribed
in Schedule II to the Companies Act, 2013. The
Management believes that these estimated useful
lives are realistic and reflect fair approximation of
the period over which the assets are likely to be
used. The Company has estimated the following
useful life to provide depreciation on its property,
plant and equipment:
Assets acquired under finance leases are
depreciated over the shorter of the lease term and
their useful lives unless it is reasonably certain that
the Company will obtain ownership by the end of
the lease term.
An item of property, plant and equipment and any
significant part initially recognised is derecognised
upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or
loss arising on derecognition 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 asset
is derecognised.
The residual values, useful life and methods of
depreciation of property, plant and equipment are
reviewed at each financial period/year end and
adjusted prospectively, if appropriate.
e. Goodwill and Other intangible assets
Goodwill
Goodwill represents the excess of purchase
consideration over the fair value of assets acquired
of the subsidiary companies as on the date of
investment. Goodwill is not amortised but is tested
for impairment on a periodic basis and impairment
losses are recognised where applicable.
Other intangible assets
Intangible assets acquired separately are measured
on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less
any accumulated amortisation and accumulated
impairment losses.
I ntangible assets with finite lives are amortised
over the useful economic life and assessed for
impairment whenever there is a Impairment
indicator.The estimated useful life and amortisation
method are reviewed at the end of each reporting
period. Changes in the expected useful life or
the expected pattern of consumption of future
economic benefits embodied in the asset are
considered to modify the amortisation period or
method, as appropriate, and are treated as changes
in accounting estimates. The amortisation expense
on intangible assets with finite lives is recognised
in the statement of profit and loss unless such
expenditure forms part of carrying value of another
asset. Estimated useful lives of intangible assets
ranges from 5-10 years.
De-recognition of intangible assets
Gains or losses arising from derecognition of an
intangible asset are measured as the difference
between the net disposal proceeds and the
carrying amount of the asset and are recognised
in the statement of profit and loss when the asset
is derecognised.
Research and development costs:
Research costs are expensed as incurred.
Development expenditures on an individual project
are recognised as an intangible asset when the
Company can demonstrate:
- The technical feasibility of completing the
intangible asset so that the asset will be
available for use or sale
- Its intention to complete and use or sell
the asset
- Its ability to use or sell the asset
- How the asset will generate future
economic benefits
- The availability of resources to complete
the asset
- The ability to measure reliably the expenditure
during development
Acquired research and development intangible
assets that are under development are recognised
as Intangible assets under development. These
assets are not amortised, but evaluated for potential
impairment on an annual basis or when there are
indications that the carrying value may not be
recoverable. Any impairment is recognised as an
expense in the statement of profit and loss.
Subsequent expenditure on in process research
and development project acquired separately and
recognised as an intangible asset is:
- recognised as an expense, if it is research
expenditure.
- recognised as an expense, if its development
expenditure that does not satisfy the criteria
for recognition as an Intangible asset; and
- added to the carrying amount of acquired in
process research and development project,
only when it increases the future economic
benefits embodied in the specific asset to which
it relates and satisfies the recognition criteria
Following initial recognition of the development
expenditure as an asset, the asset is carried at
cost less any accumulated amortisation and
accumulated impairment losses. Amortisation of
the asset begins when development is complete and
the asset is available for use. It is amortised over
the period of expected future benefit. Amortisation
expense is recognised in the statement of profit and
loss unless such expenditure forms part of carrying
value of another asset.
Intangible assets relating to products in development
and other intangible assets not available for use is
tested for impairment annually.
Government grants and subsidies
Government grants are recognised when there is
reasonable assurance that all attached conditions
will be complied with and there is no uncertainty
on collection. When the grant relates to an expense
item, it is recognised in the statement of profit and
loss 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 recognised as deferred income and amortised
over the useful life of such assets. Entitlement from
government authorities are recognised in the profit
or loss as other operating revenue when the right
to receive is established as per the terms of the
scheme with no future related cost and where there
is no significant uncertainty regarding the ultimate
collection of the relevant proceeds.
g. Inventories
Inventories are valued at lower of cost, determined
on "Weighted average" basis and net realisable
value. Costs incurred in bringing each product to
its present location and condition are accounted for
as follows:
Raw materials, packing materials, stores, spares
and consumables: cost includes cost of purchase
and other costs incurred in bringing the inventories
to their present location and condition.
Finished goods and work-in-progress: cost includes
direct materials, direct labour, depreciation of
property, plant and equipment and an appropraite
proportion of other manufacturing overheads
based on the normal operating capacity.
Stock-in-trade: cost includes cost of purchase and
other costs incurred in bringing the inventories to
their present location and condition.
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 realisable value
of work-in-progress is determined with reference to
the selling prices of related finished products.
Raw materials, components and other supplies held
for use in the production of finished products are
written down below cost only when the material
prices have declined and it is estimated that the
cost of the finished products will exceed their net
realisable value.
h. Employee benefits
Defined contribution plans
Contribution to funds such as provident fund and
Employee State insurance Corporation (ESIC) are
defined contribution plans. The Company has no
obligation, other than the contribution payable to
these funds. The Company recognizes contribution
payable to the fund schemes as an expense, when
an employee renders the related service. If the
contribution payable to the scheme for service
received before the reporting date exceeds the
contribution already paid, the deficit payable to the
scheme is recognized as a liability after deducting
the contribution already paid. If the contribution
already paid exceeds the contribution due for
services received before the reporting date, then
excess is recognized as an asset to the extent
that the pre-payment will lead to, for example, a
reduction in future payment or a cash refund.
Defined benefit plan
The Company operates a defined benefit gratuity
plan in India, which requires contributions to be
made to a separately administered fund. The cost
of providing benefits under the defined benefit plan
is determined based on actuarial valuation using
projected unit credit method.
Remeasurements, comprising of actuarial
gains and losses, the effect of the asset ceiling,
excluding amounts included in net interest on
the net defined benefit liability and the return on
plan assets (excluding amounts included in net
interest on the net defined benefit liability), are
recognised immediately in the balance sheet with
a corresponding debit or credit to retained earnings
through OCI in the period in which they occur.
Remeasurements are not reclassified to profit and
loss in subsequent periods.
Past service costs are recognised in profit and loss
on the earlier of:
- The date of the plan amendment or
curtailment, and
- The date that the Company recognises related
restructuring costs
Net interest is calculated by applying the discount
rate to the net defined liability or asset. The
Company recognises the following changes in the
net defined benefit obligation as an expense in the
statement of profit and loss:
- Service costs comprising current service
costs, past-service costs, gains and losses on
curtailments and non-routine settlements; and
- Net interest expense or income
Compensated absences
Accumulated leave, which is expected to be utilised
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 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 year-end. Actuarial gains/
losses are immediately taken to the statement of
profit and loss and are not deferred.
i. Trade receivables
A receivable is recognised if an amount of
consideration that is unconditional (i.e. only the
passage of time is required before payment of
the consideration is due). The Management has
established a credit policy under which each
new customer is analysed individually for credit
worthiness before the Company's standard
payment terms ranging from 7 days to 270 days are
offered (Refer note 41 (c) (i). Terms of payment for
sale of services are ranging from on presentation
of bill to 270 days.
j. Income tax
Income tax expense comprises of current and
deferred tax. Current income tax assets and
liabilities are measured at the amount expected to
be recovered from or paid to the tax authorities in
accordance with the Indian Income-tax Act, 1961.
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. The Management
periodically evaluates positions taken in the tax
returns with respect to situations in which applicable
tax regulations are subject to interpretation and
establishes provision where appropriate. The tax
rate and tax laws used to compute the amount are
those that are enacted or substantially enacted, at
the reporting date.
Deferred tax is recognised in respect of temporary
differences between the tax bases of assets and
liabilities and their carrying amounts for financial
reporting purposes at the reporting date. Deferred
tax liabilities are recognised for all taxable temporary
differences. 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 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
period/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.
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
taxation authority.
k. Leases
The Company assesses at contract inception if
an arrangement qualifies to be a lease as per the
requirements of Ind AS 116. Identification of a lease
requires significant judgment. The Company uses
significant judgement in assessing the lease term
(including anticipated renewals) and the applicable
discount rate.
The Company determines the lease term as the
non-cancellable period of a lease, together with
both periods covered by an option to extend the
lease if the Company is reasonably certain to
exercise that option; and periods covered by an
option to terminate the lease if the Company is
reasonably certain not to exercise that option. In
assessing whether the Company is reasonably
certain to exercise an option to extend a lease, or
not to exercise an option to terminate a lease, it
considers all relevant facts and circumstances that
create an economic incentive for the Company
to exercise the option to extend the lease, or not
to exercise the option to terminate the lease. The
Company revises the lease term if there is a change
in the non-cancellable period of a lease.
Assets acquired under leases are depreciated over
the shorter of the lease term and their useful lives
unless it is reasonably certain that the Company will
obtain ownership by the end of the lease term.
Where the Company is lessee
The Company 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.
Right of use asset
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 subsequently
measured at cost less any accumulated
depreciation, accumulated impairment losses, if
any and adjusted for any remeasurement of the
lease liability.The right-of-use assets is depreciated
using useful life of right-of-use asset.The estimated
useful lives of Right-of-use assets are determined
as shorter of lease term and estimated useful life of
property, plant and equipment. Right-of-use assets
are tested for impairment whenever there is any
indication that their carrying amounts may not be
recoverable. Impairment loss, if any, is recognised
in the statement of profit and loss.
Lease liabilities
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 recognises any remaining amount of the
re-measurement in statement of profit and loss.
Short term leases and leases of low value assets: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.
Where the Company is lessor
At the inception of the lease the Company classifies
each of its leases as either an operating lease or
a finance lease. The Company recognises lease
payments received under operating leases as
income on a straight- line basis over the lease
term. In case of a finance lease, finance income is
recognised over the lease term based on a pattern
reflecting a constant periodic rate of return on
the lessor's net investment in the lease. When the
Company is an intermediate lessor it accounts for
its interests in the head lease and the sub-lease
separately. It assesses the lease classification of a
sub-lease with reference to the right-of-use asset
arising from the head lease, not with reference to
the underlying asset. If a head lease is a short term
lease to which the Company applies the exemption
described above, then it classifies the sub-lease as
an operating lease.
I f an arrangement contains lease and non-lease
components, the Company applies Ind AS 115
Revenue from contracts with customers to allocate
the consideration in the contract.
l. Earnings per share
Basic earnings per share is calculated by dividing
the net profit for the year attributable to equity
shareholders by the weighted average number
of equity shares outstanding during the year. The
weighted average number of shares outstanding
during the year is adjusted for events such as bonus
issue that have changed the number of shares
outstanding, without a corresponding change
in resources.
For the purpose of calculating diluted earnings
per share, the net profit for the year attributable
to equity shareholders and the weighted average
number of equity shares outstanding during the
year are adjusted for the effects of all dilutive
potential equity shares.
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