2. Material accounting policies
2.1. Basis of preparation
The financial statements of the Company have been
prepared in accordance with Indian Accounting
Standards ("Ind AS") notified under the Companies
(Indian Accounting Standards) Rules, 2015 (as
amended from time to time) read with section 133 of
the Companies Act, 2013 ("the Act") and presentation
requirements of Division II of Schedule III to the
Companies Act, 2013, (Ind AS compliant Schedule III),
as applicable to financial statements.
The financial statements have been prepared on a
historical cost basis, except for the following assets
which have been measured at fair value:
• Certain financial assets at fair value (refer accounting
policy regarding financial instruments), and
• Defined benefit plans-plan assets measured at
fair value.
The accounting policies adopted for preparation and
presentation of financial statement have been consistent
with the previous year.
The financial statements are presented in Indian Rupees
('?') and all values are rounded to the nearest million
(' 000,000), except when otherwise indicated.
The Company has prepared the financial statements
on the basis that it will continue to operate as a
going concern.
2.2.Summary of material accounting policies
The following are the material accounting policies applied
by the Company in preparing its financial statements:
(a) Current versus non-current classification
The Company segregates assets and liabilities into
current and non-current categories for presentation
in the balance sheet after considering its normal
operating cycle and other criteria set out in Ind AS
1, "Presentation of Financial Statements". For this
purpose, current assets and liabilities include the
current portion of non-current assets and liabilities
respectively. Deferred tax assets and liabilities are
always classified as non-current.
The operating cycle is the time between the
acquisition of assets for processing and their
realisation in cash and cash equivalents. The
Company has identified twelve months as its
operating cycle.
(b) Revenue from contract with customers
The Company earns revenue from contract with
customers primarily from sale of goods. Revenue
is recognised upon transfer of control of promised
products to customers in an amount that reflects
the consideration which the Company expects to
receive in exchange for those goods. The Company
has generally concluded that it is the principal
in its revenue arrangements, because it typically
controls the goods or services before transferring
them to the customer, 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 sale of goods is recognised at the
point in time when control of the asset is transferred
to the customer, generally on delivery of the goods
or based on the terms of the contract. Delivery
occurs when the products have been shipped
or delivered to the specific location as the case
may be, the risks of loss has been transferred,
and either the customer has accepted the
products in accordance with the sales contract,
or the Company has objective evidence that all
criteria for acceptance have been satisfied. Sale
of products include related ancillary services,
if any. In contracts where freight is arranged by
the Company and recovered from the customers,
the same is treated as a separate performance
obligation and revenue is recognised when such
freight services are rendered.
The Company considers whether there are
other promises in the contract that are separate
performance obligations to which a portion of
the transaction price needs to be allocated. In
determining the transaction price for the sale
of goods, the Company considers the effects of
variable consideration, the existence of significant
financing components, non-cash consideration
and consideration payable to the customer (if any).
(i) Variable consideration
If the consideration in a contract includes a
variable amount, 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. Some contracts for the sale of goods
provide customers with discount.
The Company applies the practical expedient
for short-term advances received from
customers. That is, the promised amount of
consideration is not adjusted for the effects of
a significant financing component if the period
between the transfer of the promised good or
service and the payment is one year or less.
The Company typically provides warranties
for any field failures and general repairs of
defects that existed at the time of sale until
specific period agreed / usage agreed with
the customer. These assurance-type warranties
are accounted for under Ind AS 37 Provisions,
Contingent Liabilities and Contingent Assets.
(ii) Volume rebates
The Company applies the most likely amount
or the expected value method to estimate
the variable consideration in the contract.
The selected method that best predicts the
amount of variable consideration is primarily
driven by the number of volume thresholds
contained in the contract. The most likely
amount is used for those contracts with a
single volume threshold, while the expected
value method is used for those with more
than one volume threshold. The Company
then applies the requirements on constraining
estimates in order to determine the amount of
variable consideration that can be included
in the transaction price and recognised as
revenue. A refund liability is recognised for
the expected future rebates (i.e., the amount
not included in the transaction price).
(iii) Contract balances
• Contract assets
A contract asset is the right to
consideration in exchange for goods or
services transferred to the customer. If
the Company performs by transferring
goods or services to a customer before
the customer pays consideration or
before payment is due, a contract asset is
recognised for the earned consideration
that is conditional.
• Trade receivables
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). Refer to accounting
policies of financial assets in section (l)
Financial instruments - initial recognition
and subsequent measurement.
• 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 Company performs
under the contract.
(iv) Warranty provisions
The estimated liability for product warranties
is recorded when products are sold. These
estimates are established using historical
information on the nature, frequency
and average cost of warranty claims and
management estimates regarding possible
future incidence based on corrective actions
on product failures. The timing of outflows
will vary as and when warranty claim will arise
being typically up to three years.
As per the terms of the contracts, the
Company provides post-contact services /
warranty support to some of its customers.
The company accounts for the post-contract
support / provision for warranty on the basis
of the information available with management
duly taking into the account the current and
post technical estimates.
The disclosures of significant accounting
judgements, estimates and assumptions
relating to revenue from contracts with
customers are provided in note 31.
(c) Foreign currencies
Items included in the financial statements of the
Company are measured using the currency of
the primary economic environment in which the
entity operates (i.e. the "functional currency").
The Company's financial statements are presented
in Indian Rupee, which is also the Company's
functional and presentation currency.
Transactions and balances
Transactions in foreign currencies are initially
recorded by the Company's at their functional
currency spot rates at the date the transaction first
qualifies for recognition. However, for practical
reasons, the Company uses average rate if the
average approximates the actual rate at the date
of the transaction.
Monetary assets and liabilities denominated in
foreign currencies are translated at the functional
currency spot rates of exchange at the reporting
date. Exchange differences arising on settlement
or translation of monetary items are recognised
in profit or loss. 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.
(d) Taxes
Tax expense comprises current tax expense and
deferred tax
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 India 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). 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.
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. 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.
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 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.
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.
In assessing the recoverability of deferred tax assets,
the Company considers whether the entity has
sufficient taxable temporary differences relating to
the same taxation authority and the same taxable
entity, which will result in taxable amounts against
which the unused tax losses or unused tax credits
can be utilised before they expire.
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
in correlation to the underlying transaction
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
(e) Property, plant and equipment (PPE)
All items of property, plant and equipment are
stated at cost, net of accumulated depreciation
and accumulated impairment losses, if any. Such
costs include 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 lives. 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 and if the amount is material.
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 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 asset is derecognised.
Property, plant and equipment under installation
or construction as at the balance sheet date is
shown as capital work-in-progress and is stated at
cost, net of accumulated impairment loss, if any.
Further the related advances are shown under non¬
current assets.
Depreciation on property, plant and equipment
is calculated on straight-line basis using the rates
arrived at based on the useful life estimated by
the management.
The management believes that depreciation
rates used fairly reflect its estimate of the useful
lives and residual values of property, plant and
equipment, though these rates in certain cases are
different from lives prescribed under Schedule II
of the Companies Act 2013. The Company has
used the following estimated useful lives to provide
depreciation on its property, plant and equipment.
Leasehold improvements are depreciated over the
primary period of lease, or useful life, whichever
is lower, on a straight-line basis.
The Company reviews the estimated residual values
and expected useful lives of assets at least annually.
In particular, the Company considers the impact of
health, safety and environmental legislation in its
assessment of expected useful lives and estimated
residual values.
(f) 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.
Computer Software which is not an integral part of
the related hardware is classified as an intangible
asset. Intangible assets are amortised on a straight¬
line basis over the estimated useful economic life
of 3 years.
The amortization period and the amortization
method are reviewed at least at each financial
year end.
(g) 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. The Company's lease assets
class primarily consist of lease of land, building
and premises.
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.
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,
as follows:
If ownership of the leased asset transfers to the
Company at the end of the lease term or the
cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated
useful life of the asset. The right-of-use assets are
also subject to impairment.
(ii) 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, variable
lease payments that depend on an index or
a rate, and amounts expected to be paid
under residual value guarantees. The lease
payments also include the exercise price of
a purchase option reasonably certain to be
exercised by the Company and payments
of penalties for terminating the lease, if the
lease term reflects the Company exercising the
option to terminate. Variable lease payments
that do not depend on an index or a rate are
recognised as rent expenses 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 re-measured 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.
(iii) 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.
Company as a lessor
Leases are classified as finance leases
when the transfer of substantially all risks
and rewards of ownership occurs from the
Company to the lessee. Amounts receivable
from lessees under finance leases are recorded
as receivables at a net basis, representing the
Company's net investment in the leases and
when the Company combines two or more
contracts executed at or near the same time
with the same counterparty (or related parties
of the counterparty) and these contracts are
treated as a single contract for accounting
purposes. Finance lease income is allocated to
accounting periods so as to reflect a constant
periodic rate of return on the net investment
outstanding in respect of the lease.
(h) 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. The
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.
(i) Inventories
Inventories of raw materials, stores and spares,
work-in-progress and finished goods are valued
at lower of cost or net realizable value.
Cost of inventories incurred in bringing each
product to its present location and condition are
accounted for as follows:
• Raw materials and stores and spares - Cost
includes cost of purchase and other costs
incurred in bringing the inventories to their
present location and condition. Cost is
determined on moving weighted average basis.
• Finished goods and work in progress - Cost
includes cost of direct materials, direct labour
and the appropriate proportion of variable
and fixed overhead expenditure based on the
normal operating capacity. Cost is determined
on moving 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.
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