B MATERIAL ACCOUNTING POLICIES
1 Use of Estimates
The preparation of the Standalone Financial
Statements in conformity with accounting
principles generally accepted in India requires
the management to make judgements,
estimates and assumptions that effect the
reported amount of assets and liabilities as
of the Balance Sheet date, reported amount
of revenues and expenses for the year and
disclosure of contingent liabilities as of the
Balance Sheet date. These estimates and
associated assumptions are based on
historical experience and other factors that
are considered to be relevant. Actual results
may differ from these estimates.
Although these estimates are based on the
management's best knowledge of current
events and actions, uncertainty about the
assumptions and estimates may result in
outcomes requiring a material adjustment to
the carrying amount of assets or liabilities in
future periods.
The estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in
the period in which the estimate is revised
if the revision affects only that period, or in
the period of the revision and future periods
if the revision affects both current and future
periods.
2 Property, Plant and Equipment
Property, Plant and Equipment are stated
at cost less accumulated depreciation and
impairment in value, if any. Cost includes
purchase price, (inclusive of import duties
and non - refundable purchase taxes, after
deducting trade discounts and rebates),
other costs directly attributable to bringing
the asset to the location and condition
necessary for it to be capable of operating
in the manner intended by management and
an initial estimate of the costs of dismantling,
removing the item and restoring the site on
which it is located, if any.
If the Company has acquired a Property,
Plant and Equipment on deferred term
basis and terms are beyond normal credit
terms, property plant and equipment will
be recognized on cash price equivalent, i.e.
discounted amount.
The cost of Assets not ready for use as at
the Balance Sheet date are disclosed under
Capital Work-In-Progress.
The cost of replacement spares/ major
inspection relating to property, plant and
equipment is capitalized only when it is
probable that future economic benefits
associated with these will flow to the Company
and the cost of the item can be measured
reliably. When parts of an item of property
plant and equipment have different useful
lives, they are accounted for as separate
items (major components) of property, plant
and equipment.
Depreciation
Depreciation on Property , Plant and
Equipment (Tangible assets) is generally
computed on a pro-rata basis on the basis
of the estimated life specified in Schedule II
of the Companies Act, 2013 under Straight line
method. The useful life of assets prescribed
in Schedule II to the Companies Act, 2013 are
considered for the purpose of Computation of
Depreciation. However, If the management's
estimate of the useful life of a fixed asset at
the time of acquisition of the asset or of the
remaining useful life on an annual review is
different from that envisaged in the aforesaid
schedule, depreciation is provided at a such
rate based on the useful life / remaining
useful life as technically advised. Accordingly,
depreciation is provided based on the useful
life as indicated below which is different from
that stated in Schedule II to the Companies
Act,2013.
* Useful life of tools are based on internal estimate
of the Company. Tools and dies used are
depreciated based on quantity of components
manufactured and the life of tools and dies,
subject to a maximum of 5 years. Tools and dies
used for low volume products are depreciated at
higher rate.
Depreciation charge on additions / deletions
is restricted to the period of use. Depreciation
methods, useful lives and residual values are
reviewed annually.
3 Intangible Assets
I ntangible assets are stated at acquisition
cost, net of accumulated amortization and
accumulated impairment losses, if any.
Intangible assets are amortized on a straight
line basis over their estimated useful life as
given below.
Amortization method and useful lives are
reviewed annually.
4 Leases
As lessee
The Company assesses whether a contract
contains a lease, at inception of a contract.
A contract is, or contains, a lease if the
contract conveys the right to control the use
of an identified asset for a period of time
in exchange for consideration. To assess
whether a contract conveys the right to control
the use of an identified asset, the Company
assesses whether: (l) the contact involves the
use of an identified asset (2) the Company
has substantially all of the economic benefits
from use of the asset through the period of
the lease and (3) the Company has the right
to direct the use of the asset.
The Company recognizes a right-of-use
asset and a corresponding lease liability for
all lease arrangements in which it is a lessee,
except for leases with a term of twelve months
or less (short-term leases) and leases for low
value underlying assets. For these short-term
and leases for low value underlying assets,
the Company recognizes the lease payments
as an operating expense on a straight-line
basis over the term of the lease.
Certain lease arrangements include the
options to extend or terminate the lease
before the end of the lease term. Right-of
use assets and lease liabilities include these
options when it is reasonably certain that the
option to extend the lease will be exercised/
option to terminate the lease will not be
exercised.
The right-of-use assets are initially
recognized at cost, which comprises the
initial amount of the lease liability adjusted for
any lease payments made at or prior to the
commencement date of the lease plus any
initial direct costs less any lease incentives.
They are subsequently measured at cost less
accumulated depreciation/amortization and
impairment losses.
Right-of-use assets are depreciated/
amortized from the commencement date
to the end of the useful life of the underlying
asset, if the lease transfers ownership of the
underlying asset by the end of lease term or if
the cost of right-of-use assets reflects that the
purchase option will be exercised. Otherwise,
Right-of-use assets are depreciated /
amortized from the commencement date on
a straight-line basis over the shorter of the
lease term and useful life of the underlying
asset.
Right-of-use assets are evaluated for
recoverability whenever events or changes
in circumstances indicate that their carrying
amounts may not be recoverable. For
the purpose of impairment testing, the
recoverable amount (i.e. the higher of the
fair value less cost to sell and the value-in¬
use) is determined on an individual asset
basis unless the asset does not generate
cash flows that are largely independent of
those from other assets. In such cases, the
recoverable amount is determined for the
Cash Generating Unit (CGU) to which the
asset belongs.
The lease liability is initially measured at
amortized cost at the present value of the
future lease payments. The lease payments
are discounted using the interest rate implicit
in the lease or, if not readily determinable,
using the incremental borrowing rate.
Lease liabilities are re-measured with a
corresponding adjustment to the related
right-of-use asset if the Company changes
its assessment whether it will exercise an
extension or a termination option.
5 Impairment
Assessment is done annually as to whether
there is any indication that an asset (tangible
and intangible) may be impaired. For the
purpose of assessing impairment, the
smallest identifiable Company of assets that
generates cash inflows from continuing use
that are largely independent of the cash
inflows from other assets or group of assets,
is considered as a cash generating unit. If
any such indication exists, an estimate of
the recoverable amount of the asset / cash
generating unit is made. Assets whose carrying
value exceeds their recoverable amount are
written down to the recoverable amount.
Recoverable amount is higher of an asset's
or cash generating unit's fair value less cost
to sell and its value in use. Value in use is the
present value of estimated future cash flows
expected to arise from the continuing use of
an asset and from its disposal at the end of
its useful life. Assessment is also done at each
Balance Sheet date as to whether there is any
indication that an impairment loss recognized
for an asset in prior accounting periods may
no longer exist or may have decreased. In
such cases, impairment losses are reversed
to the extent the assets carrying amount does
not exceed, the carrying amount that would
have been determined if no impairment loss
had previously been recognized.
6 Borrowing Cost
Borrowing costs that are attributable to
the acquisition / construction / production
of qualifying assets (assets which require
substantial period of time to get ready for its
intended use) are capitalized as part of the
cost of that asset. All other borrowing costs
are charged to revenue. In accordance with
the ICAI Guidance Note on Schedule III to the
Companies Act, 2013, exchange losses (net)
relating to foreign currency borrowings to the
extent not capitalized in accordance with Ind
AS 23 is presented under finance costs.
7 Inventories
Cost of raw materials, components, stores and
spares are ascertained on a moving weighted
average cost basis. Cost of finished goods
and work-in-progress comprise of direct
materials, direct labour and an appropriate
proportion of variable and fixed overhead.
Such costs are assigned to individual items of
inventory on the basis of weighted average
costs. Costs of purchased inventory are
determined after deducting rebates taxes
(not recoverable from the taxing authorities)
and discounts. Goods that are consigned to
the Company are not considered in inventory.
Net realizable value is the estimated selling
price in the ordinary course of business
less the estimated costs of completion and
the estimated costs necessary to make the
sale. Materials and supplies held for use in
production of inventories are not written
down if the finished products in which they
will be used are expected to be sold at or
above cost. Slow and non-moving material,
obsolescence, defective inventories as
identified by the management are duly
provided for/ written down to the realizable
value, as the case maybe.
Raw materials, components and other
supplies held for use in the production of
finished products are not written down below
cost except in cases where material prices
have declined and it is estimated that the
cost of the finished products will exceed their
net realisable value.
The comparison of cost and net realisable
value is made on an item-by-item basis.
8 Foreign Currency Transaction
Functional Currency
Items included in the financial statements
are measured using the currency of the
primary economic environment in which the
Company operates ('the functional currency').
The financial statements are presented in
Indian rupee (inr), which is the Company's
functional and presentation currency.
Initial Recognition
On initial recognition, all foreign currency
transactions are recorded by applying to
the foreign currency amount the exchange
rate between the Functional currency and
the foreign currency at the date of the
transaction.
Subsequent Recognition
As at the reporting date, non-monetary
items which are carried in terms of historical
cost denominated in a foreign currency are
reported using the exchange rate at the date
of the transaction. All non-monetary items
which are carried at fair value or other similar
valuation denominated in a foreign currency
are reported using the exchange rates that
existed when the values were determined.
All monetary assets and liabilities in foreign
currency are reinstated at the end of
accounting period.
Exchange differences on reinstatement of
all monetary items are recognized in the
Statement of Profit and Loss.
Foreign operations
The assets and liabilities of foreign operations
are translated into Indian rupees (inr), the
functional currency of the Company at the
exchange rate at the reporting date. The
income and expenses of foreign operations
are translated to Indian rupees (inr) at
exchange rates at the date of transactions
or an average rate if the average rate
approximates the actual rate at the date of
transaction.
Foreign currency translation differences are
recognised in other comprehensive income
and accumulated in equity separately under
foreign currency translation reserve. The
amounts recognized are transferred to the
Standalone statement of profit and loss on
disposal of the related foreign subsidiaries.
9 Revenue Recognition
Revenue from contracts with customers is
recognized on transfer of control of promised
goods or services to a customer at an amount
that the Company is expected to be entitled
to in exchange for those goods or services.
Revenue towards satisfaction of a
performance obligation is measured at the
amount of transaction price (net of variable
consideration) allocated to that performance
obligation. The transaction price of goods
sold and services rendered is net of variable
consideration on account of various discounts
and rebates offered by the Company as part
of the contract. This variable consideration is
estimated based on the expected value of
outflow.
Sale of goods
Revenue from sale of products is recognized
when the control on the goods have
been transferred to the customer. The
performance obligation in case of sale of
product is satisfied at a point in time i.e.,
when the material is shipped to the customer
or on delivery to the customer, the risks of
obsolescence and loss have been transferred
to the customer, and either the customer has
accepted the products in accordance with
the sales contract, the acceptance provisions
have lapsed, or the Company has objective
evidence that all criteria for acceptance
have been satisfied. Revenue from the sale
of goods is measured at the fair value of the
consideration received or receivable, net of
returns and allowances, trade discounts and
volume rebates.
Advance from customers is recognized under
other current liabilities which is released
to revenue on satisfaction of performance
obligation.
Rendering of Services
Revenue from other service activities are
recognized at a point in time on satisfaction
of performance obligation towards rendering
of such services in accordance with the terms
of arrangement.
Revenue is recorded exclusive of goods and
service tax.
Other Income
Interest : Interest income is recognized on
effective interest method taking into account
the amount outstanding and the rate
applicable.
Dividend : Dividend income is recognized
when the right to receive dividend is
established.
Insurance Claims : Insurance claims are
accounted for on the basis of claims lodged
with insurance Company and to the extent
that there is a reasonable certainty in realizing
the claims.
10 Employee Benefits
1. Short - Term employee benefits
All employee benefits payable wholly
within twelve months of rendering the
service are classified as short-term
employee benefits and recognized in the
period in which the employee renders
the related service.
2. Defined Contribution Plans
Contribution towards provident fund/
Employee State Insurance for employees
working with the Company's operations
in India is made to the regulatory
authorities, where the Company has
no further obligations. Such benefits
are classified as Defined Contribution
Schemes as the Company does not
carry any further obligations, apart from
the contributions made on a monthly
basis.
3. Defined Benefit Plan
The Company provides for gratuity,
a defined benefit plan (the "Gratuity
Plan") which is funded covering eligible
employees in accordance with the
Payment of Gratuity Act, 1972. The Gratuity
Plan provides a lump sum payment
to vested employees at retirement,
death, incapacitation or termination of
employment, of an amount based on
the respective employee's salary and the
tenure of employment. The Company's
liability is actuarially determined (using
the Projected Unit Credit method) at
the end of each year. Actuarial losses
/ gains are recognized in the other
comprehensive income in the year
in which they arise. Remeasurement
recognized in other comprehensive
income is reflected immediately in
retained earnings and is not reclassified
to profit or loss.
4. Other Long term employee benefits
Accumulated compensated absences,
which are expected to be availed or
encashed within 12 months from the
end of the year are treated as short
term employee benefits. The obligation
towards the same is measured at
the expected cost of accumulating
compensated absences as the
additional amount expected to be paid
as a result of the unused entitlement as
at the year end.
Accumulated compensated absences,
which are expected to be availed or
encashed beyond 12 months from the end
of the year end are treated as other long
term employee benefits. The Company's
liability is actuarially determined (using
the Projected Unit Credit method) at the
end of each year. Actuarial losses / gains
are recognized in the Profit and Loss
Statement in the year in which they arise.
10A Share Based Payments
Employees (including senior executives) of the
Company receive remuneration in the form of
share based payments, whereby employees
render services as consideration for equity
instruments (equity-settled transactions).
The cost of equity-settled transactions is
determined by the fair value at the date
when the grant is made using an appropriate
valuation model.
That cost is recognised, together with a
corresponding increase in Employee Stock
option Plan (ESOP) reserves in equity, over
the period in which the performance and/or
service conditions are fulfilled, in employee
benefits expense. The cumulative expense
recognised for equity-settled transactions
at each reporting date until the vesting
date reflects the extent to which the vesting
period has expired and the Company's best
estimate of the number of equity instruments
that will ultimately vest. The expense or
credit for a period recognised in employee
benefits expense represents the movement
in cumulative expense recognised as at the
beginning and end of that period.
Performance conditions which are market
conditions are taken into account when
determining the grant date fair value
of the awards. Service and non-market
performance conditions are not taken into
account when determining the grant date
fair value of awards, but the likelihood of the
conditions being met is assessed as part of
the Company's best estimate of the number
of equity instruments that will ultimately vest.
No expense is recognised for awards that
do not ultimately vest because non-market
performance and/or service conditions have
not been met.
When the terms of an equity-settled award are
modified, the minimum expense recognised is
the expense had the terms not been modified
if the original terms of the award are met.
An additional expense is recognised for any
modification that increases the total fair value
of the share-based payment transaction or
is otherwise beneficial to the employee as
measured at the date of modification.
Where an award is cancelled by the entity or
by the counterparty, any remaining element
of the fair value of the award is expensed
immediately through profit or loss.
The dilutive effect of outstanding options is
reflected as additional share dilution in the
computation of diluted earnings per share.
The cost of share based payments pertaining
to employees of subsidiaries, where the
ultimate obligation is settled by the Company,
is accounted for as an increase in the
Company's investment in the subsidiaries in
its standalone financial statements.
11 Taxes on Income
Tax expense for the period, comprising current
tax and deferred tax, are included in the
determination of the net profit or loss for the
period. Current tax is measured at the amount
expected to be paid to the tax authorities in
accordance with the relevant prevailing tax
laws. Tax expenses relating to the items in
profit and loss shall be treated as current tax
as part of profit and loss and those relating to
items in other comprehensive income (OCI)
shall be recognized as part of the OCI.
Deferred tax is recognized for all the temporary
differences between the carrying amounts
of assets and liabilities in the Standalone
Financial Statements and corresponding
tax bases used in computation of taxable
profit. Deferred tax assets are recognized and
carried forward only to the extent that it is
probable that taxable profit will be available
against which those deductible temporary
differences can be utilized. Deferred tax assets
and liabilities are measured using the tax
rates and tax laws that have been enacted
or substantively enacted by the Balance
Sheet date. At each Balance Sheet date, the
Company re-assesses unrecognized deferred
tax assets, if any and the same is recognized
to the extent it has become probable that
future taxable profit will allow the deferred tax
asset to be recovered.
Current tax assets and current tax liabilities
are offset when there is a legally enforceable
right to set off the recognized amounts and
there is an intention to settle the asset and
the liability on a net basis. Deferred tax assets
and deferred tax liabilities are offset when
there is a legally enforceable right to set off
assets against liabilities representing current
tax and where the deferred tax assets and
the deferred tax liabilities relate to taxes
on income levied by the same governing
taxation law.
Minimum Alternate Tax (MAT) credit is
recognized as an asset only when and to
the extent there is convincing evidence that
the Company will pay normal income tax
during the specified period. Such asset is
reviewed at each Balance Sheet date and
the carrying amount of the MAT credit asset
is written down to the extent there is no longer
a convincing evidence to the effect that the
Company will pay normal income tax during
the specified period. MAT shall be treated as
part of deferred tax assets.
12 Financial instruments
Initial recognition
The Company recognizes Financial assets
and Financial liabilities when it becomes
a party to the contractual provisions of
the instruments. All Financial assets and
liabilities are recognized at fair value on
initial recognition. Transaction costs that are
directly attributable to the acquisition or issue
of Financial assets and Financial liabilities, that
are not at fair value through profit or loss, are
added to the fair value on initial recognition.
Financial liabilities and equity instruments:
Classification as debt or equity
Financial liabilities and equity instruments
issued by the Company are classified
according to the substance of the
contractual arrangements entered into and
the definitions of a financial liability and an
equity instrument.
Equity instruments:
An equity instrument is any contract that
evidences a residual interest in the assets
of the Company after deducting all of its
liabilities. Instruments (including convertible
preference shares) that meet the definition
of 'Equity' in its entirety and which do not
have any component of liability, is classified
as Equity and grouped under 'Instruments
entirely equity in nature'. Equity instruments
are recorded at the proceeds received, net
of direct issue costs. The transaction costs of
an equity transaction are accounted for as
a deduction from equity to the extent they
are incremental costs directly attributable
to the equity transaction that otherwise
would have been avoided. The costs of an
equity transaction that is abandoned are
recognised as an expense.
In case of equity investment that is not
held for trading, the group may irrevocably
elect to present subsequent changes in the
investment's fair value in OCI (designated
as FVOCI - equity investment). This election
is made on an investment-by-investment
basis.
Subsequent measurement
i. Financial assets carried at amortized
cost
A Financial asset is subsequently
measured at amortized cost if it is
held within a business model whose
objective is to hold the asset in order to
collect contractual cash flows and the
contractual terms of the Financial asset
give rise to cash flows on specified dates
that are solely payments of principal
and interest on the principal amount
outstanding.
ii. Financial assets at fair value through
profit or loss
A Financial asset which is not classified in
the above category is subsequently fair
valued through profit or loss.
iii. Financial assets at fair value through
Other Comprehensive Income
Equity investments at FVOCI: These assets
are subsequently measured at fair value.
Dividends are recognised as income in
profit and loss unless the dividend clearly
represents a recovery of part of the cost
of the investment. Other net gains and
losses are recognised in OCI and are not
reclassified to profit and loss.
iv. Financial liabilities
Financial liabilities are subsequently
carried at amortized cost using the
effective interest method. For trade and
other payables maturing within one year
from the Balance Sheet date, the carrying
amounts approximate fair value due to
the short maturity of these instruments.
Derecognition of Financial instruments
The Company derecognizes a Financial asset
when the contractual rights to the cash flows
from the Financial asset expire or it transfers
the Financial asset and the transfer qualifies
for derecognition under IND AS 109. A Financial
liability (or a part of a Financial liability) is
derecognized from the Company's Balance
Sheet when the obligation specified in the
contract is discharged or cancelled or expires.
Impairment
All Financial assets classified as at amortized
cost shall be tested for impairment under Ind
AS 109 and measured using Expected Credit
Loss (ECL) model.
13 Fair Value
The Company measures Financial
instruments at fair value in accordance with
the accounting policies mentioned above.
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.
All assets and liabilities for which fair value
is measured or disclosed in the Standalone
Financial Statements are categorized within
the fair value hierarchy that categorizes into
three levels, described as follows, the inputs to
valuation techniques used to measure value.
The fair value hierarchy gives the highest
priority to quoted prices in active markets for
identical assets or liabilities (Level 1 inputs)
and the lowest priority to unobservable inputs
(Level 3 inputs).
Level 1 — quoted (unadjusted) market prices
in active markets for identical assets or
liabilities
Level 2 — inputs other than quoted prices
included within Level 1 that are observable for
the asset or liability, either directly or indirectly
Level 3 —inputs that are unobservable for the
asset or liability
14 Government Grants
Grants from the government are recognized
at their fair value where there is a reasonable
assurance that the grant will be received and
the Company will comply with all attached
conditions. All government grants are initially
recognized by way of setting up as deferred
income. Government grants relating to
income are subsequently recognized in the
profit or loss over the period necessary to
match them with the costs that they are
intended to compensate. Government grants
relating to the purchase of property, plant
and equipment are subsequently recognized
in profit or loss on a systematic basis over
the expected life of the related depreciable
assets. Grants recognized in Profit and Loss
as above are presented within other income
or adjusted against the corresponding
expenditure head as specifically disclosed
thereunder.
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