2. SIGNIFICANT ACCOUNTING POLICIES
A. Revenue recognition:
Revenue from contracts with customers is recognised when control of the goods or services are
transferred to the customer at an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services.
Revenue from the sale of goods is recognized at the point in time when control of the asset is trans¬
ferred to the customer, generally on the delivery of the goods.
The Company satisfies the performance obligation and recognises revenue over time, if one of the
criteria prescribed under Ind AS 115 - "Revenue from Contracts with Customers" is satisfied. If a
performance obligation is not satisfied over time, then revenue is recognized at a point in time at
which the performance obligation is satisfied.
The Company recognises revenue for performance obligation satisfied over time only if it can
reasonably measure its progress towards complete satisfaction of the performance obligation. The
Company would not be able to reasonably measure its progress towards complete satisfaction of a
performance obligation if it lacks reliable information that would be required to apply an appropri¬
ate method of measuring progress. In those circumstances, the Company recognises revenue only to
the extent of cost incurred until it can reasonably measure outcome of the performance obligation.
The Company considers whether there are other promises in the contract that are separate perfor¬
mance obligations to which a portion of the transaction price needs to be allocated. In determining
the transaction price, the Company considers the effects of variable consideration, the existence of
significant financing component and consideration payable to the customer like return and trade
discounts.
Sales are disclosed excluding net of sales returns and Goods and Service Tax (GST).
Income from operations includes revenue earned on account of job work income which is accounted
as per the terms agreed with the customers. Export benefits available under prevalent schemes are
accounted to the extent considered receivable.
Other income is comprised primarily of interest income, gain / loss on investments and exchange
gain/loss on foreign currency transactions. Interest income is recognized using the effective interest
method.
Rental income from investment properties and subletting of properties is recognised on a straight
line basis over the term of the relevant leases.
B. Foreign Currency Transactions
i. Functional and presentation currency
Items included in the financial statements of the Company 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, which is the Company’s functional and presenta¬
tion currency.
ii. Foreign currency transactions and balances
Foreign currency transactions are recorded in the functional currency by applying to the foreign
currency amount the exchange rate between the functional currency and the foreign currency on the
date of the transaction (spot exchange rate).
All monetary items denominated in foreign currency are converted into the functional currency at
the year-end exchange rate. The exchange differences arising on such conversion and on settlement
of the transactions are recognised in the statement of profit and loss.
C. Property, Plant and Equipment:
i. Recognition and measurement
All items of property, plant and equipment are measured at cost less accumulated depreciation and
any accumulated impairment losses. Cost includes expenditure that is directly attributable to the
acquisition of the items.
Income and expenses related to the incidental operations, not necessary to bring the item to the
location and condition necessary for it to be capable of operating in the manner intended by
management, are recognized in the Statement of Profit and Loss.
If significant parts of an item of property, plant and equipment have different useful life, then they
are accounted and depreciated for as separate items (major components) of property, plant and
equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in the
Statement of Profit and Loss.
On transition to Ind AS, the Company has elected to continue with the carrying value of all of its
property, plant and equipment recognized as at April 1, 2016 measured as per the Previous GAAP
and use that carrying value as the deemed cost (except to the extent of any adjustment permissible
under other accounting standard) of the property, plant and equipment.
ii. Subsequent Expenditure
Subsequent expenditure is capitalized only if it is probable that the future economic benefits
associated with the expenditure will flow to the Company.
iii. Depreciation
Depreciation or amortisation is provided from the date the assets are ready to be put to use, using
straight line method over the estimated useful life of the assets.
For determining the appropriate depreciation rates, plant and machinery falling under the category
of continuous process plant has been identified on the basis of technical opinion obtained.
Depreciation on additions to and disposals of the property, plant and equipment and intangible
assets during the period has been provided on pro-rata basis,
according to the period each such asset was used during the period except in case of low value items
not exceeding INR 10,000/- which are depreciated fully in the period of addition. Depreciation on
addition or extension to the existing property, plant and equipment which becomes integral part of
that asset is provided on pro-rata basis according to the remaining useful life of the existing asset.
D. Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
a) Recognition, initial measurement and derecognition
Financial assets and financial liabilities are recognized when the Company becomes a party to the
contractual provisions of the financial instrument and are measured initially at fair value adjusted by
transaction costs that are directly attributable to the acquisition or issue of financial assets and
financial liabilities (other than financial assets and financial liabilities at fair value through profit and
loss) The transaction costs directly attributable to the acquisition of financial assets and financial
liabilities at fair value through profit and loss are immediately recognised in the statement of profit
and loss.
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar
financial assets) is primarily derecognized (i.e. removed from the Company’s balance sheet) when:
- The rights to receive cash flows from the asset have expired, or
- The Company has transferred its rights to receive cash flows under an eligible transaction.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled
or expires.
b) Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are classified into the following cate¬
gories upon initial recognition:
- Debt instruments at amortised cost
- Debt instruments at fair value through other comprehensive income (FVTOCI)
- Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
• Equity instruments measured at fair value through other comprehensive income (FVTOCI)
• Equity instruments measured at fair value profit or loss (FVTPL)
Debt instruments at amortised cost
A ‘debt instrument' is measured at the amortised cost if both the following conditions are met:
a. The asset is held within a business model whose objective is to hold assets for collecting
contractual cash flows, and
b. Contractual terms of the asset give rise on specified dates to cash flows that are solely payments
of principal and interest (“SPPI”) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using
the effective interest rate (the “EIR”) method. The effective interest rate is the rate that exactly
discounts future cash receipts or payments through the expected life of the financial instrument, or
where appropriate, a shorter period.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees
or costs that are an integral part of the EIR. The EIR amortisation is included in finance income in the
statement of profit and loss. The losses arising from impairment are recognised in the statement of
profit and loss.
Debt instruments at fair value through other comprehensive income
A ‘debt instrument' is classified as at the FVTOCI if both of the following criteria are met:
a. The objective of the business model is achieved both by collecting contractual cash flows and
selling the financial assets, and
b. The asset's contractual cash flows represent SPPI.
The Company does not have any debt instruments classified in FVOCI category.
Debt instruments at fair value through profit or loss
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the
criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
The Company does not have any debt instruments classified in FVTPL category.
Equity instruments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which
are held for trading are classified as at FVTPL. For all other equity instruments, the Company may
make an irrevocable election to present in the OCI subsequent changes in the fair value. The
Company makes such election on an instrument-by-instrument basis. The classification is made on
initial recognition and is irrevocable.
Equity instruments included within the FVTPL category are measured at fair value with all changes
recognized in the statement of profit and loss.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on
the instrument, excluding dividends, are recognized in OCI. There is no recycling of the amounts
from the OCI to the statement of profit and loss, even on sale of the investment. However, the Compa¬
ny may transfer the cumulative gain or
loss within categories of equity.
c) Classification and subsequent measurement of financial liabilities
All financial liabilities are recognised initially at its fair value adjusted by directly attributable
transaction costs.
The measurement of financial liabilities depends on their classification, as described below:
- Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and
financial liabilities designated upon initial recognition as at fair value through profit or loss. Finan¬
cial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in
the near term. The Company does not have any financial liabilities classified at fair value through
profit or loss.
- Financial liabilities measured at amortised cost
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amor¬
tised cost using the EIR method.
Gains and losses are recognised in the statement of profit and loss when the liabilities are
derecognised.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees
or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the
statement of profit and loss.
E. Impairment:
i. Non - financial assets
At each balance sheet date, the Company assesses whether there is any indication that any property,
plant and equipment and intangible assets with finite life may be impaired. If any such impairment
exists, the recoverable amount of an asset is estimated to determine the extent of impairment, if any.
Where it is not possible to estimate the recoverable amount of an individual asset, the Company esti¬
mates the recoverable amount of the cash-generating unit to which the asset belongs.
ii. Financial assets In accordance with Ind AS 109, the Company applies the expected credit loss
(“ECL”) model for measurement and recognition of impairment loss on financial assets and credit
risk exposures. The Company follows ‘simplified approach’ for recognition of impairment loss allow¬
ance on trade receivables. Simplified approach does not require the Company to track changes in
credit risk. Rather, it recognises impairment loss allowance based on lifetime ECL at each reporting
date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company deter¬
mines that whether there has been a significant increase in the credit risk since initial recognition. If
credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss.
However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period,
credit quality of the instrument improves such that there is no longer a significant increase in credit
risk since initial recognition, then the entity reverts to recognising impairment loss allowance based
on 12-month ECL. ECL is the difference between all contractual cash flows that are due to the Com¬
pany in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all
cash shortfalls),discounted at the EIR of the instrument. Lifetime ECL are the expected credit losses
resulting from all possible default events over the expected life of a financial instrument. The
12-month ECL is a portion of the lifetime ECL which results from default events that are possible
within 12 months after the reporting date.
ECL impairment loss allowance (or reversal) recognised during the period is recognised as income/
expense in the statement of profit and loss.
F. Taxes on Income:
Income Tax expense comprises of current and deferred tax. Income Tax expense is recognized in net
profit in the Statement of Profit and Loss except to the extent that it relates to items recognized
directly in equity, in which case it is recognized in other comprehensive income.
(i) Current Tax
Current Tax is the amount of income taxes payable (recoverable) in respect of the taxable profit (tax
loss) for a period. Current tax for current and prior periods is recognized at the amount expected to
be paid to or recovered from the tax authorities, using the tax rate and tax laws that have been enact¬
ed or substantively enacted by the Balance Sheet date
Current tax assets and liabilities are offset if, and only if, the Company:
a) has a legally enforceable right to set off the recognized amounts; and
b) intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible tempo¬
rary differences to the extent that it is probable that future taxable profits will be available against
which they can be used. Deferred tax assets are reviewed at each reporting date and are reduced to
the extent that it is no longer probable that the related tax benefit will be realized; such reductions
are reversed when the probability of future taxable profits improves. Unrecognized deferred tax
assets are reassessed at each reporting date and recognized to the extent that it has become proba¬
ble that future taxable profits will be available against which they can be used.
The measurement of deferred tax reflects the tax consequences that would follow from the manner
in which the Company expects, at the reporting date, to recover or settle the carrying amount of its
assets and liabilities.
Deferred tax assets and liabilities are offset only if:
a) the entity has a legally enforceable right to set off current tax assets against current tax liabilities;
and
b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same
taxation authority on the same taxable entity.
G. Fair value measurement
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 econom¬
ic 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 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 (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly Observable
• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
H. Inventories:
i. Finished and Semi-Finished Products produced and purchased by the company are carried at Cost
and net realizable value, whichever is lower.
ii. Work in Progress is carried at lower of cost and net realizable value.
iii. Raw Material is carried at lower of cost and net realizable value.
iv. Stores and Spares parts are carried at cost. Necessary provision is made and expensed in case of
identified obsolete and nonmoving items.
Cost of Inventory is generally ascertained on the ‘Weighted average' basis. Work in progress,
Finished and semi-finished products are valued at on full absorption cost basis.
Cost Comprises expenditure incurred in the normal course of business in bringing such inventories
to its location and includes, where applicable, appropriate overheads based on normal level of
activity. Packing Material is considered as finished goods. Consumable stores are written off in the
year of Purchase.
I. Cash and Cash Equivalents:
Cash and cash equivalents comprise cash on hand and demand deposits, together with other
short-term, highly liquid investments (original maturity less than 3 months) that are readily
convertible into known amounts of cash and which are subject to an insignificant risk of changes in
value.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and
short-term deposits, as defined above, net of outstanding bank overdrafts and cash credits as they
are considered an integral part of the Company's cash management.
J. Employee benefits:
A. Short term employee benefits:
All employee benefits payable wholly within twelve months of rendering the service are classified as
short term employee benefits. Benefits such as salaries, wages, performance incentives, etc. are
recognized at actual amounts due in the period in which the employee renders the related service.
K. Borrowing costs:
General and specific borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset are capitalised during the period of time that is required to complete
and prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a
substantial period of time to get ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.
Other borrowing costs are expensed in the period in which they are incurred.
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