2 Basis of preparation and compliance with
Ind AS
The financial statements comply in all
material aspects with the Indian Accounting
Standards (Ind AS) notified under Section
133 of the Companies Act, 2013 (the Act)
[Companies (Indian Accounting Standards)
Rules, 2015] and other relevant provisions of
the Act.
These financial statements have been prepared
on accrual and going concern basis. The
accounting policies are applied consistently
to the periods presented in the financial
statements.
The financial statements have been prepared
in accordance with the generally accepted
accounting principles in India under the historical
cost convention, except defined employee
retirement benefit obligations which have been
measured at fair value.
2.1 Classification of Assets and Liabilities as
Current and Non-Current
The Company presents assets and liabilities in
the balance sheet based on current/non-current
classification.
The Company has ascertained the operating
cycle as 12 months for the purpose of current
and non-current classification of assets and
liabilities.
An asset Is treated as Current when It is :
- Expected to be realised or intended to be
sold or consumed within normal operating
cycle.
- Held primarily for the purpose of
trading
- Expected to be realised within twelve
months after the reporting period, or
- Cash and cash equivalent unless restricted
from being exchanged or expected to be
settled within twelve months after the
reporting period.
A liability is treated as current when it is:
- Expected to be settled within normal
operating cycle.
- Held primarily for the purpose of
trading.
- Expected to be settled within twelve months
after the reporting period, or
- There is no unconditional right to defer
the settlement of the liability for at
least twelve months after the reporting
period.
All other assets/liabilities are classified as
non-current.
Deferred tax assets and liabilities are classified
as non-current assets/liabilities.
The operating cycle is the time between
the acquisition of the assets for processing
and their realisation in cash and cash
equivalents.
Non-current assets (or disposal groups)
held for sale
Non-current assets, or disposal groups
comprising assets and liabilities, are classified
as held-for sale if it is highly probable that they
will be recovered primarily through sale rather
than through continuing use. Such assets, or
disposal groups, are generally measured at the
lower of their carrying amount and fair value
less costs to sell. Once classified as held-for-
sale, intangible assets and property, plant
and equipment are no longer amortised or
depreciated.
2.3 Measurement of fair value
a. Fair value measurement
The Company measures financial instruments,
such as, derivatives at fair value at each balance
sheet date.
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.
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
For assets and liabilities that are recognised in
the 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.
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.
b. Financial instruments
The estimated fair value of the Company’s
financial instruments is based on market prices
and valuation techniques. Valuations are made
with the objective to include relevant factors
that market participants would consider in setting
a price, and to apply accepted economic and
financial methodologies for the pricing of
financial instruments. References for less active
markets are carefully reviewed to establish
relevant and comparable data.
c. Derivatives
The Company uses derivative financial
instruments, such as forward currency contracts
to hedge its foreign currency risks. Such
derivative financial instruments are initially
recognised at fair value on the date on which
a derivative contract is entered into and are
subsequently re-measured at fair value provided
by the respective banks. Derivatives are carried
as financial assets when the fair value is positive
and as financial liabilities when the fair value
is negative. Any gains or losses arising from
changes in the fair value of derivatives are
taken directly to statement of profit and loss.
2.4 Financial Assets
a. Classification
The Company classifies its financial assets in
the following measurement categories:
- those to be measured subsequently at fair
value (either through other comprehensive
income or through profit or loss), and
- those to be measured at amortised cost.
The classification depends on the Company’s
business model for managing the financial
assets and the contractual terms of the cash
flows.
For assets measured at fair value, gains and
losses will either be recorded in profit or loss
or other comprehensive income. For investments
in debt instruments, this will depend on the
business model in which the investment is held.
For investments in equity instruments, this will
depend on whether the Company has made
an irrevocable election at the time of initial
recognition to account for the equity investment
at fair value through other comprehensive
income. The Company reclassifies debt
investments when and only when its business
model for managing those assets changes.
b. Measurement
At initial recognition, the Company measures
a financial asset at its fair value plus, in the
case of a financial asset not at fair value through
profit or loss, transaction costs that are directly
attributable to the acquisition of the financial
asset. Transaction costs of financial assets
carried at fair value through profit or loss are
expensed in profit or loss.
Equity Instruments
The Company subsequently measures all
equity investments (other than investments in
subsidiaries, associate and joint ventures) at
fair value. Where the Company's management
has elected to present fair value gains and
losses on equity investments in other
comprehensive income, there is no subsequent
reclassification of fair value gains and
losses to profit or loss. Changes in the fair
value of financial assets at fair value through
profit or loss are recognised in ‘Other Gain /
(Losses)’ in the Statement of Profit and Loss.
c. Impairment of Financial Assets
The Company assesses on a forward looking
basis the expected credit losses associated
with its assets carried at amortised cost and
FVOCI debt instruments, if any. The impairment
methodology applied depends on whether there
has been a significant increase in credit risk.
Details how the Company determines whether
there has been a significant increase in credit
risk. Loss on impairment is recognised in the
year in which the impairment becomes certain
beyond reasonable doubt.
For trade receivables, the Company applies a
simplified approach in calculating ECLs.
Therefore, the Company does not track changes
in credit risk, but instead recognises a loss
allowance based on lifetime ECLs at each
reporting date. The Company has established
a provision matrix that is based on its historical
credit loss experience, adjusted for forward
looking factors specific to the debtors and the
economic environment.
d. Modification of Financial Instruments
The Company if renegotiates or otherwise
modifies the contractual cash flows of financial
instrument, the Company assesses whether or
not the new terms are substantially different to
the original terms.
If the terms are substantially different, the
original financial instrument is derecognised
and recognises a ‘new’ instrument at fair value
and recalculates a new effective interest rate
for the instrument. Differences in the carrying
amount are also recognised in profit or loss as
a gain or loss on derecognition.
If the terms are not substantially different,
the renegotiation or modification does not result
in derecognition, and the management
recalculates the gross carrying amount based
on the revised cash flows of the financial asset
and recognises a modification gain or loss in
profit or loss. The new gross carrying amount
is recalculated by discounting the modified
cash flows at the original effective interest rate.
e. Derecognition of Financial Assets
A financial asset is derecognised only when
- the Company has transferred the rights to
receive cash flows from the financial asset or
- retains the contractual rights to receive the
cash flows of the financial asset, but assumes
a contractual obligation to pay the cash flows
to one or more recipients.
Where the entity has transferred an asset, the
Company evaluates whether it has transferred
substantially all risks and rewards of ownership
of the financial asset. In such cases, the financial
asset is derecognised. Where the entity has
not transferred substantially all risks and rewards
of ownership of the financial asset, the financial
asset is not derecognised.
Where the entity has neither transferred a
financial asset nor retains substantially all risks
and rewards of ownership of the financial asset,
the financial asset is derecognised if the
Company has not retained control of the
financial asset. Where the Company retains
control of the financial asset, the asset is
continued to be recognised to the extent of
continuing involvement in the financial asset.
2.5 Financial Liabilities
Initial recognition and measurement
Borrowings, trade payables and other financial
liabilities are initially recognised at the value
of the respective contractual obligations.
Subsequent Measurement
After initial recognition, These are subsequently
measured at amortised cost. Any discount
or premium on redemption/ settlement is
recognised in the Statement of Profit and Loss
as finance cost over the life of the financial
liability using effective interest method and
adjusted to the liability figure disclosed in the
Balance Sheet.
De-recognition of Financial liabilities
Financial liabilities are derecognised when the
liability is extinguished i.e. when the contractual
obligation is discharged, cancelled and on
expiry.
2.6 Offsetting Financial Instruments
Financial assets and liabilities are offset and
the net amount is included in the Balance Sheet
where there is a legally enforceable right to
offset the recognised amounts and there is an
intention to settle on a net basis or realise the
asset and settle the liability simultaneously.
2.7 Impairment of Non-Financial Assets
Assets are tested for impairment whenever
events or changes in circumstances indicate
that the carrying amount may not be
recoverable. Impairment loss, if any, is provided
to the extent, the carrying amount of the asset
or cash generating unit exceed their recoverable
amount. Recoverable amount is the higher of
an asset’s net selling price and the present
value of estimated future cash flows expected
to arise from the continuing use of an asset or
cash generating unit and from its disposal at
the end of its useful life.
Impairment losses recognised in prior years
are reversed when there is an indication that
the impairment losses recognised no longer
exists or have decreased. Such reversals are
recognised as an increase in the carrying
amount of the assets to the extent it does not
exceed the carrying amount that would have
been determined (net of depreciation or
amortization) had no impairment loss been
recognised in previous years.
2.8 Provisions
Provisions are recognised when the Company
has a present obligation (legal or constructive)
as a result of a past event, and it is probable
that an outflow of resources embodying
economic benefits will be required to settle the
obligation and a reliable estimate can be made
of the amount of the obligation. Provisions are
measured at the best estimate of the
expenditure required to settle the present
obligation at the Balance Sheet date.
If the effect of time value of money is material,
provisions are discounted to reflect its present
value using a current pre-tax rate that reflects
the current market assessments of time value
of money and the risks specific to the obligation.
When discounting is used, the increase in the
provision due to passage of time is recognised
as finance cost.
2.9 Contingent Liabilities
Contingent liabilities are disclosed when there
is a possible obligation arising from past events,
the existence of which will be confirmed only
by the occurrence or non-occurrence of one or
more uncertain future events not wholly within
the control of the Company, or when a present
obligation arises from past events where it is
either not probable that an outflow of resources
embodying economic benefits will be required
to settle the obligation or a reliable estimate of
the amount cannot be made.
2.10 Contingent Assets
Contingent assets are not recognised but
disclosed when an inflow of economic benefits
is probable.
2.11 Claims not acknowledged as Debts
Claims against the Company not acknowledged
as debts are disclosed after a careful evaluation
of the facts and legal aspects of the matter
involved.
2.12 Dividends
Interim dividend is recognised in the period in
which it is approved by the Board of Directors
and final dividend in the period in which it is
approved by the Shareholders.
2.13 Employee Benefits
Short Term Employee Benefits
These are recognised at the undiscounted
amount as expense for the Short-term employee
benefits are expensed as the related service
is provided. A liability is recognised for the
amount expected to be paid if the Company
has a present legal or constructive obligation
to pay this amount as a result of past service
provided by the employee and the obligation
can be estimated reliable year in which the
related service is rendered.
Post-Employment Benefit Plans
The Company makes defined contributions to
a Provident Fund scheme, which is recognised
as expenses.
The estimated cost of providing defined benefits
under the Payment of Gratuity Act, 1972 is
calculated by independent actuary using the
projected unit credit method. Service costs and
interest expense are reflected in the Statement
of Profit and Loss. Actuarial gains or losses are
recognised in full under Other Comprehensive
Income.
2.14 Foreign Currencies
The financial statements are presented in Indian
Rupees (INR), the functional currency of the
Company (i.e. the currency of the primary
economic environment in which the entity
operates).
Foreign currency non-monetary items carried
in terms of historical cost are reported using
the exchange rate at the date of the transactions.
2.15 Rounding Off
All amounts disclosed in the financial statements
and notes have been rounded off to the nearest
lakhs or decimals thereof as per the requirement
of Division II of Schedule III to the Companies
Act, 2013, unless otherwise stated.
2.16 Segment reporting
Operating segments are reported in a manner
consistent with the internal reporting provided
to the chief operating decision-maker. Revenue
and expenses are identified to segments on
the basis of their relationship to the operating
activities of the segment. Revenue, expenses,
assets and liabilities which are not allocable to
segments on a reasonable basis, are included
under “Unallocated revenue/ expenses/ assets/
liabilities”.
Segment accounting policies are in line
with the accounting policies of the Company.
In addition, the following specific policies
have been followed for segment reporting:
i) Segment revenue includes sales and other
operational revenue directly identifiable
with/allocable to the segment including
inter segment revenue.
ii) Expenses that are directly identifiable
with/allocable to segments are considered
for determining the segment result.
iii) Most of the centrally incurred costs are
allocated to segments mainly on the basis
of their respective segment revenue
estimated for the reporting period.
iv) Income which relates to the Company as
a whole and not allocable to segments is
included in “unallocable corporate income/
(expenditure)(net)”.
v) Segment resu lts/Segment assets/ Segment
liabilities have not been adjusted for the
exceptional item/s which is/are attributable
to the corresponding segment. The
said exceptional item has been included
in “unallocable corporate income/
(expenditure)(net)”. The corresponding
segment assets have been carried under
the respective segments without adjusting
the exceptional item, if any.
vi) Segment revenue resulting from
transactions with other business segments
is accounted on the basis of transfer price
which are either determined to yield a
desired margin or agreed on a negotiated
basis.
vii) Segment assets and liabilities include those
directly identifiable with the respective
segments. Unallocable corporate assets
and liabilities represent the assets and
liabilities that relate to the Company as a
whole.
2.17 Government Grants and Subsidies
Grants from the government are recognised 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. Government grants that compensate
the Company for expenses incurred are
recognised in the statement of profit and loss,
as income or deduction from the relevant
expense, on a systematic basis in the
periods in which the expense is recognised.
2.18 Critical Estimates and Judgements
Information about the judgements made in
applying accounting policies that have the most
significant effects on the amounts recognised
in the financial statements have been given
below:
Classification of financial assets: assessment
of business model within which the assets are
held and assessment of whether the contractual
terms of the financial asset are solely payments
of principal and interest on the principal amount
outstanding.
The areas involving critical estimates and
judgements are: -
a. Taxation
The Company is subject to tax liability under
the provisions of the Income Tax Act, 1961.
Significant judgement is involved in determining
the tax liability for the Company. Further, there
are many transactions and calculations during
the ordinary course of business for which the
ultimate tax determination is uncertain. Further
judgement is involved in determining the
deferred tax position on the balance sheet.
b. Depreciation and amortisation
Depreciation and amortisation is based on
management estimates of the future useful lives
of the property, plant and equipment and
intangible assets. Estimates may change due
to technological developments and other factors
which may result in changes in the estimated
useful life and in the depreciation and
amortisation charges.
c. Actuarial Valuation for Employee Benefits
The determination of Company’s liability towards
defined benefit obligation to employees is made
through independent actuarial valuation
including determination of amounts to be
recognised in the Statement of Profit and Loss
and in Other Comprehensive Income. Such
valuation depends upon assumptions
determined after taking into account inflation,
seniority, promotion and other relevant factors.
Information about such valuation is provided in
notes to the financial statements.
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