2.3 Material Accounting Policies
A. Property, Plant and Equipment and Depreciation
Initial Recognition
All items of property, plant and equipment are initially
measured at cost. The cost of an item of property, plant
and equipment is recognized as an asset if, and only if, it
is probable that future economic benefits associated with
the item will flow to the Company and the cost of the item
can be measured reliably.
Cost includes its purchase price (after deducting trade
discounts and rebates), import duties & non-refundable
purchase taxes, any costs directly attributable to bringing
the asset to the location & condition necessary for it
to be capable of operating in the manner intended by
management, borrowing costs on qualifying assets and
asset retirement costs. 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.
The activities necessary to prepare an asset for its
intended use or sale extend to more than just physical
construction of the asset. It may also include technical
(DPR, environmental, planning, Land acquisition and
geological study) and administrative work such as
obtaining approvals before the commencement of
physical construction.
The cost of replacing a part of an item of property,
plant and equipment is capitalized if it is probable that
the future economic benefits of the part will flow to the
Company and that its cost can be measured reliably. The
carrying amount of the replaced part is derecognized.
Costs of day to day repairs and maintenance costs are
recognized into the Statement of Profit and Loss as
incurred.
Subsequent measurement
Subsequent to recognition, property, plant and equipment
are measured at cost less accumulated depreciation and
any accumulated impairment losses.
The carrying values of property, plant and equipment
are reviewed for impairment when events or changes in
circumstances indicate that the carrying value may not be
recoverable.
The residual values, estimated useful lives and
depreciation method are reviewed at each financial year-
end, and adjusted prospectively, if appropriate.
Depreciation
Depreciation is provided on Straight Line Method, as
per the provisions of Schedule II of the Companies Act,
2013 or based on useful life estimated on the technical
assessment. Asset class wise useful lives are as under:
In respect of additions / deletions to the Property Plant
and Equipment, depreciation is charged from the date the
asset is ready to use / up to the date of deletion.
Depreciation methods, useful lives and residual values
are reviewed at the end of each reporting period, with
the effect of any changes in estimate accounted for on a
prospective basis.
De-recognition
An item of plant and equipment is derecognized 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 is recognized in
the Statement of Profit and Loss in the year the asset is
derecognized.
Capital Work in Progress and Capital Advances
Cost of asset not ready for intended use and assets
under installation or under construction as at the Balance
Sheet date are shown as Capital Work in Progress.
Advances given towards acquisition of property, plant
and equipment outstanding at each Balance Sheet date
are disclosed as Other Non-Current Asset in accordance
with Schedule III to the Companies Act, 2013.
B. Intangible Assets & Amortization
Initial Recognition
Intangible assets acquired separately are initially
measured at cost. Intangible assets are recognized if,
it is probable that the future economic benefits that are
attributable to the asset will flow to the Company and the
cost of the asset can be measured reliably.
Software for internal use, which is primarily acquired from
third-party vendors including consultancy charges for
implementing the software, is capitalized. Subsequent
costs associated with maintaining such software are
recognized as expense as incurred. The capitalized costs
are amortized over a period of the estimated useful life of
the software.
Cost of separately acquired intangible asset includes
its purchase price (after deducting trade discounts and
rebates), import duties & non-refundable purchase taxes,
any costs directly attributable to preparing the asset for
its intended use.
Intangible assets acquired in a business combination
are recognized at fair value at the acquisition date.
Subsequently, intangible assets are carried at cost
less any accumulated amortization and accumulated
impairment losses, if any.
Subsequent measurement and amortization
I ntangible assets are stated at cost of acquisition less
accumulated amortization and accumulated impairment
losses, if any. Subsequent expenditure related to an item
of intangible assets are added to its book value only if
they increase the future benefits from the existing asset
beyond its previously assessed standard of performance.
The carrying values of intangible assets are reviewed for
impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable.
The residual values, estimated useful lives and
amortization method are reviewed at each financial year-
end, and adjusted prospectively, if appropriate.
The useful lives of intangible assets are assessed as
either finite or indefinite. Finite-life intangible assets are
amortized on a straight-line basis over the period of their
estimated useful lives.
The amortization expense is recognized in the Statement
of Profit and Loss unless such expenditure forms part of
carrying value of another asset.
Indefinite-life intangible assets comprises of those assets
for which there is no foreseeable limit to the period over
which they are expected to generate net cash inflows.
These are considered to have an indefinite life, given the
strength and durability of the Company and the level of
marketing support.
For indefinite life intangible assets, the assessment of
indefinite life is reviewed at each financial year end, to
determine whether it continues, if not, it is impaired or
changed prospectively based on revised estimates.
De-recognition
An item of Intangible Assets is derecognized 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 is recognized in
the Statement of Profit and Loss in the year the asset is
derecognized.
C. Inventories
Inventories consisting of raw materials, consumables,
stores and spares, work in progress and finished goods
are measured at the lower of cost and net realizable
value. The cost of all categories of inventories is based
on the weighted average method.
Cost of raw materials, consumables, stores and spares
includes cost of purchases and other costs incurred
in bringing the inventories to its present location and
condition.
Cost of work-in-progress and finished goods comprises
direct material, direct labour and an appropriate proportion
of variable and fixed overhead expenditure. Net realizable
value is the estimated selling price in the ordinary course
of business, less the estimated costs of completion and
costs necessary to make the sale.
The factors that the Company considers in determining
the allowance for slow moving, obsolete and other non¬
saleable inventory include estimated shelf life, planned
product discontinuances, price changes, ageing of
inventory and introduction of competitive new products,
to the extent each of these factors impact the Company's
business and markets. The Company considers all these
factors and adjusts the inventory provision to reflect its
actual experience on a periodic basis.
D. Impairment of Non - Financial Assets
At each reporting date, the Company assesses whether
there is any indication that an asset may be impaired.
Where an indicator of impairment exists, the Company
makes a formal estimate of recoverable amount. Where
the carrying amount of an asset exceeds its recoverable
amount the asset is considered impaired and is written
down to its recoverable amount.
Recoverable amount is the greater of fair value less costs
to sell and value in use. It is determined for an individual
asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets or
group of assets, in which case, the recoverable amount is
determined for the Cash Generating Unit ("CGU") to which
the asset belongs.
In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre- tax
discount rate that reflects current market assessments
of the time value of money and the risks specific to the
asset.
Impairment losses of continuing operations, including
impairment on inventories, are recognized in the
Statement of Profit and Loss, except for properties
previously revalued with the revaluation surplus taken
to Other Comprehensive Income ("OCI"). For such
properties, the impairment is recognized in OCI up to the
amount of any previous revaluation surplus.
After impairment, depreciation or amortization is
provided on the revised carrying amount of the asset over
its remaining useful life.
The impairment assessment for all assets is made at
each reporting date to determine whether there is an
indication that previously recognized impairment losses
no longer exist or have decreased. If such indication
exists, the Company estimates the asset's or CGU's
recoverable amount. A previously recognized impairment
loss is reversed only if there has been a change in the
assumptions used to determine the asset's recoverable
amount since the last impairment loss was recognized.
The reversal is limited so that the carrying amount of the
asset does not exceed its recoverable amount, nor exceed
the carrying amount that would have been determined, net
of depreciation, had no impairment loss been recognized
for the asset in prior years. Such reversal is recognized in
the Statement of Profit and Loss.
E. Financial Assets
Financial assets comprise of investments in equity and
debt securities, mutual funds, loans, trade receivables,
cash and cash equivalents and other financial assets.
Initial recognition
All financial assets except investments in subsidiaries,
associates and jointly controlled entities are recognized
initially at fair value. However, trade receivables that
do not contain a significant financing component are
measured at transaction price. Purchases or sales of
financial asset that require delivery of assets within a
time frame established by regulation or convention in the
market place (regular way trades) are recognized on the
trade date, i.e., the date that the Company commits to
purchase or sell the assets.
Subsequent Measurement
a) Financial assets measured at amortized cost:
Financial assets held within a business model whose
objective is to hold financial assets in order to collect
contractual cash flows and the contractual terms
of the financial assets give rise on specified dates
to cash flows that are solely payments of principal
and interest on the principal amount outstanding
are measured at amortized cost using effective
interest rate (EIR) method. The EIR amortization is
recognized as finance income in the Statement of
Profit and Loss.
The Company while applying above criteria has
classified the following at amortized cost:
a) Loans
b) Trade Receivable
c) Cash and Cash Equivalents
d) Other Financial Assets
b) Financial assets at Fair Value through Other
Comprehensive Income (FVTOCI):
Financial assets held within a business model whose
objective is to hold financial assets in order to collect
contractual cash flows, selling the financial assets
and the contractual terms of the financial assets give
rise on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding are measured at FVTOCI. Fair
Value movements in financial assets at FVTOCI
are recognized in other comprehensive income.
Equity instruments held for trading are classified
at Fair Value through Profit or Loss (FVTPL). For
other equity instruments the Company classifies
the same either at FVTOCI or FVTPL on instrument
to instrument basis. The classification is made on
initial recognition and is irrevocable. Fair value
changes on equity investments at FVTOCI, excluding
dividends are recognized in Other Comprehensive
Income (OCI).
c) Financial Assets at Fair Value through Profit or Loss
(FVTPL)
Financial asset are measured at fair value through
profit or loss if it does not meet the criteria for
classification as measured at amortized cost or at
fair value through other comprehensive income. All
fair value changes are recognized in the Statement
of Profit and Loss.
d) Investment in subsidiaries, joint ventures &
associates are carried at cost in the Financial
Statements. However, a provision for diminution
in value is made to recognize a decline other than
temporary in value of the investments.
Impairment
Financial assets are tested for impairment based on the
expected credit losses in accordance with Ind AS 109 on
the following financial assets:
a) Trade Receivables
An impairment analysis is performed at each
reporting date. The expected credit losses over life
time of the asset are estimated by adopting the
simplified approach using a provision matrix on
its portfolio of trade receivables. which is based
on historical loss rates reflecting current condition
and forecasts of future economic conditions. In
this approach assets are grouped on the basis of
similar credit characteristics such as customer
segment, past due status and other factors which
are relevant to estimate the expected cash loss from
these assets. As a practical expedient, the Company
uses a provision matrix to determine impairment
loss allowance on portfolio of its trade receivables.
The provision matrix is based on its historically
observed default rates over the expected life of the
trade receivables and is adjusted for forward-looking
estimates. At every reporting date, the historical
observed default rates are updated and changes in
the forward-looking estimates are analysed.
b) Other Financial Assets
Other Financial Assets are tested for impairment
based on significant change in credit risk since initial
recognition and impairment is measured based on
probability of default over the life time when there is
significant increase in credit risk.
De-recognition
A financial asset is de recognized only when:
• The Company has transferred the rights to receive
cash flows from the financial asset, or
• The contractual right to receive cash flows from
financial asset is expired, 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 and transferred
substantially all risks and rewards of ownership of
the financial asset, in such cases the financial asset is
derecognized. 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 also derecognized if the Company has not
retained control of the financial asset.
F. Cash and Cash Equivalents
Cash and cash equivalents comprises of bank balances
(including deposits with banks with original maturity of
three months or less) and cash in hand and short-term
investments with an original maturity of three months or
less. Deposits with banks are subsequently measured at
amortized cost and short term investments are measured
at fair value through Statement of Profit and Loss.
G. Non-current Assets held for sale
Non-current assets or disposal groups comprising of
assets and liabilities are classified as 'held for sale' when
all the following criteria are met:
(i) decision has been made to sell,
(ii) t he assets are available for immediate sale in its
present condition,
(iii) the assets are being actively marketed and
(iv) sale has been agreed or is expected to be concluded
within 12 months of the Balance Sheet date.
Subsequently, such non-current assets and disposal
groups classified as 'held for sale' are measured at the
lower of its carrying value and fair value less costs to sell.
Non-current assets held for sale are no longer depreciated
or amortized.
H. Share Capital
Equity Shares are classified as equity.
I. Financial Liabilities
Initial Recognition
Financial liabilities are recognized when, and only
when, the Company becomes a party to the contractual
provisions of the financial instrument. The Company
determines the classification of its financial liabilities at
initial recognition. All financial liabilities are recognized
initially at fair value plus any directly attributable
transaction costs, such as loan processing fees and issue
expenses.
Subsequent Measurement - at amortized cost
After initial recognition, financial liabilities are
subsequently measured at amortized cost using the
effective interest rate (EIR) method. Gains and losses are
recognized in the Statement of Profit and Loss when the
liabilities are de recognized, and through the amortization
process.
De-recognition
A financial liability is de-recognized when the obligation
under the liability is discharged or cancelled or expired.
When an existing financial liability is replaced by another
from the same lender on substantially different terms, or
the terms of an existing liability are substantially modified,
such an exchange or modification is treated as a de¬
recognition of the original liability and the recognition of a
new liability, and the difference in the respective carrying
amounts is recognized in the Statement of Profit and
Loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset
and the net amount is reported in the balance sheet if
there is a currently enforceable legal right to offset the
recognized amounts and there is an intention to settle on
a net basis, to realize the assets and settle the liabilities
simultaneously.
J. Borrowing Costs
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily
takes a substantial period of time to get ready for its
intended use or sale are capitalized as part of the cost
of the respective asset. Capitalisation of borrowing
cost is suspended in the period during which the active
development is delayed due to other than temporary
interruption. All other borrowing costs are expensed
in the period they occur. Borrowing costs consist of
interest, exchange differences arising from foreign
currency borrowings to the extent they are regarded as
an adjustment to the interest cost and other costs that an
entity incurs in connection with the borrowing of funds.
Investment income earned on the temporary investment
of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs
eligible for capitalization.
K. Employee benefits
Employee benefits are charged to the Statement of Profit
and Loss for the year.
Retirement benefits in the form of Provident Fund are
defined contribution scheme and such contributions
are recognized, when the contributions to the respective
funds are due. There are no other obligation other than
the contribution payable to the respective funds.
Gratuity liability is defined benefit obligation and is
provided for on the basis of actuarial valuation on
projected unit credit method made at the end of each
financial year. Re measurement in case of defined
benefit plans gains and losses arising from experience
adjustments and changes in actuarial assumptions are
recognized in the period in which they occur, directly in
other comprehensive income and they are included in the
statement of changes in equity.
Compensated absences are provided for on the basis of
actuarial valuation on projected unit credit method made
at the end of each financial year. Re-measurements as a
result of experience adjustments and changes in actuarial
assumptions are recognized in Statement of Profit and
Loss.
The amount of Non-current and Current portions of
employee benefits is classified as per the actuarial
valuation at the end of each financial year.
L. Income Taxes
Income tax expense is comprised of current and deferred
taxes. Current and deferred tax is recognized in net
income except to the extent that it relates to a business
combination, or items recognized directly in equity or in
other comprehensive income. Current income tax relating
to items recognized outside profit and loss is recognized
outside profit and loss (either in other comprehensive
income or in equity). Current income taxes for the current
period, including any adjustments to tax payable in
respect of previous years, are recognized and measured
at the amount expected to be recovered from or payable
to the taxation authorities based on the tax rates that
are enacted or substantively enacted by the end of the
reporting period.
Deferred income tax assets and liabilities are recognized
for temporary differences between the Financial
Statement carrying amounts of existing assets and
liabilities and their respective tax base using the tax
rates that are expected to apply in the period in which the
deferred tax asset or liability is expected to settle, based
on the laws that have been enacted or substantively
enacted by the end of reporting period.
Deferred tax assets and liabilities are not recognized if
the temporary difference arises from goodwill or from the
initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects
neither the taxable income nor the accounting income.
Deferred tax assets are generally recognized for all
deductible temporary differences to the extent that it is
probable that taxable income will be available against
which they can be utilized. Deferred tax assets are
reviewed at each reporting date and reduced accordingly
to the extent that it is no longer probable that they can be
utilized.
Deferred tax assets and liabilities are offset when there
is legally enforceable right of offset current tax assets
and liabilities when the deferred tax balances relate to the
same taxation authority. Current tax asset and liabilities
are offset where the entity has legally enforceable right
to offset and intends either to settle on a net basis, or
to realize the asset and settle the liability simultaneously.
Deferred Tax relating to items recognized outside profit or
loss is recognized outside profit and loss (either in other
comprehensive income or in equity).
M. Leases
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.
Company as a lessee
The Company assesses whether a contract is or
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:
(i) the contract involves the use of an identified asset
(ii) the Company has substantially all of the economic
benefits from use of the asset through the period of
the lease, and
(iii) the Company has the right to direct the use of the
asset
At date of commencement of leases, the Company
recognizes a right of use asset (ROU) and a corresponding
lease liability for all the lease arrangements, except for
those with a term of twelve month or less (short term
leases) and leases of low value assets. For these leases,
the Company recognizes lease payments as an expense
on straight line basis over the lease term.
Initial Measurement
ROU assets are initially measured at cost that comprises
of the initial amount of lease liability adjusted for any lease
payments made at or prior to the date of commencement,
initial direct costs and lease incentives (if any).
Lease Liability is initially measured at the present value of
future lease payments that are not paid at that date. The
lease payments shall be discounted using the interest
rate implicit in the lease or, if not readily determinable,
incremental borrowing rate.
Subsequent Measurement
ROU assets are subsequently measured at cost less
accumulated depreciation and impairment loss, if any.
ROU is depreciated from the date of commencement on a
straight line basis over the shorter of lease term or useful
life of the underlying asset.
Lease Liability is subsequently measured by increasing
the carrying amount to reflect interest and reducing the
carrying amount to reflect the lease payments made.
The carrying amount of lease liability is remeasured to
reflect any reassessment or lease modification such as
change in lease term.
ROU asset and lease liability are separately presented
in the balance sheet and lease payments have been
classified as financing cash flows.
Company as a lessor
Leases for which the Company is a lessor is classified as
finance or operating lease. Leases in which the Company
does not transfer substantially all the risks and rewards
incidental to ownership of an asset are classified as
operating leases. Lease income from operating leases is
recognized in Statement of Profit and Loss on a straight
line basis over the lease term unless the receipts are
structured to increase in line with expected general
inflation to compensate for the expected inflationary cost
increases.
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