2. BASIS OF PREPARATION AND MATERIAL
ACCOUNTING POLICIES
2.1 Basis of preparation
The financial statements (Separate financial statements)
have been prepared on accrual basis in accordance with
Indian Accounting Standards (Ind AS) notified under the
Companies (Indian Accounting Standards) Rules, 2015
and the provisions of the Companies Act, 2013.
The financial statements have been prepared on a
historical cost basis, except for certain financial assets
and liabilities which have been measured at fair value (refer
accounting policy regarding financial instruments).
The financial statements are presented in Indian Rupees
(“INR” or “C”) and all amounts are rounded to the nearest
lacs, except as stated otherwise.
2.2 Estimates and Judgements
The preparation of the financial statements in conformity
with Ind AS requires management to make estimates,
judgments and assumptions. These estimates, judgments
and assumptions effect the application of accounting
policies and the reported amounts of assets and liabilities,
the disclosures of contingent assets and liabilities at the
date of the financial statements and reported amounts
of revenues and expenses during the period. Application
of accounting policies that require critical accounting
estimates involving complex and subjective judgments
and the use of assumptions in these financial statements
have been disclosed in note 2.23. Accounting estimates
could change from period to period. Actual results may
differ from those estimates. Appropriate changes in
estimates are made as management becomes aware of
changes in circumstances surrounding the estimates.
Changes in estimates are reflected in the financial
statements in the period in which changes are made and,
if material, their effects are disclosed in the notes to the
financial statements.
2.3 Current versus non-current classification
The Company presents assets and liabilities in the balance
sheet based on current/ non-current classification.
An asset is treated as current when it is:
o Expected to be realised or intended to be sold or
consumed in normal operating cycle
o Held primarily for the purpose of trading
o Expected to be realised within twelve months after
the reporting period, or
o Cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least
twelve months after the reporting period
All other assets are classified as non-current.
A liability is current when:
o It is expected to be settled in normal operating cycle
o It is held primarily for the purpose of trading
o It is due to be settled within twelve months after the
reporting period, or
o There is no unconditional right to defer the settlement
of the liability for at least twelve months after the
reporting period
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non¬
current assets and liabilities.
2.4 Property, Plant and Equipment
Freehold/Leasehold land and capital work-in-progress
is carried at cost. All other items of property, plant
and equipment are stated at cost less accumulated
depreciation and accumulated impairment loss, if any.
The cost of an item of property, plant and equipment
comprises of its purchase price, any costs directly
attributable to its acquisition, borrowing costs (wherever
applicable). Subsequent costs are included in the asset's
carrying amount or recognised as a separate asset, as
appropriate, only when 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. All other
repairs and maintenance are charged to profit or loss
during the reporting period in which they are incurred.
The expenditure including Pre-operative expenditure,
incurred during the period of construction is charged to
capital work-in-progress.
Depreciation on property, plant and equipment is
calculated using the Straight Line method (SLM). The
useful lives estimated for the major classes of property,
plant and equipment are as follows:
The useful lives have been determined based on technical
evaluation done by the management's experts, which
is same as the lives as specified by Schedule II to the
Companies Act, 2013. The residual values are not more
than 5% of the original cost/deemed cost of the asset. The
asset's residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each reporting period.
An item of property, plant and equipment and any
significant part initially recognised is derecognised
upon disposal or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising
on de-recognition of the asset is included in the statement
of profit and loss when the asset is derecognised.
2.5 Intangible assets
I ntangible assets acquired separately are measured on
initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortisation and accumulated impairment loss.
The useful lives of intangible assets are assessed as either
finite or indefinite.
Intangible assets with finite lives are amortised on a Written
Down Value Method over the useful economic life and
assessed for impairment whenever there is an indication
that the intangible asset may be impaired. The amortisation
period and the amortisation method for an intangible asset
are reviewed at least at the end of each reporting period
and adjusted, if appropriate. The depreciation on all the
intangible assets i.e. Technical Knowhow and Patents
are charged on the basis of useful life as decided by
the management.
Intangible assets with indefinite useful lives are not
amortised, but are tested for impairment annually.
2.6 Non-current assets held for sale
Non-current assets are classified as held for sale if their
carrying amount will be recovered principally through a
sale transaction rather than through continuing use and a
sale is considered highly probable. They are measured at
the lower of their carrying amount and fair value less costs
to sell.
Non-current assets classified as held for sale and their
related liabilities are presented separately in the balance
sheet. Non-current assets are not depreciated or
amortised while they are classified as held for sale.
2.7 Inventories
Raw Materials, Stores, Spares and Fuel are valued at lower
of cost and net realizable value. However, materials and
other items held for use in the production of inventories
are not written down below cost if the finished products
in which they will be incorporated are expected to be
sold at or above cost. Cost is determined on Weighted
Average basis.
Semi finished goods and finished goods are valued at
lower of cost and net realizable value. Cost includes direct
materials and a proportion of labour and manufacturing
overheads based on operation of the relevant financial
year.
Scrap is valued at estimated realisable value.
Traded goods are valued at cost. Cost is determined on
FIFO basis.
Net realizable value is the estimated selling price in the
ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make
the sale.
2.8 Obsolescence and damaged materials:
The inventory are periodically reviewed to ascertain
dormant/obsolescence material and necessary
adjustments are made thereof.
2.9 Cash and Cash Equivalent
Cash and cash equivalent in the balance sheet comprise
cash at banks and on hand and short-term deposits
maturing within twelve months from the date of balance
Sheet, which are subject to an insignificant risk of changes
in value. Bank overdrafts are shown under borrowings in
the balance sheet.
2.10 Financial Instruments
A. Financial Instruments - Initial recognition and
measurement
Financial assets and financial liabilities are recognised in
the company's statement of financial position when the
company becomes a party to the contractual provisions of
the instrument. The company determines the classification
of its financial assets and liabilities at initial recognition.
All financial assets are recognised initially at fair value
plus, in the case of financial assets not recorded at fair
value through profit or loss, transaction costs that are
attributable to the acquisition of the financial asset.
B.1. Financial assets -Subsequent measurement
The Subsequent measurement of financial assets
depends on their classification which is as follows:
a. Financial assets at fair value through profit or
loss
Financial assets at fair value through profit and loss
include financial assets held for sale in the near term
and those designated upon initial recognition at fair
value through profit or loss.
b. Financial assets measured at amortised cost
Loans and receivables are non derivative financial
assets with fixed or determinable payments that are
not quoted in an active market. Trade receivables
generally do not carry any interest and are stated
at their nominal value as reduced by appropriate
allowance for estimated irrecoverable amounts
based on the ageing of the receivables balance and
historical experience. Additionally, a large number
of minor receivables are grouped into homogenous
groups and assessed for impairment collectively.
Individual trade receivables are written off when
management deems them not to be collectible.
c. Financial assets at fair value through OCI
All equity investments, except investments in
subsidiaries, joint ventures and associates, falling
within the scope of Ind AS 109, are measured at
fair value through Other Comprehensive Income
(OCI). The company makes an irrevocable election
on an instrument by instrument basis to present in
other comprehensive income subsequent changes
in the fair value. The classification is made on initial
recognition and is irrevocable.
If the company decides to designate an equity
instrument at fair value through OCI, then all fair value
changes on the instrument, excluding dividends, are
recognized in the OCI.
B.2. Financial assets -Derecognition
The company derecognises a financial asset when the
contractual rights to the cash flows from the assets expire
or it transfers the financial asset and substantially all the
risks and rewards of ownership of the asset.
Upon derecognition of equity instruments designated at
fair value through OCI, the associated fair value changes
of that equity instrument is transferred from OCI to
Retained Earnings.
C. Investment in subsidiaries, joint ventures and
associates
I nvestments made by the company in subsidiaries, joint
ventures and associates are measured at cost in the
separate financial statements of the company.
D. 1. Financial liabilities -Subsequent measurement
The Subsequent measurement of financial liabilities
depends on their classification which is as follows:
a. Financial liabilities at fair value through profit
or loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading, if any.
b. Financial liabilities measured at amortised
cost
I nterest bearing loans and borrowings taken by the
company are subsequently measured at amortised
cost using the effective interest rate method (EIR).
Amortised cost is calculated by taking into account
any discount or premium on acquisition and fee
or costs that are integral part of the EIR. The
EIR amortised is included in finance costs in the
statement of profit and loss.
D.2. Financial liabilities -Derecognition
A financial liability is derecognised when the obligation
under the liability is discharged or expires.
E. Offsetting financial instruments
Financial assets and financial liabilities are offset and
the net amount reported in the statement of financial
position, if and only if, there is a currently enforceable
legal right to offset the recognised amounts and there
is an intention to settle on a net basis, or to realise the
assets and settle the liabilities simultaneously.
F. Fair value measurement
The company measures certain financial instruments
at fair value at each reporting 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 presumption that
the transaction to sell the asset or transfer the liability
takes place either:
• In the principal market for the assets 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 to the company.
The company uses valuation technique 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.
2.11 Revenue Recognition
Revenue is recognised to the extent that it is probable that
the economic benefits will flow to the Company and the
revenue can be reliably measured, regardless of when
the payment is received. Revenue is measured at the fair
value of the consideration received or receivable, taking
into account contractually defined terms of payment and
excluding taxes, duties or other charges collected on
behalf of the government/authorities.
The specific recognition criteria for the various types of the
company's activities are described below:
Sale of Goods
Revenue from sale of goods is recognised when the
significant risks and rewards of ownership have been
transferred to the buyer, recovery of the consideration is
probable, the associated cost can be estimated reliably,
there is no continuing effective control or managerial
involvement with the goods and the amount of revenue
can be measured reliably.
Sale of Services
Revenue from sale of services is recognised as per
the terms of the contract with buyer based on stage
of completion when the outcome of the transactions
involving rendering of services can be estimated reliably.
Percentage of completion method requires the Company
to estimate the services performed to date as a proportion
of the total services to be performed.
Other Operating Income
I ncentives on exports and other Government incentives
related to operations are recognised in the statement of
profit & loss on receipt of such incentives.
Interest income
Interest income from debt instruments (including Fixed
Deposits) is recognised using the effective interest rate
method. The effective interest rate is that rate that exactly
discounts estimated future cash receipts through the
expected life of the financial asset to the gross carrying
amount of a financial asset. While calculating the effective
interest rate, the company estimates the expected cash
flows by considering all the contractual terms of the
financial instrument (for example, prepayment, extension,
call and similar options) but does not consider the
expected credit losses.
Other Income
Other Income is accounted for on accrual basis except,
where the receipt of income is uncertain.
2.12 Foreign currency transactions
Foreign currency transactions are translated into Indian
rupee using the exchange rates prevailing on the date
of the transaction. Foreign exchange gains and losses
resulting from the settlement of these transactions and
from the translation of monetary assets and liabilities
denominated in foreign currencies at year end exchange
rates are recognised in profit or loss.
2.13 Employee benefits
Short Term employee benefits
Liabilities for wages, salaries and other employee benefits
that are expected to be settled within twelve months of
rendering the service by the employees are classified as
short term employee benefits. Such short term employee
benefits are measured at the amounts expected to be paid
when the liabilities are settled.
Post employment benefits
(a) Defined contribution plans
The company pays provident fund contribution to
publicly administered provident funds as per the local
regulations. The contributions are accounted for as
defined contribution plans and are recognised as
employee benefit expense when they are due.
(b) Defined benefit plans
The liabilities recognised in the balance sheet in
respect of defined benefit plan, namely gratuity and
leave pay, are the present value of the defined benefit
obligation at the end of the year less the fair value
of plan assets, if any. The defined benefit obligation
is calculated by actuaries using the projected unit
credit method.
The present value of the defined benefit obligation
is determined by discounting the estimated future
cash outflows by reference to market yields at the
end of the reporting period on government bonds
that have terms approximating to the terms of the
related obligation.
The net interest cost is calculated by applying
the discount rate to the net balance of the defined
benefit obligation and fair value of plan assets. This
cost is included in employee benefit expense in the
statement of profit and loss.
Remeasurements gains and losses arising from
experience adjustments and changes in actuarial
assumptions are recognised in the period in
which they occur, directly in other comprehensive
income. They are included in the retained earnings
in the statement of changes in equity and in the
balance sheet.
2.14 Finance Costs
Borrowing costs that are attributable to ongoing capital
expenditure of the company are charged to property, plant
and equipment as a part of the cost of such capitalisation.
Other borrowing costs are recognised in the statement of
profit and loss in the period in which they are incurred.
2.15 Selling Costs
Selling expenses related to specific projects/units are
being charged to Statement of Profit and Loss in the year
in which the revenue thereof is accounted and till such
time these costs are carried forward as Unaccrued Selling
Expenses under the head Other Current Assets.
2.16 Leases:-
Company as a 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: (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. The Company's lease asset
classes primarily comprise of lease for land, building,
Machineries and vehicles.
At the commencement of the lease, the Company
recognizes a right-of-use asset (“ROU”) 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 low value leases.
For these short-term and low value leases, the Company
recognizes the lease payments as an operating expense
on a straight-line basis over the term of the lease.
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 and impairment losses
Right-of-use assets are depreciated from the
commencement date on a straight-line basis over the
88 Bajaj Steel Industries Limited
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.
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.
Lease liability and ROU asset are separately presented in
the Balance Sheet and lease payments are classified as
financing cash flows.
2.17 Taxes
Current Tax
The current tax expense for the period is determined as
the amount of tax payable in respect of taxable income for
the period, based on the applicable income tax rates.
Current tax relating to items recognised in other
comprehensive income or equity is recognised in other
comprehensive income or equity, respectively.
Deferred Tax
Deferred tax is provided using the liability method on
temporary differences between the tax bases of assets
and liabilities and their carrying amounts for financial
reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable
temporary differences. Deferred tax assets are recognised
for all deductible temporary differences and, the carry
forward of unused tax credits and any unused tax losses.
Deferred tax assets are recognised to the extent that it is
probable that taxable profit will be available against which
the deductible temporary differences, the carry forward of
unused tax credits and unused tax losses can be utilised.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset
is realised or the liability is settled, based on tax rates (and
tax laws) that have been enacted at the reporting date.
Deferred tax relating to items recognised in other
comprehensive income or equity is recognised in other
comprehensive income or equity, respectively.
Deferred tax assets and deferred tax liabilities are offset
if a legally enforceable right exists to set off current tax
assets against current tax liabilities.
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