1.4. Summary of Significant accounting policies
a) Property, Plant & Equipment
Measurement at recognition:
An item of property, plant and equipment that qualifies as an asset is measured on initial recognition at cost. Following
initial recognition, items of property, plant and equipment are carried at its cost less accumulated depreciation and
accumulated impairment losses.
The cost of an item of property, plant and equipment comprises of its purchase price including import duties and other
non-refundable purchase taxes or levies, directly attributable cost of bringing the asset to its working condition for its
intended use and the initial estimate of decommissioning, restoration and similar liabilities, if any. Any trade discounts
and rebates are deducted in arriving at the purchase price. Cost includes cost of replacing a part of a plant and equipment
if the recognition criteria are met. Expenses directly attributable to new manufacturing facility during its construction
period are capitalized if the recognition criteria are met. Expenditure related to plans, designs and drawings of buildings
or plant and machinery is capitalized under relevant heads of property, plant and equipment if the recognition criteria
are met.
Costs in nature of repairs and maintenance are recognized in the Statement of Profit and Loss as and when incurred.
On transition to Ind AS (i.e. 1 April 2020), the Company has elected to continue with the carrying value of all Property,
plant and equipment measured as per the previous GAAP and use that carrying value as the deemed cost of Property,
plant and equipment.
Capital work in progress and Capital advances:
Cost of assets not ready for intended use, as on the balance sheet date, is shown as capital work in progress. Advances
given towards acquisition of fixed assets outstanding at each balance sheet date are disclosed as Other Non-Current
Assets.
Depreciation on each part of an item of property, plant and equipment is provided using the WDV Method based on the
useful life of the assets as prescribed in Schedule II to the Act.
The Estimated useful lives of the assets are as follows:
Asset Class Useful Life
Factory Building 30 years
Plant & Equipment 15 years
Motor Cycle 15 years
Electric Equipment 10 years
Furniture & Fixtures 10 years
Motor Car 8 years
Computers 6 years
The estimated useful life, residual values and depreciation method are reviewed at the end of each reporting period, with
the effect of any changes in estimate accounted for on a prospective basis.
Derecognition:
The carrying amount of an item of property, plant and equipment is derecognized on disposal or when no future
economic benefits are expected from its use or disposal. The gain or loss arising from the Derecognition of an item of
property, plant and equipment is measured as the difference between the net disposal proceeds and the carrying amount
of the item and is recognized in the Statement of Profit and Loss when the item is derecognized.
b) Investment property
Properties held to earn rentals and/or capital appreciation are classified as investment property and are measured and
reported at cost, including transaction costs and borrowing costs capitalised for qualifying assets. Policies with respect to
depreciation, useful life and derecognition are followed on the same basis as stated for PPE above.
c) 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 reflects the consideration to which 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 schemes offered. This variable
consideration is estimated based on the expected value of outflow. Revenue (net of variable consideration) is recognized
only to the extent that it is highly probable that the amount will not be subject to significant reversal when uncertainty
relating to its recognition is resolved.
d) Sale of Products:
The majority of customer contracts that the Company enters into consist of a single performance obligation for the
delivery of super phosphates fertilizers products. The Company recognises revenue from product sales when control of
the product transfers, generally upon shipment or delivery, to the customer, or in certain cases, upon the corresponding
sales by customer to a third party. The Company records product sales net of estimated incentives/discounts, returns,
and other related charges. These are generally accounted for as variable consideration estimated in the same period the
related sales occur. The methodology and assumptions used to estimate rebates and returns are monitored and adjusted
regularly in the light of contractual and legal obligations, historical trends, past experience and projected market
conditions. The revenue for such variable consideration is included in the Company's estimate of the transaction price
only if it is highly probable that a significant reversal of revenue will not occur once any uncertainty is resolved. In making
this assessment the Company considers its historical record of performance on similar contracts.
Revenue is measured based on transaction price, which is the fair value of the consideration received or receivable, stated
net of discounts, returns and goods and services tax. Transaction price is recognized based on the price specified in the
contract, net of the estimated sales incentives/ discounts.
Subsidy:
The Company is engaged in manufacturing of Single super phosphates (SSP) fertilisers. Manufacturing of SSP is covered
by Government of India's NBS Policy for P&K Fertilisers. The Company is entitled for this NBS subsidy on the basis of
actual sale by the retailers to the beneficiaries.
Contract Balances
Contract Assets
A contract asset is the right to consideration inexchange for goods or services transferred to the customer. If the Company
performs by transferring goods or services to a customer before thecustomer pays consideration or before payment is
due, a contract asset is recognised for the earned consideration that is conditional.
Trade Receivable
A receivable represents the Company's right to an amount of consideration that is unconditional (i.e., only the passage
of time is required before payment of the consideration is due).
Contract Liabilities
A contract liability is recognised if a payment is received or a payment is due (whichever is earlier) from a customer before
the Company transfers the related goods . Contract liabilities are recognised as revenue when the Company performs
under the contract (i.e., transfers control of the related goods or services to the customer).
e) Other Income
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the
Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference
to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial
recognition. Interest income is included in 'Other Income' in the Statement of Profit and Loss.
f) Inventories
Inventories encompass goods consumed in production (raw materials, packing materials and stores and spare parts),
goods in the production process for sale (work-in-progress) and goods held for sale in the ordinary course of business
(finished goods). Inventories are recognised at the lower of their cost of acquisition calculated by the weighted average
method and at their net realisable value. The net realisable value is the estimated selling price in the ordinary course of
business less estimated cost of completion and expenses necessary to make the sale.
g) Financial Instruments
I. Financial Assets
Classification
The Company classifies its financial assets either at Fair Value through Profit or Loss (FVTPL), Fair Value through Other
Comprehensive Income (FVTOCI) or at amortised Cost, based on the Company's business model for managing the
financial assets and their contractual cash flows.
The Company at initial recognition measures a financial asset at its fair value plus transaction costs that are directly
attributable to its acquisition. However, transaction costs relating to financial assets designated at fair value through
profit or loss (FVTPL) are expensed in the statement of profit and loss for the year.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
• Debt instruments at amortised cost
• Debt instruments at fair value through other comprehensive income (FVTOCI)
• Debt instruments and equity instruments at fair value through profit or loss (FVTPL)
• Equity instruments measured at fair value through other comprehensive income (FVTOCI)
Debt instruments at amortised cost
Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal
and interest are measured at amortised cost. A gain or loss on such instruments is recognised in profit or loss when the
asset is derecognised or impaired. Interest income from these financial assets is calculated using the effective interest
rate method and is included under the head "Finance income".
Debt instrument at FVTOCI
Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets' cash
flows represent solely payments of principal and interest, are measured at fair value through other comprehensive
income (FVTOCI). Movements in the carrying amount are taken through OCI, except for the recognition of impairment
gains or losses, interest revenue and foreign exchange gains and losses which are recognised in the statement of profit
and loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified
from equity to statement of profit and loss. Interest income from these financial assets is calculated using the effective
interest rate method and is included under the head "Finance income".
Debt instrument at FVTPL
Assets that do not meet the criteria for amortised cost or fair value through other comprehensive income (FVTOCI) are
measured at fair value through profit or loss. Gain and losses on fair value of such instruments are recognised in
statement of profit and loss. Interest income from these financial assets is included in other income.
Equity instruments
All equity instruments 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
subsequent changes in the fair value in OCI. The Company makes such election on an instrument-by- instrument basis.
The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument,
including foreign exchange gain or loss and excluding dividends, are recognised in the OCI. There is no recycling of the
amounts from OCI to profit or loss, even on sale of investment. However, the Company may transfer the cumulative gain
or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognised in the profit
or loss.
Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is
primarily derecognised (i.e. removed from the Company's balance sheet) when:
• The contractual rights to receive cash flows from the asset have expired, or
• The Company has transferred substantially all the risks and rewards of the financial asset or
• The Company has neither transferred nor retained substantially all the risks and rewards of the financial asset
but has transferred control of the financial asset.
Impairment of financial assets
The Company assesses on a forward-looking basis, the expected credit losses associated with its financial assets carried
at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in
credit risk and if so, assess the need to provide for the same in the Statement of Profit and Loss.
II. Financial liabilities and equity instruments
Classification
The Company classifies all financial liabilities at amortised cost or fair value through profit or loss.
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and
borrowings, deposits or as payables, as appropriate. All financial liabilities are recognised initially at fair value and, in the
case of loans and borrowings and payables, net of directly attributable transaction costs.
Subsequent measurement
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. Financial liabilities are classified as held for
trading if they are incurred for the purpose of repurchasing in the near term. Gains or losses on liabilities held for trading
are recognised in the profit or loss.
Loans, borrowings and deposits
After initial recognition, loans, borrowings and deposits are subsequently measured at amortised cost using the effective
interest rate (EIR) method. Gains and losses are recognised in the statement of profit and loss when the liabilities are
derecognised as well as through the EIR amortization process. The EIR amortisation is included in finance costs in the
statement of profit and loss.
Trade and other payables
These amounts represent liabilities for goods and services provided to the Company prior to the end of financial year
which are unpaid. For trade and other payables maturing within one year from the balance sheet date, the carrying
amounts approximate fair value due to the short-term maturity of these instruments.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. 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 the derecognition of the
original liability and the recognition of a new liability. The difference between the carrying amount of the financial liability
derecognised and the consideration paid and payable is recognised in profit or loss.
h) Fair Value Measurement
The Company's accounting policies and disclosures require the measurement of fair values for financial instruments.
The Company has an established control framework with respect to the measurement of fair values. The management
regularly reviews significant unobservable inputs and valuation adjustments.
All assets and liabilities for which fair value is measured or disclosed in the Restated Financial Information 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
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during
which the change has occurred.
i) Trade Receivables and Loans
Trade receivables are initially recognised at fair value. Subsequently, these assets are held at amortised cost, using the
effective interest rate (EIR) method net of any expected credit losses. The EIR is the rate that discounts estimated future
cash income through the expected life of financial instrument.
j) Foreign Currency Transactions
The Restated Financial Information are presented in Indian Rupee, which is the Company's functional and presentation
currency. A company's functional currency is that of the primary economic environment in which the company operates.
Foreign currency transactions are recorded in the reporting currency (Indian rupee) by applying to the foreign currency
amount the exchange rate between the reporting currency and the foreign currency on the date of the transaction.
All monetary items denominated in foreign currency are converted into Indian rupees 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. Non-monetary items in terms of historical cost denominated in a foreign currency are reported using
the exchange rate prevailing on the date of the transaction.
k) Income tax
The income tax expenses comprises current and deferred tax. It is recognised in the statement of profit and loss except
to the extent that it relates to items recognised directly in equity or in other comprehensive income.
Current Tax:
The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the
reporting period.
Deferred Tax:
Deferred tax is recognised in respect of temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amount used for taxation purposes.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the
extent that 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 realised, such reductions are reversed when the probability of future taxable profits improves.
Unrecognised deferred tax assets are measured at each reporting date and recognised to the extent that it has become
probable that future taxable profits will be available against which they can be used. Deferred tax is measured at the tax
rates that are expected to be applied to the temporary differences when they reverse, using tax rates enacted or
substantively enacted at the reporting date.
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.
Minimum Alternate Tax (MAT) credit is recognised as deferred tax 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.
Deferred tax assets and liabilities are measured at the tax rates that have been enacted or substantively enacted by the
balance sheet date and are expected to apply to taxable income in the periods in which those temporary differences are
expected to be recovered or settled.
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