5. SUMMARY OF MATERIAL ACCOUNTING POLICIES
5.1. Current and non-current classification
The Company classifies all assets and liabilities as current
or non-current based on its normal operating cycle and
the criteria specified under Indian Accounting Standards
(Ind AS) and Schedule III of the Companies Act, 2013.
Considering the nature of its services and the timeframe
in which cash and cash equivalents are realized, the
Company has determined its operating cycle to be twelve
months for the purpose of distinguishing current and non¬
current assets and liabilities.
Deferred tax assets and liabilities are always classified
as non-current.
The applicable Ind AS are mandated under Section 133
of the Companies Act, 2013, read together with Rule 3
of the Companies (Indian Accounting Standards) Rules,
2015, along with subsequent amendments. The Company
has consistently applied its accounting policies except
where a new accounting standard has been adopted
for the first time or where a revision to an existing
standard has required a change in the accounting policy
previously followed.
These Financial Statements are presented in Indian
Rupees (H), which is the Company's functional currency.
Unless stated otherwise, all financial figures have been
rounded off to the nearest two decimal places in Lakhs.
5.2. Use of Estimates and Judgements
In the preparation of the standalone financial statements,
the Company makes judgements in the application of
accounting policies; and estimates and assumptions
which affects the carrying values of assets and liabilities
that are not readily apparent from other sources.
The estimates and associated assumptions are based on
historical experience, future outlook and other factors that
are considered to be relevant. Actual results may differ
from these estimates.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised
and future periods affected.
The Company uses the following critical accounting
estimates and judgements in preparation of its standalone
financial statements.
5.2.1. Impairment
The Company determines the recoverable amount
of its cash-generating units (CGUs) by estimating
future cash flows, taking into account current
economic conditions and trends, projected operating
performance and growth rates, as well as anticipated
future economic and regulatory environments.
These cash flow estimates are prepared using the
Company's internal forecasts. The estimated future
cash flows are then discounted to their present value
using an appropriate discount rate.
5.2.2. The measurement of impairment for financial
assets (other than those subsequently measured
at fair value)
The measurement of impairment of financial assets
requires the application of estimates and judgments,
which are further detailed in the note on financial
instruments under the section "Impairment of
Financial Assets."
5.2.3. Useful lives of property, plant and equipment,
right-of-use assets and intangible assets
The Company reviews the estimated useful lives of
property, plant and equipment, right-of-use assets,
and intangible assets at the end of each reporting
period. Any reassessment may lead to changes
in depreciation and amortisation expenses in
future periods.
5.2.4. Provisions and contingent liabilities
A provision is recognized when the Company has a
present obligation, either legal or constructive, arising
from past events, and it is probable that an outflow
of resources will be required to settle the obligation,
provided a reliable estimate can be made. This includes
provisions for decommissioning, site restoration, and
environmental obligations, which may be adjusted if
changes in estimated reserves affect expectations
regarding the timing or cost of these activities. All
provisions are reviewed at each balance sheet date and
updated to reflect the current best estimates.
Significant judgments are applied by the Company in
assessing contingent liabilities. Contingent liabilities
are disclosed when there is a possible obligation
from past events whose existence will be confirmed
only by the occurrence or non-occurrence of one or
more uncertain future events beyond the Company's
control, or where a present obligation exists but
either the outflow of resources is not probable or the
amount cannot be reliably estimated.
Contingent assets are neither recognized nor
disclosed in the standalone financial statements.
5.2.5. Fair value measurements of financial instruments
When the fair value of financial assets and financial
liabilities recognized in the balance sheet cannot
be determined based on quoted prices in active
markets, the Company measures fair value using
valuation techniques, such as the Discounted Cash
Flow (DCF) model. Wherever possible, inputs to these
models are derived from observable market data.
However, when observable data is not available,
the Company applies judgment to establish fair
values, considering factors such as liquidity risk,
credit risk, and market volatility. Changes in these
assumptions could impact the reported fair value of
financial instruments.
5.2.6. Leases
The Company assesses whether an arrangement
qualifies as a lease in accordance with Ind AS 116,
"Leases." Determining whether an arrangement
contains a lease involves significant judgment,
including evaluation of the terms and conditions
such as the lease term, expected renewals, and
the applicable discount rate. Lease payments are
discounted using the interest rate implicit in the
lease, if this rate can be readily identified. If not, the
Company applies its incremental borrowing rate.
5.2.7. Retirement Benefit Obligations
The Company's retirement benefit obligations
are based on several key assumptions, including
discount rates, inflation rates, salary growth,
and mortality rates. These assumptions require
significant judgment, and any changes to them
could materially impact the amounts recognized in
the balance sheet and the statement of profit and
loss. The Company establishes these assumptions
based on historical experience and advice from
independent actuaries. These assumptions are
reviewed annually and updated to reflect actuarial
valuations and experience adjustments.
5.3. Property, Plant and Equipment (PPE)
The cost of property, plant and equipment comprises its
purchase price net of any trade discounts and rebates,
any import duties and other taxes (other than those
subsequently recoverable from the tax authorities), any
directly attributable expenditure on making the asset
ready for its intended use, including relevant borrowing
costs for qualifying assets and any expected costs of
decommissioning. Expenditure incurred after the property,
plant and equipment have been put into operation, such as
repairs and maintenance, are charged to the Statement of
Profit and Loss in the year in which the costs are incurred.
Major shut-down and overhaul expenditure is capitalised
as the activities undertaken improves the economic
benefits expected to arise from the asset.
An item of property, plant and equipment is derecognized
upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any
gain or loss arising on the disposal or retirement of an
item of property, plant and equipment is determined as the
difference between the sales proceeds and the carrying
amount of the asset and is recognised in Statement of
Profit and Loss.
The Company has elected to continue with the carrying
value for all of its property, plant and equipment as
recognised in the standalone financial statements of M/s.
Balu India, proprietary concern, measured as per the
previous GAAP and use that as its deemed cost as at the
date of succession.
Capital Work-in-Progress
These are stated at cost to date relating to projects in
progress, incurred during construction / pre-operative
period (Net of income) incurred during the construction/
pre-operative period and the same is allocated to the
respective property, plant and equipment on the completion
of their construction. Property, plant and equipment not
ready for the intended use on the date of the Balance
Sheet are disclosed as "capital work-in- progress".
Intangible assets
Intangible assets acquired separately are measured on
initial recognition at cost. The cost of intangible assets
acquired in a business succession is their fair value
at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortisation and accumulated impairment losses.
Intangible assets with finite useful lives that are acquired
separately are carried at cost less accumulated amortisation
and accumulated impairment losses. Amortisation is
recognised on a straight-line basis over their estimated
useful lives. The estimated useful life and amortisation
method are reviewed at the end of each reporting year,
with the effect of any changes in estimate being accounted
for on a prospective basis. Intangible assets with indefinite
useful lives that are acquired separately are carried at cost
less accumulated impairment losses.
Depreciation & amortization
Property, plant and equipment except freehold land
held for use in the production, supply or administrative
purposes, are stated in the balance sheet at cost less
accumulated depreciation and accumulated impairment
losses, if any.
Depreciable amount for assets is the cost of an asset,
or other amount substituted for cost, less its estimated
residual value. Depreciation is recognised so as to write off
the cost of assets (other than freehold land and properties
under construction) less their residual values over their
useful lives, using straight-line method as per the useful
life prescribed in Schedule II to the Companies Act, 2013.
The Company has redefined the useful life / residual value
of assets acquired on business succession in accordance
with the terms and conditions set out in the Business
Succession Agreement dated 3 August 2022, on the basis
of detailed technical analysis , taking into account the
nature of the asset, the operating conditions of the asset,
past history of replacement, anticipated technological
changes, manufacturers warranties and maintenance
support, etc. which is depicted in below mentioned table.
Impairment of non-financial assets
At the end of each reporting year, the Company reviews
the carrying amounts of its tangible and intangible assets
to determine whether there is any indication that those
assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the
impairment loss (if any).
Intangible assets with indefinite useful lives and intangible
assets not yet available for use are tested for impairment
at least annually, and whenever there is an indication that
the asset may be impaired.
Recoverable amount is the higher of fair value less
costs to sell and value in use. 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 for which the estimates
of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash generating
unit) is estimated to be less than it's carrying amount, the
carrying amount of the asset (or cash-generating unit) is
reduced to its recoverable amount. An impairment loss is
recognised immediately in the Statement of Profit and Loss.
The carrying amounts of the Company's non-financial
assets are reviewed at each reporting date to determine
whether there is any indication of impairment. If any such
indication exists, then the asset's recoverable amount
is estimated in order to determine the extent of the
impairment loss, if any.
5.4. Investments in subsidiaries, associates and joint
ventures
The investments in subsidiaries, associates and joint
ventures are carried in these standalone financial
statements at historical 'cost' in accordance with the
option available in Ind AS 27, except when the investment,
or a portion thereof, is classified as held for sale, in which
case it is accounted for as Non-current assets held for
sale and discontinued operations. Where the carrying
amount of an investment is greater than its estimated
recoverable amount, it is written down immediately to its
recoverable amount and the difference is transferred to
the Statement of Profit and Loss. On disposal of investment
the difference between the net disposal proceeds and the
carrying amount is charged or credited to the Statement
of Profit and Loss
5.5. Inventories
Inventories are valued at lower of cost on First-In- First-Out
(FIFO) or net realizable value after providing for obsolescence
and other losses, where considered necessary.
Cost of raw materials comprises all costs of purchase and
other costs incurred in bringing the inventories to their
present location and condition. Cost of finished goods
and work in progress include cost of direct materials and
labor and a proportion of manufacturing and other indirect
overheads based on the normal operating capacity but
excluding borrowing costs. Cost of purchased inventory is
determined after deducting rebates and discounts.
Net realizable value is the estimated selling price
in the ordinary course of business, less estimated
costs of completion and estimated costs necessary
to make the sale.
5.6. Revenue Recognition
i. Sale of goods
Revenue is measured at the fair value of the
consideration received or receivable. The Company
recognises revenues on sale of products, net of
discounts, sales incentives, rebates granted, returns,
sales taxes/GST and duties when the products are
delivered to customer or when delivered to a carrier
for export sale, which is when title and risk and
rewards of ownership pass to the customer. Export
incentives are recognised as income as per the
terms of the scheme in respect of the exports made
and included as part of export turnover.
Revenue from sales is recognised when control
of the products has transferred, being when the
products are delivered to the customer, the customer
has full discretion over the channel and price to sell
/ consume the products, and there is no unfulfilled
obligation that could affect the customer's acceptance
of the products. Delivery occurs when the products
have been shipped to the specific location, the risks
of obsolescence and loss have been transferred to
the customer, and either the customer has accepted
the products in accordance with the sales contract or
the acceptance provisions have lapsed.
ii. Interest and dividend 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.
Dividend income from investments is recognized
when the shareholder's right to receive payment has
been established.
5.7. Leases
As a lessee
The Company assesses whether a contract is or contains
a lease, at inception of the contract. That is, if the contract
conveys the right to control the use of an identied asset
for a period of time in exchange for consideration. The
Company applies a single recognition and measurement
approach for all leases, except for short-term leases
having lease term of 12 months or less and leases
of low-value assets. The Company recognises lease
liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets..
Lease liabilities
At the commencement date of the lease, the Company
recognises lease liabilities measured at the present value of
lease payments to be made over the lease term. and includes
the net present value of the following lease payments:
• Lease payments less any lease incentives receivable
• Variable lease payments that are based on an
index or a rate
• Amounts expected to be payable by the Company
under residual value guarantees, if any
• Exercise price of the purchase option, if
the Company is reasonably certain to exercise
that option, and
• Payments of penalties for terminating the
lease, if the lease term reflects the Company
exercising that option.
The lease payments are discounted using Company's
incremental borrowing rate (since the interest rate implicit
in the lease cannot be readily determined). Incremental
borrowing rate is the rate of interest that the Company
would have to pay to borrow over a similar term, and a
similar security, the funds necessary to obtain an asset
of a similar value to the right-of-use asset in a similar
economic environment.
Variable lease payments that depend on any key variable
/ condition, are recognised in profit or loss in the period in
which the condition that triggers those payments occurs.
In case of sale and leaseback transactions, the Company
first considers whether the initial transfer of the
underlying asset to the buyer-lessor is a sale by applying
the requirements of Ind AS 115. If the transfer qualifies as
a sale and the transaction is at market terms, the Company
effectively derecognises the asset, recognises a ROU asset
and corresponding lease liability. When the lease liability
is remeasured, the corresponding adjustment is reflected
in the right-of-use asset or Statement of profit and loss, as
the case may be.
Right-of-use assets
The Company recognises right-of-use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use
assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of right-of-
use assets includes the following:
• The amount of the initial measurement of
lease liability
• Any lease payments made at or before
the commencement date less any lease
incentives received
• Any initial direct costs and
• Restoration costs.
Right-of-use assets are depreciated over the lease term
on a straight-line basis.
Short-term leases and leases of low-value assets
Payments associated with short-term leases of plant and
equipment, buildings and all leases of low-value assets
are recognised on a straight-line basis as an expense in
profit or loss. Short-term leases are leases with lease
term of 12 months or less.
As a lessor:
Lease income from operating leases where the Company
is a lessor is recognised in income on a straight-line basis
over the lease term.
5.8. Foreign Currency Transactions
The functional currency of the Company is Indian
National Rupee (H).
The transactions in currencies other than the entity's
functional currency (foreign currencies) are recognised
at the rates of exchange prevailing at the dates of the
transactions. At the end of each reporting year, monetary
items denominated in foreign currencies are retranslated
at the rates prevailing at that date. Non-monetary items
carried at fair value that are denominated in foreign
currencies are retranslated at the rates prevailing at the
date when the fair value was determined. Non-monetary
items that are measured in terms of historical cost in a
foreign currency are not retranslated.
Exchange differences on monetary items are recognized
in Statement of Profit and Loss in the year in which they
arise except for exchange differences on foreign currency
borrowings relating to assets under construction for
future productive use, which are included in the cost of
those assets when they are regarded as an adjustment to
interest costs on those foreign currency borrowings.
5.9 Income taxes
The income tax expense or credit for the period is the tax
payable on the current period's taxable income based
on the applicable income tax rate for each jurisdiction
adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences and to
unused tax losses..
Current tax
The Company calculates current tax using the tax rates
that have been enacted or substantively enacted by the
end of the reporting period in India, where it operates and
generates taxable income.
Management regularly reviews positions taken in tax
filings, especially in cases where tax regulations are
open to interpretation. Provisions are recognized as
necessary based on the amounts expected to be paid to
the tax authorities..
Deferred tax
Deferred tax is recognised on temporary differences
between the carrying amounts of assets and liabilities in
the standalone financial statements and the corresponding
tax bases used in the computation of taxable profit.
Deferred tax liabilities are recognised for all taxable
temporary differences. Deferred tax assets are recognised
for all deductible temporary differences to the extent that
it is probable that taxable profits will be available against
which those deductible temporary differences can be
utilised. Such deferred tax assets and liabilities are not
recognised if the temporary difference arises from the
initial recognition (other than in a business combination)
of assets and liabilities in a transaction that affects neither
the taxable profit nor the accounting profit. In addition,
deferred tax liabilities are not recognised if the temporary
difference arises from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed
at the end of each reporting year and reduced to the
extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to
be recovered. Unrecognised deferred tax assets are re-
assessed at each reporting date and are recognised to
the extent that it has become probable that future taxable
profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at
the tax rates that are expected to apply in the year in
which the liability is settled or the asset realised, based
on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting year.
Deferred tax assets and deferred tax liabilities are
off set if a legally enforceable right exists to set off
current tax assets against current tax liabilities and
the deferred taxes relate to the same taxable entity
and the same taxation authority.
Current and deferred tax for the year
Current and deferred tax are recognised in profit and
loss, except when they are relating to items that are
recognised in other comprehensive income or directly
in equity, in which case, the current and deferred tax
are also recognised in other comprehensive income
or directly in equity respectively.
Deferred tax assets and liabilities are offset when they
relate to income taxes levied by the same taxation
authority and the relevant entity intends to settle its
current tax assets and liabilities on a net basis.
5.10. Borrowing Cost
Borrowing costs, general or specific, that are directly
attributable to the acquisition or construction of qualifying
assets is capitalised as part of such assets. A qualifying
asset is one that necessarily takes substantial period of
time to get ready for intended use. All other borrowing
costs are charged to the Statement of Profit and Loss.
The Company determines the amount of borrowing
costs eligible for capitalisation as the actual borrowing
costs incurred on that borrowing during the year less
any interest income earned on temporary investment
of specific borrowings pending their expenditure on
qualifying assets, to the extent that an entity borrows
funds specifically for the purpose of obtaining a qualifying
asset. In case if the Company borrows generally and uses
the funds for obtaining a qualifying asset, borrowing costs
eligible for capitalisation are determined by applying a
capitalisation rate to the expenditures on that asset.
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