2.2 Summary of material
accounting policiesA. Revenue Recognition:
Sales is exclusive of GST.
Revenue from contracts with
customers:
Revenue is recognized, on the transfer
of promised goods or services, by
way of allocating transaction price,
being amount of consideration which
an entity expects/entitles in exchange
for transferring promised goods or
services to a customer, to the extent of
performance obligation satisfied in a
contract.
i. Satisfaction of performance
obligation over time
a. Revenue is recognised overtime where
the transferof control of goods or services
takes place over time by measuring the
progress towards complete satisfaction
of that performance obligation, if one of
the following criteria is met:
• the company’s performance entitles
the customer to receive and consume
the benefits simultaneously as the
company performs
• the company’s performance creates
or enhances an asset that the
customer controls as the asset is
created or enhanced
• the company’s performance does not
create an asset with an alternative
use to the company and the company
has an enforceable right to payment
for performance completed to date.
b. Progress made towards satisfying a
performance obligation is assessed
based on the ratio of actual costs incurred
on the contract up to the reporting date
to the estimated total costs expected to
complete the contract. If the outcome
of the performance obligation cannot
be estimated reliably and where it is
probable that the costs will be recovered,
revenue is recognized to the extent of
costs incurred.
c. For measurement of satisfaction of
performance obligation over time, input
cost method is adopted.
ii Satisfaction of performance
obligation at a point in time
a. In respect of cases where the transfer
of control does not take place over time,
the company recognizes the revenue
at a point in time when it satisfies the
performance obligations.
b. The performance obligation is satisfied
when the customer obtains control of
the asset. The indicators for transfer of
control include the following:
• the company has transferred
physical possession of the asset
• the customer has legal title to the
asset
• the customer has accepted the asset
• when the company has a present
right to payment for the asset
• the customer has the significant
risks and rewards of ownership of the
asset. The transfer of significant risks
and rewards ownership is assessed
based on the Inco- terms of the
contracts.
c. Bill and hold Sales
Bill and hold sales is recognized when all
the following criteria are met:
• the reason for the bill and hold sales
is substantive
• the product is identified separately
as belonging to the customer
• the product is currently ready for
physical transfer to the customer
• the company does not have the
ability to use the product or to direct
it to another customer.
Penalties & Liquidated damages:
Penalties, including levy of liquidated
damages for delay in delivery, specified
in customer contracts, are not treated
as inherent part in determination of the
Transaction price as per para 51AA of Ind
AS 115 if the same is subject to review by
customer.
Escalation:
Escalation in prices is recognized as
revenue as per the escalation formula
provided in the contract. In the absence
of such a clause in the contract, any
claim for the same is recognized on
acceptance by the customer.
Duty Drawback:
Duty drawback claims on exports are
accounted on preferring the claims.
Revenue from wind energy:
Revenue from generation of electricity
from wind mill is recognized when
the electricity is supplied to industrial
electricity distribution license holder as
per the terms of agreement.
Other Income
(i) Interest income:
Interest Income is recognized using the
effective interest rate (EIR) on a time
proportion basis and as per the terms of
the relevant instrument.
(ii) Dividends:
Dividend income is recognized when the
Company’s right to receive the payment
is established.
(iii) Rental income:
Rental income arising from operating
leases is accounted for on a straight¬
line basis over the non-cancellable lease
term unless increases in rentals are in
line with expected inflation.
B. Investments in associates and
joint venture
The Company accounts for its interests
in associates and joint ventures in the
separate financial statements at cost.
C. Foreign Currencies:
Transactions in foreign currencies are
initially recorded by the Company at
their respective currency exchange
rates at the date the transaction first
qualifies for recognition. Monetary
assets and liabilities denominated in
foreign currencies are translated at the
functional currency exchange rate at
the reporting date. Differences arising
on settlement or translation of monetary
items are recognized in statement of
profit and loss. Non-monetary items
that are measured in terms of historical
cost in a foreign currency are translated
using the exchange rates at the dates of
the initial transactions. Non-monetary
items measured at fair value in a foreign
currency are translated using the
exchange rates at the date when the fair
value is determined.
D. Fair value measurement:
The Company measures certain financial
instruments, such as derivatives and
other items in its financial statements at
fair value at each balance sheet date. All
assets and liabilities for which fair value
is measured or disclosed in the financial
statements are categorized within the
fair value hierarchy.
E. Discontinued operation:
Classification of an operation as a
discontinued operation occurs at the
earlier of disposal or when the operation
meets the criteria to be classified as
held-for-sale. When an operation is
classified as a discontinued operation,
the comparative statement of profit and
loss and other comprehensive income
is re-presented as if the operation had
been discontinued from the start of the
comparative year.
F. Government Grants:
Government Grants are recognized
as follows when there is reasonable
assurance that the grant will be received
and all attached terms and conditions
will be complied with.
(i) Grant towards meeting expenditure
is recognized as income as and when
the expenditure for which the grant is
sanctioned is incurred.
(ii) Grant towards procurement of an
asset is recognized as income in
equal amounts over the expected
useful life of the related asset.
(iii) Grant towards non-monetary assets
are recognized at fair value and
released to Statement of profit and
loss over the expected useful life.
(iv) The subsidized portion of interest
rate provided by the Government on
loans or similar financial assistance
is recognized as grant.
G. Income Taxes:
Current income tax:
Current tax assets and liabilities are
measured at the amount to be recovered
from or paid to the taxation authorities
as per the applicable tax laws at the
reporting date in Statement of profit and
loss.
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 assets are
recognized to the extent it is probable
that taxable profit will be available
against which the deductible temporary
differences can be utilized.
For the items directly recognized in
Equity, the current and deferred tax
pertaining to such item is recognized
through Equity.
H. Property, Plant & Equipment:
Property, Plant and Equipment are stated
at cost, net of accumulated depreciation
and accumulated impairment losses
if any. Cost includes expenditure on
acquisition of asset, present value of
expected cost for the decommissioning
of an asset, cost of replacing part of Plant
and Equipment and borrowing costs.
Depreciation is calculated on a straight¬
line basis over estimated useful lives
as prescribed in schedule II of the
Companies Act 2013. In respect of
the following assets, useful lives are
different than the useful lives indicated
in Schedule II of Companies Act 2013,
based on technical assessment and
management estimates depending on
the nature and usage of the respective
assets.
(a) Special tools up to the unit value of
' 5,000 are charged off in the year
of incurrence and Special tools to
the unit value above ' 5,000 are
amortised over a period of 3 years.
(b) Jigs and fixtures up to the unit value
of ' 5 Lakhs are charged off in the year
of incurrence and Jigs and fixtures
of unit value above ' 5 Lakhs are
amortised over a period of 3 years.
When parts of an item of property, plant
and equipment have different useful
lives, they are treated as separate
components and depreciated over their
estimated useful lives.
The residual values, useful lives and
methods of depreciation are reviewed
at each financial year end and adjusted
prospectively.
Any gain or loss arising out of
derecognizing of an asset is included
in statement of Profit and Loss of the
relevant period.
Products given under No Cost
No Commitment are capitalised
appropriately under the relevant asset
category and amortised over the useful
life of that asset. They are also tested for
impairment periodically.
Expenditure incurred on Developmental
Projects for participating in trials, based
on Request from customers, are carried
forward till conclusion of the trials and
will be amortised over the orders to be
received. In case customer order does
not forthcoming or on discontinuation of
project, the balance amount will be either
capitalised if further economic benefit is
expected from its use or will be charged
off.
I. Investment Property:
Investment properties are stated at cost
less accumulated depreciation and
accumulated impairment loss if any. The
fair value of the Investment property is
disclosed in the notes.
J. Intangible Assets:
(i) Intangible assets acquired are stated
at acquisition cost, less accumulated
amortization and accumulated
impairment losses if any
(ii) Research costs are expensed as
incurred
(iii) Development expenditure is
recognized as Intangible assets
and tested for impairment annually
during the period of development
(iv) Expenditure on development of
products intended for sale is included
in inventory.
(v) Intangible Assets referred above
includes the cost of materials, direct
labour, overhead costs, borrowing
costs that are directly attributable to
the respective asset for its intended
use.
Amortization
Intangible assets are amortized over
useful economic life and assessed
for impairment if any. Where it is not
possible to assess the useful economic
life of an intangible asset, the same is
not amortized and reviewed annually for
impairment if any.
K. Borrowing Cost:
Borrowing costs directly attributable to
creation of an asset are capitalized as
part of the cost of the asset. General
borrowing costs are capitalized by
apportioning the same to qualifying
assets.
L. Lease:
Contracts with third party, which give
the company the right of use in respect
of an identified Asset, are accounted in
line with the provisions of Ind AS 116
- Leases, if the recognition criteria as
specified in the Accounting standard are
met.
A lease is classified at the inception date
as a finance lease or an operating lease
by lessor whereas lessee will follow the
Single lease accounting (i.e. same as
finance lease).
Company as a lessee:
Lessee will recognize right-of-use asset
and lease liability, for all leases, except
short term lease and leases for which
underlying asset is of low value.
Short term lease is a lease that, at the
commencement date, has a lease
term of 12 months or less and does not
contain a purchase option.
An underlying asset can be of low value
only if:
(a) the lessee can benefit from use of
the underlying asset on its own or
together with other resources that
are readily available to the lessee;
and
(b) The underlying asset is not highly
dependent on, or highly interrelated
with, other assets.
The initial value of lease liability shall
be determined at the present value of
the lease payments due. The interest
rate implicit in the lease or lessee's
incremental borrowing may be used to
arrive at the present value of the lease
payments due. The lease liability is
subsequently measured by increasing
the carrying amount to reflect interest
on the lease liability and reducing the
carrying amount to reflect the lease
payments made.
Leases will be recognized where the
value of new individual asset is more
than ' 2 Lakhs.
At the commencement date, the
company as lessee measures the right
of use asset at cost. The cost of “right of
use” asset is determined at the present
value of outstanding lease payments
plus any initial direct cost and estimated
cost, if any, of dismantling and removing
the underlying asset and presented as
part of Plant, property and equipment
schedule in the Balance Sheet.
Lessee would recognize depreciation
expense on the right of use asset
using the straight-line method from the
commencement date to the end of lease
term or useful life of the asset, whichever
is earlier.
Company as a lessor:
In case of an operating lease, initial
direct costs incurred in negotiating and
arranging the lease are added to the
carrying amount of the leased asset. In
case of finance leases, amounts due from
lessees are recorded as receivables.
M. Inventory:
Inventories are valued at the lower of
cost and net realizable value. Cost for
the purpose of the above is accounted
as under:
(i) Raw materials, Components, Stores
and Spare parts: weighted average
cost
(ii) Finished goods and Work in
Progress: Cost of materials, labour
and production overheads
Scrap is valued at estimated realizable
value.
Based on ageing assessment, on a
periodic basis an allowance is recognized
for obsolete, non-moving inventory.
N. Impairment of non-financial
assets:
The company assesses at each
reporting date for impairment of asset
or cash generating units (CGU). If
on assessment, the asset or CGU is
considered impaired they are written
down to the recoverable amount.
O. Employee Benefits:
Short-term employee benefits:
Short-term employee benefits are
expensed as the related service is
rendered.
Defined benefit plans:
The Company’s net obligation in respect
of defined benefit plans is calculated
separately for each plan by actuarial
valuation conducted annually by a
qualified actuary using the projected unit
credit method.
Actuarial gains and losses and the return
on plan assets (excluding interest) and
the effect of the asset ceiling (if any,
excluding interest), are recognized
immediately in other comprehensive
income (OCI). Net interest expense
(income) on the net defined liability
(assets) is recognized in the statement
of profit and loss. When the benefits
of a plan are changed or when a plan is
curtailed, the resulting change in benefit
that relates to past service or the gain
or loss on curtailment is recognized
immediately in the statement of profit
and loss.
Other long-term employee benefits:
The Company’s net obligation in respect
of long-term employee benefits is the
amount of future benefits that employees
have earned in return for their service in
the current and prior periods. The benefit
is discounted to determine its present
value. Re-measurements are recognized
in the statement of profit and loss in the
period in which they arise.
Defined contribution plan:
For defined contribution plans, the
Company contributes to independently
administered funds as per relevant
scheme. These contributions are
recorded in the statement of profit and
loss. The Company's liability is limited
to the extent of contributions made to
these funds.
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