2. MATERIAL ACCOUNTING POLICY
INFORMATION2.1 Basis of preparation and presentation
The financial statements (standalone financial statement)
of the Company have been prepared in accordance with
Indian Accounting Standards (Ind AS) notified under the
Companies (Indian Accounting Standards) Rules, 2015 (as
amended from time to time), presentation requirements
of Division II of Schedule III to the Companies Act, 2013,
(Ind AS compliant Schedule III) and the guidelines issued
by Securities and Exchange Board of India, as applicable to
the financial statements.
The standalone financial statements have been prepared
on a historical cost convention, except for the following
assets and liabilities.
i) Certain financial assets and liabilities measured at
fair value (refer accounting policy regarding financial
instruments).
ii) Land and building measured at fair value.
iii) Defined benefit liabilities are measured at present
value of defined benefit obligation.
iv) Certain financial assets and liabilities at amortised
cost.
Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
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 financial statements have been prepared on accrual
and going concern basis.
The financial statements are presented in INR
"(Indian Rupees)” or "'”. All values are rounded to the
nearest crores, and two decimals thereof, except when
otherwise indicated.
2.2 Significant judgements, accounting
estimates and assumptions
The preparation of the Company's financial statements
in conformity with the Indian Accounting Standards
requires management to make judgements, estimates
and assumptions that affect the reported amounts
of revenues, expenses, assets and liabilities, and the
accompanying disclosures (including contingent liabilities).
The management believes that the estimates used in
preparation of the financial statements are prudent and
reasonable. Uncertainty about these assumptions and
estimates could result in outcomes that require a material
adjustment to the carrying amount of assets or liabilities
affected in future periods.
The Company based its assumptions and estimates
on parameters available when the financial statements
were prepared. Existing circumstances and assumptions
about future developments, however, may change due to
market changes or circumstances arising that are beyond
the control of the Company. Such changes are reflected
in the assumptions when they occur. In the process of
applying the Company's accounting policies, management
has made the following judgements, estimates and
assumptions, which have the most significant effect on the
amounts recognised in the financial statements:
i) Estimation of defined benefit obligation
Employee benefit obligations are determined using actuarial
valuations. An actuarial valuation involves making various
assumptions that may differ from actual developments.
These include the estimation of the appropriate discount
rate, future salary increases and mortality rates. Due to the
complexities involved in the valuation and its long-term
nature, the employee benefit obligation is highly sensitive
to changes in these assumptions. All assumptions are
reviewed at each reporting date.
The parameter most subject to change is the discount
rate. In determining the appropriate discount rate, the
management considers the interest rates of government
bonds with term that correspond with the expected term
of the defined benefit obligation.
The mortality rate is based on publicly available mortality
tables. Those mortality tables tend to change only at
interval in response to demographic changes. Future salary
increases and gratuity increases are based on expected
future inflation rates for the respective countries.
ii) Deferred tax
Deferred tax is recognised in respect of temporary
differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
corresponding amounts used for taxation purposes.
Significant management judgement is required to
determine the amount of deferred tax assets that can
be recognised, based upon the likely timing and the
level of future taxable profits together with future tax
planning strategies.
iii) Useful lives of depreciable/amortisable
assets
Management reviews the estimated useful lives and residual
value of property, plant and equipment and intangibles at
the end of each reporting period. Factors such as changes
in the expected level of usage could significantly impact
the economic useful lives and the residual values of these
assets. Consequently, the future depreciation charge could
be revised and may have an impact on the profit of the
future years.
iv) Provision for expected credit losses of trade
receivables
Trade receivables do not carry any interest and are stated
at their normal value as reduced by appropriate allowances
for estimated irrecoverable amounts. Individual trade
receivables are written off when management believes that
there is uncertainty of collections. Provision is recognised
based on the expected credit losses, which are the present
value of the cash shortfall over the expected life of the
financial assets.
v) Estimation of provision for sales returns and
discounts/schemes
Certain contracts for the sale of stock-in-trade includes
a right of return and discounts/schemes that give rise
to variable consideration. In estimating the variable
consideration, the Company is required to use either the
expected value method or the most likely amount method
based on which method better predicts the amount of
consideration to which it will be entitled.
The Company estimates variable considerations to be
included in the transaction price for the sale returns and
discounts/schemes.
vi) Leases - estimating the incremental
borrowing rate
The Company cannot readily determine the interest rate
implicit in the lease, therefore, it uses its incremental
borrowing rate (IBR) to measure lease liabilities. The IBR is
the rate of interest that the Company would have to pay
to borrow over a similar term, and with 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. The IBR therefore reflects what the Company
'would have to pay', which requires estimation when no
observable rates are available or when they need to be
adjusted to reflect the terms and conditions of the lease.
The Company estimates the IBR using observable inputs
(such as market interest rates) when available and is
required to make certain entity-specific estimates.
vii) Impairment of investment
The impairment provisions for investment are based on
assumptions about risk of default and expected cash loss
rates. The Company uses judgement in making these
assumptions and selecting the inputs to the impairment
calculation, based on Company's past history, existing
market conditions as well as forward-looking estimates at
the end of each reporting period.
The carrying amounts of the Company's non-financial
assets, other than deferred tax assets, are reviewed at the
end of each reporting period to determine whether there is
any indication of impairment. If any such indication exists,
then the asset's recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit
('CGU') is the greater of its value in use and its fair value less
costs to sell. 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
or CGU. For the purpose of impairment testing, assets that
cannot be tested individually are grouped together into the
smallest group of assets that generates cash inflows from
continuing use that are largely independent of the cash
inflows of other assets or groups of assets ('CGU').
Market related information and estimates are used to
determine the recoverable amount. Key assumptions
on which management has based its determination of
recoverable amount include estimated long term growth
rates, weighted average cost of capital and estimated
operating margins. Cash flow projections take into account
past experience and represent management's best
estimate about future developments.
2.3 Current and non-current classification
The Company presents assets and liabilities in the balance
sheet based on current/non-current classification. An asset
is current when it is:
• Expected to be realized or intended to be sold or
consumed in normal operating cycle.
• Held primarily for the purpose of trading.
• Expected to be realized within twelve months after the
reporting period.
• Cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least twelve
months after the reporting period.
Current assets include current portion of non-current of
financial assets.
All other assets are classified as non-current.
A liability is current when it is:
• Expected to be settled in normal operating cycle.
• It is held primarily for the purpose of trading.
• Due to be settled within twelve months after the
reporting period.
• There is no unconditional right to defer settlement
of the liability for at least twelve months after the
reporting period.
Current liabilities includes current portion of non-current
financial liabilities.
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non¬
current assets and liabilities.
The operating cycle is the time between the acquisition of
assets for processing and their realisation in cash and cash
equivalents. The Company has identified twelve months as
its operating cycle.
2.4 Dividend
The Company recognises a liability to make cash or non¬
cash distributions to equity holders of the Company
when the distribution is authorised and the distribution
is no longer at the discretion of the Company. As per the
corporate laws in India, a distribution is authorised when it
is approved by the shareholders. A corresponding amount
is recognised directly in other equity.
2.5 Property, plant and equipment
Recognition and measurement
An item of property, plant and equipment 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. Items of
property, plant and equipment are measured at cost less
accumulated depreciation and accumulated impairment
losses. Cost includes expenditure that is directly attributable
to bringing the asset, inclusive of non-refundable taxes
and duties, to the location and condition necessary for
it to be capable of operating in the manner intended by
management. When parts of an item of property, plant and
equipment have different useful life, they are recognized
separately. Items of spare parts, stand-by equipment
and servicing equipment which meet the definition of
property, plant and equipment are capitalized. Property,
plant and equipment which are not ready for intended use
as on the date of balance sheet are disclosed as 'capital
work-in-progress'.
Land and building are valued at fair value. Surplus from
revaluation is transferred to revaluation reserve. The
revaluation is done annually for land and building.
When significant parts of property, plant and equipment
are required to be replaced at intervals, the Company
recognises such parts as individual assets with specific
useful lives and depreciates them accordingly. Likewise,
when a major inspection is performed, its cost is recognised
in the carrying amount of the plant and equipment as a
replacement if the recognition criteria are satisfied. All
other repair and maintenance costs are recognised in the
statement of profit and loss as incurred.
Depreciation
Depreciation is recognized in the statement of profit or loss
on a written down value over the estimated useful life of
each item of property, plant and equipment. Depreciation
on additions to/deductions from property, plant and
equipment during the year is charged on pro-rata basis
from/up to the date on which the asset is available for use/
disposed.
Depreciation on property, plant and equipment is provided
on their estimated useful life as prescribed by Schedule II of
Companies Act, 2013 as follows:
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 (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is
included in the statement of profit and loss when the asset
is derecognised.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are reviewed
at each financial year end and adjusted prospectively, if
appropriate.
2.6 Intangible assets
Recognition and measurement
Intangible assets include software and trademarks, that
are acquired by the Company, that are measured initially at
cost. After initial recognition, an intangible asset is carried
at its cost less any accumulated amortisation and any
accumulated impairment loss, if any.
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset
and are recognised in the Statement of Profit and Loss
when the asset is derecognised.
Subsequent expenditure
Subsequent expenditure related to an item of intangible
asset is added to its book value only if it increases the future
benefits from the existing asset beyond its previously
assessed standard or period of performance. All other
expenses are charged to the Statement of Profit and Loss
for the year during which such expenses are incurred.
Amortisation
Intangible assets include software and trademarks that are
amortised over the useful economic life of 3-6 years and
10 years respectively. Amortisation is recognized in the
statement of profit or loss on a written down value over the
estimated useful life of each item of intangible asset. The
amortisation period and the amortisation method for an
intangible asset with a finite useful life are reviewed at least
at the end of each reporting period.
2.7 Impairment of non-financial assets
The Company's non-financial assets, other than inventories
and deferred tax 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. For impairment testing, assets that
do not generate independent cash inflows are grouped
together into cash-generating units (CGUs). Each CGU
represents the smallest group of assets that generates cash
inflows that are largely independent of the cash inflows of
other assets or CGUs.
The recoverable amount of a CGU (or an individual asset)
is the higher of its value in use and its fair value less costs
to sell. Value in use is based on the estimated future cash
flows, 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 CGU
(or the asset).
An impairment loss is recognised if the carrying amount of
an asset or CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in the Statement of Profit
and Loss. Impairment loss recognised in respect of a CGU
is allocated to reduce the carrying amounts of the assets of
the CGU (or group of CGUs) on a pro rata basis.
In respect of assets for which impairment loss has been
recognised in prior periods, the Company reviews at each
reporting date whether there is any indication that the loss
has decreased or no longer exists. An impairment loss is
reversed if there has been a change in the estimates used
to determine the recoverable amount. Such a reversal is
made only to the extent that the asset's carrying amount
does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
2.8 Inventories
Inventories are valued at the lower of cost and net realisable
value.
Stock-in-trade
Cost: cost includes cost of purchase and other costs
incurred in bringing the inventories to their present location
and condition. Cost is determined on First In First Out (FIFO)
basis.
Net realisable value (NRV): NRV 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.
2.9 Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise
cash at banks and on hand and short-term deposits with
an original maturity of three months or less, that are readily
convertible to a known amount of cash and which are
subject to an insignificant risk of changes in value.
For the purpose of the standalone statement of cash flows,
cash and cash equivalents consist of cash and short-term
deposits, as defined above, as they are considered an
integral part of the Company's cash management.
2.10 Investment in subsidiary
Investments in subsidiary is carried at cost less accumulated
impairment losses, if any. Where an indication of impairment
exists, the carrying amount of the investment is assessed
and written down immediately to its recoverable amount.
On disposal of these investments, the difference between
net disposal proceeds and the carrying amounts are
recognised in the statement of profit and loss.
2.11 Financial instruments
Recognition and initial measurement
Financial instruments are recognised when the Company
becomes a party to the contractual provisions of the
instrument and are measured initially at fair value adjusted
for transaction costs, except for those carried at fair value
through profit or loss which are measured initially at fair
value. Except for those trade receivables that do not contain
a significant financing component and are measured at the
transaction price in accordance with Ind AS 115. A financial
instrument is measured initially at fair value adjusted for
transaction costs, except for those carried at fair value
through profit or loss (FVTPL) which are measured initially
at fair value. Company measure trade receivables at their
transaction price unless the trade receivables contains a
significant financing component in accordance with Ind AS
115. The general terms of the payment is between 60-180
days and there is no significant financing component.
Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified as
measured at amortised cost or at FVTPL. Financial assets
are not reclassified subsequent to their initial recognition,
except if and in the period the Company changes its
business model for managing financial assets.
A financial asset is measured at amortised cost if it meets
both of the following conditions and is not designated as
at FVTPL:
- the asset is held within a business model whose
objective is to hold assets to collect contractual cash
flows; and
- the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments
of principal and interest on the principal amount
outstanding.
All financial assets not classified as measured at amortised
cost as described above are measured at FVTPL.
For all other equity instruments, the Company decides
to classify the same either as at fair value through other
comprehensive income (FVOCI) or fair value through profit
and loss (FVTPL). On initial recognition, the Company
may irrevocably designate a financial asset that otherwise
meets the requirements to be measured at amortised cost
at FVTPL if doing so eliminates or significantly reduces an
accounting mismatch that would otherwise arise.
Financial assets: Business model assessment
The Company makes an assessment of the objective
of the business model in which a financial asset is held
at a portfolio level because this best reflects the way
the business is managed and information is provided to
management. The information considered includes:
- the stated policies and objectives for the portfolio
and the operation of those policies in practice. These
include whether management's strategy focuses on
earning contractual interest income, maintaining a
particular interest rate profile, matching the duration
of the financial assets to the duration of any related
liabilities or expected cash outflows or realising cash
flows through the sale of the assets;
- how the performance of the portfolio is evaluated and
reported to the Company's management;
- the risks that affect the performance of the business
model (and the financial assets held within that
business model) and how those risks are managed;
- how managers of the business are compensated - e.g.
whether compensation is based on the fair value of
the assets managed or the contractual cash flows
collected; and
- the frequency, volume and timing of sales of financial
assets in prior periods, the reasons for such sales and
expectations about future sales activity.
Transfers of financial assets to third parties in transactions
that do not qualify for derecognition are not considered
sales for this purpose, consistent with the Company's
continuing recognition of the assets.
Financial assets that are held for trading or are managed
and whose performance is evaluated on a fair value basis
are measured at FVTPL.
Financial assets: Assessment whether contractual
cash flows are solely payments of principal and
interest
For the purposes of this assessment, 'principal' is defined
as the fair value of the financial asset on initial recognition.
'Interest' is defined as consideration for the time value of
money and for the credit risk associated with the principal
amount outstanding during a particular period of time and
for other basic lending risks and costs (e.g. liquidity risk and
administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely
payments of principal and interest, the Company considers
the contractual terms of the instrument. This includes
assessing whether the financial asset contains a contractual
term that could change the timing or amount of contractual
cash flows such that it would not meet this condition. In
making this assessment, the Company considers:
- contingent events that would change the amount or
timing of cash flows;
- terms that may adjust the contractual coupon rate,
including variable interest rate features;
- prepayment and extension features; and
- terms that limit the Company's claim to cash flows
from specified assets (e.g. non-recourse features).
A prepayment feature is consistent with the solely payments
of principal and interest criterion if the prepayment amount
substantially represents unpaid amounts of principal and
interest on the principal amount outstanding. Additionally,
for a financial asset acquired at a significant discount or
premium to its contractual par amount, a feature that permits
or requires prepayment at an amount that substantially
represents the contractual par amount plus accrued (but
unpaid) contractual interest is treated as consistent with
this criterion if the fair value of the prepayment feature
is insignificant at initial recognition. Financial assets at
amortised cost are measured at amortised cost using the
effective interest method. Interest income recognised in
Statement of Profit and Loss.
Financial liabilities
Financial liabilities are classified as measured at amortised
cost or FVTPL. A financial liability is classified as at FVTPL
if it is classified as held for trading. Financial liabilities
at FVTPL are measured at fair value and net gains and
losses, including any interest expense, are recognised
in Statement of Profit and Loss. Other financial liabilities
are subsequently measured at amortised cost using the
effective interest method. Interest expense and foreign
exchange gains and losses are recognised in Statement of
Profit and Loss. Any gain or loss on derecognition is also
recognised in Statement of Profit and Loss.
Derecognition
Financial assets
The Company derecognises a financial asset when the
contractual rights to the cash flows from the financial asset
expire, or it transfers the rights to receive the contractual
cash flows in a transaction in which substantially all of the
risks and rewards of ownership of the financial asset are
transferred or in which the Company neither transfers nor
retains substantially all of the risks and rewards of ownership
and does not retain control of the financial asset. If the
Company enters into transactions whereby it transfers
assets recognised on its balance sheet, but retains either all
or substantially all of the risks and rewards of the transferred
assets, the transferred assets are not derecognised.
Financial liabilities
The Company derecognises a financial liability when its
contractual obligations are discharged or cancelled or
expire. The Company also derecognises a financial liability
when its terms are modified and the cash flows under the
modified terms are substantially different. In this case, a new
financial liability based on the modified terms is recognised
at fair value. The difference between the carrying amount
of the financial liability extinguished and the new financial
liability with modified terms is recognised in 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 recognised
amounts and there is an intention to settle on a net basis
to realise the assets and settle the liabilities simultaneously.
2.12 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 the presumption that
the transaction to sell the asset or transfer the liability takes
place either:
i. in the principal market for the asset or liability, or
ii. 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 by the Company.
The fair value of an asset or a liability is measured using
the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into
account a market participant's ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the
asset in its highest and best use.
The Company uses valuation techniques 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.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements 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.
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Company determines
whether transfers have occurred between levels in the
hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting
period.
At each reporting date, the Company's management
analyses the movements in the values of assets and
liabilities which are required to be re-measured or re¬
assessed as per the Company's accounting policies. For
this analysis, the Company's management verifies the
major inputs applied in the latest valuation by agreeing the
information in the valuation computation to contracts and
other relevant documents.
The Company's management also compares the change in
the fair value of each asset and liability with relevant external
sources to determine whether the change is reasonable.
For the purpose of fair value disclosures, the Company has
determined classes of assets and liabilities on the basis of
the nature, characteristics and risks of the asset or liability
and the level of the fair value hierarchy as explained above.
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