3. MATERIAL ACCOUNTING POLICIES3.1 Presentation and disclosure of financial statements
All assets and liabilities have been classified as current and non-current as per Company’s
normal operating cycle and other criteria set out in the division II of Schedule III of the
Companies Act, 2013, for a Company whose financial statements are made in compliance
with the Companies (India Accounting Standards) Rules, 2015. Deferred tax liabilities are
classified as non-current liabilities.
Based on the nature of business and their realization in cash and cash equivalents, 12
months has been considered by the Company for the purpose of current/non-current
classification of assets and liabilities.
3.2 Property, plant and equipment
i) Under the previous GAAP property, plant and equipment were carried at historical cost
less depreciation and impairment losses, if any. On transition to Ind AS, the Company
has availed the optional exemption under Ind AS 101 and accordingly it has used the
carrying value as at the date of transition i.e. 1st April 2016 as the deemed cost of the
property, plant & equipment under Ind AS.
ii) Subsequent to transition date, property, plant and equipment are stated at cost of
acquisition less accumulated depreciation and accumulated impairment losses, if
any. Cost of property, plant and equipment includes non-refundable taxes and duties,
borrowing cost directly attributable to the qualifying asset and any directly attributable
costs of bringing the asset to its working condition for its intended use.
iii) Capital work-in-progress comprises of cost incurred on property, plant and equipment
not yet ready for their intended use at the Balance Sheet date. Advances paid towards
the acquisition of property, plant and equipment outstanding at each balance sheet
date is classified as capital advances under other non-current assets and the cost of
assets not put to use before such date are disclosed under 'Capital work-in-progress’.
3.3 Depreciation on property, plant and equipment
a) Depreciation on property, plant and equipment (other than freehold land and capital
work in progress) is provided on SLM over the useful life of the relevant assets net of
residual value whose life is in consonance with the life mentioned in Schedule II of the
Companies Act, 2013.
b) In the case of assets purchased, sold or discarded during the year, depreciation on
such assets is calculated on pro-rata basis from the date of such addition or as the
case may be, upto the date on which such asset has been sold or discarded.
c) Depreciation on addition has been provided from the date of putting the assets into
use.
3.4 Investment properties
Investment properties are measured at cost, including transaction costs.
3.5 Intangible assets
i) Under the previous GAAP intangible Assets acquired separately are measured on
initial recognition at cost. Following initial recognition intangible assets are carried
at cost less any accumulated amortization. On transition to Ind AS, the Company has
availed the optional exemption under Ind AS 101 and accordingly it has used carrying
value as at the date of transition i.e. 1st April 2016 as the deemed cost of intangible
assets under Ind AS.
ii) Subsequent to transition date, Intangible Assets acquired separately are measured
on initial recognition at cost. Following initial recognition intangible assets are carried
at cost less any accumulated amortization. Intangible assets are recognised only if it
is probable that the future economic benefits attributable to the asset will flow to the
enterprise and the cost of asset can be measured reliably.
3.6 Inventories
Inventories are measured at the lower of cost and net realisable value.
Costs incurred in bringing each product to it’s present location and condition are accounted
for as follows:
i) Raw Materials, Packing Materials & Stores & Spares: Costs include cost of purchase
and other costs incurred in bringing the inventories to their present location and
condition. Costs is determined based on FIFO Basis.
ii) Finished Goods and Work in Progress: Costs include cost of purchase and other costs
incurred in bringing the inventories to their present location and condition. Costs is
determined based on FIFO basis.
3.7 Cash and cash equivalents
Cash and cash equivalents include cash in hand, demand deposits with bank and other
short-term (three months or less from the date of acquisition), highly liquid investments
that are readily convertible into cash and which are subject to an insignificant risk of
changes in value.
3.8 Statement of cash flows
Cash flows are reported using the indirect method, whereby profit for the period is adjusted
for the effects of transactions of a non-cash nature, any deferrals or accruals of past or
future operating cash receipts or payments and items of income or expenses associated
with investing or financing cash flows. The cash generated from/(used) in operating,
investing and financing activities of the Company are segregated.
3.9 Trade receivables
Trade receivables are carried at their transaction price, as they do not contain a significant
financing component and are repayable within a short credit period, generally not exceeding
90 days.
The Company has assessed that the time value of money impact is immaterial and
accordingly has not applied the effective interest rate method. Trade receivables are
classified and measured at amortized cost in accordance with Ind AS 109 - Financial
Instruments. The Company uses the simplified approach for impairment assessment, as
permitted under Ind AS 109, whereby lifetime expected credit losses are recognized based
on historical loss experience and forward-looking information.
3.10 Trade and other payables
These amounts represent liabilities for goods and services provided to the Company prior
to the end of the financial year which are unpaid. Trade and other payables are presented
as current liabilities unless payment is not due within 12 months from the reporting date.
These are initially recognized at transaction value and are measured subsequently at
amortized cost. However, as the time between recognition and settlement is short and the
impact of discounting is immaterial, the Company has not applied the effective interest rate
method.
3.11 Investments and other financial assets
Classification and measurement:
The Company classifies its financial assets in the following measurement categories:
i) those to be measured subsequently at fair value (either through other comprehensive
income or through profit or loss)
ii) those measured at amortised cost
iii) those measured at carrying cost for equity instruments of subsidiary companies and
joint venture company
The classification depends on the business model of the Company for managing financial
assets and the contractual terms of the cash flows.
(i) Financial assets at amortised cost
A financial asset shall be measured at amortised cost if both of the following conditions are
met:
(a) the financial asset is held within a business model whose objective is to hold financial
assets in order to collect contractual cash flows; and
(b) the contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest (SPPI) on the principal amount
outstanding.
They are presented as current assets, except for those maturing later than 12 months
after the reporting date which are presented as non-current assets. Financial assets are
measured initially at fair value plus transaction costs and subsequently carried at amortized
cost using the effective interest method, less any impairment loss.
Trade receivables, security deposits, cash and cash equivalents, Loans given, employee
and other advances and eligible current and non-current assets are measured at Amortized
Cost.
(ii) Equity instruments at FVTOCI
All equity instruments are measured at fair value. The Company subsequently measures
all investments in equity instruments other than subsidiary, joint venture and associate
companies/entities and joint operation at fair value. The Company has elected to present
fair value gains and losses on such equity investments in other comprehensive income
and there is no subsequent reclassification of these fair value gains and losses to the
Standalone Statement of Profit and Loss.
Investments in subsidiary companies, associate companies and joint venture company are
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 investments in subsidiary companies, associate
companies and joint venture company, the difference between net disposal proceeds and
the carrying amounts are recognised in the Standalone Statement of Profit and Loss.
3.12 Borrowings
Borrowings are initially recognized at fair value, net of transaction costs, and are
subsequently measured at amortized cost using the effective interest rate method.
3.13 Revenue from contract with customer
Revenue from contracts with customers is recognised when control of the goods or services
are transferred to the customer at an amount that reflects the consideration to which the
Company expects to be entitled in exchange for those goods or services. The Company has
generally concluded that it is the principal in its revenue arrangements because it typically
controls the goods or services before transferring them to the customer.
Sale of goods and rendering of services
Revenue from the sale of products is recognised at the point in time when control is
transferred to the customer. Revenue is measured based on the transaction price, which is
the consideration,net of customer incentives, discounts, variable considerations, payments
made to customers, other similar charges, as specified in the contract with the customer.
Additionally, revenue excludes taxes collected from customers, which are subsequently
remitted to governmental authorities.
Service income is recognised on rendering of services based on the agreements/
arrangements with the concerned parties.
The Company has determined that the revenues as disclosed in Note 18 are disaggregated
into categories that depict how the nature, amount, timing and uncertainty of revenue and
cash flows are affected by economic factors.
Eligible export incentives are recognised in the year in which the conditions precedent are
met and there is no significant uncertainty about the collectability.
Other Income
Interest income in respect to all the Debt Instruments and deposits which are measured
at cost or at fair value through other comprehensive income, is recorded using effective
interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash
payments or receipts over the expected life of the financial instrument or a shorter period,
where appropriate, to the gross carrying amount of the financial asset or to the amortized
cost of a financial liability. Interest Income is included in Other Income in the statement of
profit and loss.
3.14 Foreign currency transactions
Transactions denominated in foreign currencies are recorded at the exchange rates
prevailing on the date of the transaction. As at the Balance Sheet date, foreign currency
monetary assets and liabilities are translated at closing exchange rate. The gains or losses
resulting from such translations are included in net profit in the Statement of Profit and
Loss.
Non-monetary assets and non-monetary liabilities denominated in a foreign currency and
measured at fair value are translated at the exchange rate prevalent at the date when the
fair value was determined. Non-monetary assets and non-monetary liabilities denominated
in a foreign currency and measured at historical cost are translated at the exchange rate
prevalent at the date of the transaction.
Transaction gains or losses realized upon settlement of foreign currency transactions
are included in determining net profit for the period in which the transaction is settled.
Revenue, expense and cash flow items denominated in foreign currencies are translated
into the relevant functional currencies using the exchange rate in effect on the date of the
transaction.
3.15 Employee Benefits
(i) Short-term employee benefits
Short Term employee benefits payable within 12 months of service such as salaries, wages,
bonus, ex-gratia, medical benefits, etc, are recognised in the year in which the employees
render the related service and are presented as current employee benefit obligations.
Termination benefits are recognised as an expense as and when incurred.
(ii) Post-employment obligations
(a) Defined benefit plan
(A) Gratuity
Gratuity liability is a defined benefit obligation and is computed on the basis of an actuarial
valuation by an actuary appointed for the purpose as per projected unit credit method at
the end of each financial year. The liability recognised in the Standalone Balance Sheet
in respect of defined benefit gratuity plans is the present value of the defined benefit
obligation at the end of the reporting period. There is no plan assets created by the
company against this defined benefit obligation.
The present value of the defined benefit obligation is determined by discounting the
estimated future cash outflows with 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 interest cost is calculated by applying the discount rate at the beginning of the period
to the balance of the defined benefit obligation. This cost is included in employee benefit
expense in the Standalone Statement of Profit and Loss.
Reasurement 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 retained earnings in the Statement of changes
in equity and in the Standalone Balance Sheet.
The defined benefit obligation was not recognized until current year. Hence, obligation
pertaining to preceding year has been recognized in Retained earnings as Prior Period item
in Statement of Changes in Equity.
(b) Defined Contribution plan
The contributions to defined contribution schemes such as contribution to provident fund
and employees state insurance scheme are charged as an expense to the Standalone
Statement of Profit and Loss based on the amount of contribution required to be made as
and when services are rendered by the employees. The above benefits are classified as
defined contribution schemes as the Company has no further defined obligations beyond
the monthly contributions.
3.16 Borrowing Cost
Borrowing Costs that are attributable to the acquisition, construction or production of
qualifying assets are capitalized as part of Cost of such assets. A qualifying asset is one
that necessarily takes a substantial period of time to get ready for its intended use. All other
borrowing costs are charged the Statement of Profit & Loss.
3.17 Taxes on income
Tax expenses for the year comprises of current tax, deferred tax charge or credit and
adjustments of taxes for earlier years. In respect of amounts adjusted outside profit or loss
(i.e. in other comprehensive income or equity), the corresponding tax effect, if any, is also
adjusted outside profit or loss.
Provision for current tax is made as per the provisions of Income Tax Act, 1961.
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, and deferred
tax assets are recognised for all deductible temporary differences, carryforward tax
losses and allowances to the extent that it is probable that future taxable profits will be
available against which those deductible temporary differences, carry forward tax losses
and allowances 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 realized or the liability is
settled, based on tax rates (and tax laws) that have been enacted or substantively enacted
at the reporting date. 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 and the
deferred taxes relate to the same taxation authority.
3.18 Goods & Services Tax (GST)
GST credit received on purchases is reduced from respective item of purchases. GST
on Sales is credited to Payable account and differential amount, if any, is paid. Thus, the
company has followed exclusive method of accounting whereby purchases, sales and
stock is shown exclusive of GST and accounted for in separate Account.
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