3. MaterialAccounting Policies
a) Current versus non-current classification
Based on the time involved between the acquisition of assets for processing and their realization
in cash and cash equivalents, the group has identified twelve months as its operating cycle for
determining current and non-current classification of assets and liabilities in the balance sheet.
b) Fair value measurement
The Company applies fair value measurement where necessary, defined as the price to sell an
asset or transfer a liability in an orderly transaction between market participants on the
measurement date. Fair value is determined in either the principal market or, if absent, the most
advantageous market accessible by the Company.
Assumptions used in fair value measurement of an asset/liability reflect market participants'
economic interests. For non-financial assets, the highest and best use is considered, whether
by use or sale.
Valuation techniques maximize observable inputs and minimize unobservable ones, categorized
within the fair value hierarchy:
Level 1: Quoted prices in active markets for identical items.
Level 2: Techniques using observable inputs.
Level 3: Techniques using unobservable inputs.
Recurring fair value measurements are reassessed each reporting period for proper
categorization. Team leads set policies for fair value measurements, with external valuers involved
as approved by the board, based on market knowledge, reputation, and independence.
For disclosures, assets and liabilities are categorized by nature, risk, and fair value hierarchy
level, detailed in the notes to the Financial Statements.
c) Revenue Recognition
Sale of goods
Revenue is recognized when it is probable that economic benefits will flow to the company and
the revenue can be reliably measured, regardless of payment timing. For goods, revenue is
recognized when risks and rewards of ownership is transferred to the buyer, usually upon dispatch
or as per the termsagreed with the customer.
Revenue is measured at the fair value of consideration received or receivable, including invoice
value after deducting discounts, volume rebates, and applicable taxes, and excluding self¬
consumption.
Rental income
Rental income from operating lease is recognised on a straight-line basis over the term of the
relevant lease, if the escalation is not a compensation for increase in cost inflation index.
Revenues in respect of rental income and hire charges received are recognized in accordance
with the terms of the agreement.
d) Property, plant and equipment
Deemed cost option for first time adopter of Ind AS
Under the previous GAAP (Indian GAAP), the property, plant and equipment were carried in the
balance sheet at cost less accumulated depreciation. The company has elected to continue the
carrying amount of PPE in the existing financials as the deemed cost as at the date of
transition,viz.,1 April 2016.
Presentation
Property, plant, and equipment are recorded at cost minus accumulated depreciation and
impairment losses. Costs include replacements and borrowing costs for qualifying assets.
Significant parts with different useful lives are depreciated separately, while repair and
maintenance costs are expensed immediately.
Advances for acquiring property, plant and equipment are listed as capital advances under non¬
current assets. Costs of assets not yet ready for intended use are listed as capital work in progress.
Component Cost
All significant components of the plant are identified and accounted for separately. Each
component's useful life is analyzed independently, and depreciation is calculated based on
these specific useful lives.
The cost of replacing a part of property, plant, and equipment is added to the carrying amount if
future economic benefits are probable and the cost is measurable. Repair and maintenance
costs are expensed as incurred.
Machinery spares/ insurance spares that can be issued only in connection with an item of fixed
assets and their issue is expected to be irregular are capitalised. Replacement of such spares
ischarged to revenue. Other spares are charged as revenue expenditure as and when consumed
Derecognition
Gains or losses from derecognition of property, plant, and equipment are measured as the
difference between the net disposal proceeds and the carrying amount of the asset. These
gains or losses are recognized in the statement of profit and loss when the asset is derecognized.
e) Depreciation on property, plant and equipment
Depreciation is the systematic allocation of depreciable amount of an asset over its useful life.
The depreciable amount is the cost of an asset less 5% residual value. Depreciation is calculated
using the straight-line method over the useful lives specified in Schedule II to the Companies
Act, 2013.
For new additions, depreciation is calculated on a pro-rata basis from the addition date. For
deletion/ disposals, it's calculated up to the date of sale or discard. Assets costing Rs. 5,000 or
less are fully depreciated, retaining their residual value.
The residual values, estimated useful lives, and depreciation methods are reviewed annually
and adjusted prospectively if needed.
f) Investment property
Investment properties are held to earn rentals and/or for capital appreciation, including properties
under construction for such purposes. They are initially measured at cost, including transaction
costs. Subsequently, they follow the cost model as per Ind AS 16, including costs for replacing
parts and borrowing costs for long-term projects if recognition criteria are met. Significant parts
are depreciated separately based on their useful lives, while repair and maintenance costs are
expensed as incurred.
Depreciation for investment properties follows the useful life prescribed in Schedule II of the
Companies Act, 2013. Investment properties are derecognized upon disposal or when
permanently withdrawn from use with no expected future economic benefits. Gains or losses on
derecognition (difference between net disposal proceeds and carrying amount) are recognized
in the profit and loss statement in the period of derecognition.
g) Inventories
Inventories are carried at the lower of cost and net realisable value. Cost includes cost of purchase
and other costs incurred in bringing the inventories to their present location and condition. Costs
are determined based on weighted average basis.
h) Financial Instruments
Financial assets
Financial assets and financial liabilities are recognised when an entity becomes a party to the
contractual provisions of the instruments.
Initial recognition and measurement
All financial assets are initially recognized at fair value. For financial assets not recorded at fair
value through profit or loss, transaction costs attributable to the acquisition are added. Purchases
or sales of financial assets requiring delivery within a regulated time frame (regular way trades)
are recognized on the trade date, i.e. the date that the Company commits to the transaction.
Subsequent measurement
For subsequent measurement, financial assets are classified based on their contractual cash flow
characteristics and the company's business model for managing them. The classifications are:
l Financial instruments (other than equity instruments) at amortized cost
l Financial instruments (other than equity instruments) at fair value through other
comprehensive income (FVTOCI)
l Other financial instruments, derivatives, and equity instruments at fair value through profit
or loss (FVTPL)
l Equity instruments measured at fair value through other comprehensive income (FVTOCI)
Derecognition
A financial asset is derecognised when:
l The rights to receive cash flows have expired, or
l The Company has transferred its rights to receive cash flows or assumed an obligation to
pass them to a third party, and either:
a) Transferred substantially all risks and rewards of the asset, or
b) Neither transferred nor retained substantially all risks and rewards, but transferred
control of the asset.
If the Company has neither transferred nor retained substantially all risks and rewards nor
transferred control, it continues to recognise the asset to the extent of its continuing involvement,
along with an associated liability. This is measured based on retained rights and obligations.
Continuing involvement, like a guarantee, is measured at the lower of the original carrying
amount or the maximum amount the Company might repay
Impairment of financial assets
In accordance with Ind AS 109, the Company uses 'Expected Credit Loss'(ECL) model, for
evaluating impairment ofFinancial Assets other than those measured at Fair Value Through
Profit and Loss(FVTPL).
Expected Credit Losses are measured through a loss allowance at an amount equal to:
l The 12-months expected credit losses (expected credit losses that result from those default
events on the financial instrument that are possible within 12 months after the reporting
date); or
l Full lifetime expected credit losses (expected credit losses that result from all possible
default events over the life of the financial instrument).
For Trade Receivables the Company follows 'simplified approach' which requires expected lifetime
losses to be recognised from initial recognition of the receivables. The Company uses historical
default rates to determine impairment loss on the portfolio of trade receivables. At every reporting
date these historical default rates are reviewed and changes in the forward-looking estimates
are analysed.
For other assets, the Company uses 12 month ECL to provide for impairment loss where there is no
significant increase incredit risk. If there is significant increase incredit risk full lifetime ECL is used.
Financial liabilities
Initial recognition and measurement
All Financial Liabilities are recognised atfair value and in case of borrowings, net of directly
attributable cost. Fees of recurring nature are directly recognised in the Statement of Profit and
Loss as finance cost.
The Company's financial liabilities include trade and other payables, loans and borrowings(including
bank overdrafts), financial guarantee contracts and derivative financial instruments.
Subsequent Measurement
Financial Liabilities are carried at amortised cost using the effective interest method. For trade
and other payables maturing within one year from the balance sheet date, the carrying amounts
approximate fair value due to the short 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 in the respective carrying amounts is recognised in
the statement of profit or loss.
i) Borrowing Costs
Borrowing costs include interest using the Effective Interest Rate method, ancillary costs
amortisation, and relevant foreign exchange differences.
Borrowing costs directly attributable to a qualifying asset acquisition, construction, or production
are capitalized, based on a weighted average borrowing cost rate. This excludes specific
borrowings for asset purchase. The amount of borrowing cost capitalised during the period does
not exceed the amount of borrowing cost incurred during that period. Other borrowing costs are
expensed when incurred.
Interest income from temporarily invested borrowings for qualifying assets is deducted from
capitalizable borrowing costs. All other borrowing costs are expensed as incurred.
j) Taxes
Current income tax
Current tax assets and liabilities aremeasured at the amount expected to be recovered from or
paid to the Income Tax authorities, based on tax rates and laws that are enacted at the Balance
sheet date.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amountsof assets
and liabilities in the Financial Statements and the corresponding tax bases used in the computation
of taxable profit.
Deferred tax assets are recognised to the extent it is probable that taxable profit will be available
against which the deductible temporary differences, and the carry forward of unused tax losses
can be utilised.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the
period 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 period. The carrying
amount of Deferred tax liabilities and assets are reviewed at the end of each reporting period.
k) Retirement and other employee benefits
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for
the services rendered by employees are recognised as an expense during the period when the
employees render the services.
Defined contribution plans
The Company recognizes provident fund contributions as expenses when employees render
the related services.Excess contributions due but unpaid are recognized as liabilities.Excess
contributions already paid are recognized as assets if they lead to future payment reduction or a
cash refund.
Defined benefit plans
The Company runs a defined benefit gratuity plan in India, contributing to a separate fund.
Benefits are calculated using the projected unit credit method.
Remeasurements, comprising of actuarial gains and losses and the effect of the asset ceiling
(excluding amounts included in net interest on the net defined benefit liability and return on plan
assets), are recognized in the balance sheet. This is done with a corresponding debit or credit to
retained earnings through OCI in the period. Remeasurements are not reclassified to profit or
loss in later periods.
Compensated absences
The Company's policy covers both accumulating and non-accumulating compensated
absences.The expected cost of accumulating absences is determined by an independent actuary
using the projected unit credit method at each balance sheet date. Expenses for non-accumulating
absences are recognized when they occur.
l) Impairment of non-financial assets
At each reporting date, the Company assesses for indicators of asset impairment. If any indication
exists, or during annual impairment testing, the Company estimates the recoverable amount,
which is the higher of fair value less costs of disposal or value in use. Recoverable amount is
determined for individual assets unless cash flows are not largely independent. If carrying amount
exceeds recoverable amount, the asset is impaired and written down.
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