2 Material accounting policies
a. Financial instruments
i. Recognition and initial measurement
Trade receivables and debt securities issued are initially
recognised when they are originated. All other financial assets
and financial liabilities are initially recognised when the Company
becomes a party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair
value plus, for an item not at fair value through profit and loss
(FVTPL), transaction costs that are directly attributable to its
acquisition or issue.
Trade receivables generally do not contain any significant
financing component requiring separation and are therefore
recognized initially at the transaction price determined as per
Ind AS 115 "Revenue from Contracts with Customers".
ii. Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified as measured at
— Amortised cost;
— Fair value through other comprehensive income (FVOG) -
equity investment; or
— Fair value through profit and loss (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.
A debt investment is measured at FVOCI 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 achieved by both collecting contractual cash flows and
selling financial assets; 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.
On initial recognition of an equity investment that is not held
for trading, the Company may irrevocably elect to present
subsequent changes in the investment's fair value in OCI
(designated as FVOCI - equity investment). This election is made
on an investment- by- investment basis.
All financial assets not classified as measured at amortised cost or
FVOCI as described above are measured at FVTPL. This includes
all derivative financial assets. On initial recognition, the Company
may irrevocably designate a financial asset that otherwise meets
the requirements to be measured at amortised cost or at FVOCI
as at FVTPL if doing so eliminates or significantly reduces an
accounting mismatch that would otherwise arise.
Equity investments
All equity investments in scope of Ind AS 109 are measured
at fair value. Equity instruments which are held for trading
and contingent consideration recognised by an acquirer in a
business combination to which Ind AS 103 applies are classified
as at FVTPL. For all other equity instruments, the Company may
make an irrevocable election to present in other comprehensive
income subsequent changes in the fair value. The Company
makes such election on an instrument-by-instrument basis. The
classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at
FVOCI, then all fair value changes on the instrument, excluding
dividends, are recognised in the OCI. There is no recycling of
the amounts from OCI to the Statement of Profit and Loss, even
on sale of investment. However, the Company may transfer the
cumulative gain or loss to retained earnings. Equity instruments
included within the FVTPL category are measured at fair value
with all changes recognised in the Statement of Profit and Loss.
Investments in subsidiaries
Equity investments in subsidiaries 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 subsidiaries, the difference
between net disposal proceeds and the carrying amounts are
recognised in the Statement of Profit and Loss.
Financial assets: Subsequent measurement and gains and losses
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, or it is a derivative or it is designated as such
on initial recognition. 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.
iii. 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.
When the Company has transferred its rights to receive
cash flows from an asset or has entered into a pass-through
arrangement, it evaluates if and to what extent it has retained the
risks and rewards of ownership. When it has neither transferred
nor retained substantially all of the risks and rewards of the asset,
nor transferred control of the asset, the Company continues to
recognise the transferred asset to the extent of the Company's
continuing involvement. In that case, the Company also
recognises an associated liability. The transferred asset and the
associated liability are measured on a basis that reflects the rights
and obligations that the Company has retained.
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.
iv. Offsetting
Financial assets and financial liabilities are offset and the net
amount presented in the balance sheet when, and only when,
the Company currently has a legally enforceable right to set off
the amounts and it intends either to settle them on a net basis or
to realise the asset and settle the liability simultaneously.
v. Derivative financial instruments and hedge accounting
The Company holds derivative financial instruments to hedge
its foreign currency and interest rate risk exposures. Embedded
derivatives are separated from the host contract and accounted
for separately if the host contract is not a financial asset and
certain criteria are met.
Derivatives are initially measured at fair value. Subsequent to
initial recognition, derivatives are measured at fair value, and
changes therein are generally recognised in statement of profit
and loss.
The Company designates certain derivatives as hedging
instruments to hedge the variability in cash flows associated
with highly probable forecast transactions arising from changes
in foreign exchange rates and interest rates.
At inception of designated hedging relationships, the Company
documents the risk management objective and strategy for
undertaking the hedge. The Company also documents the
economic relationship between the hedged item and the
hedging instrument, including whether the changes in cash
flows of the hedged item and hedging instrument are expected
to offset each other.
vi. Cash flow hedges
When a derivative is designated as a cash flow hedging
instrument, the effective portion of changes in the fair value of
the derivative is recognised in OCI and accumulated in other
equity under 'effective portion of cash flow hedges'. The effective
portion of changes in the fair value of the derivative that is
recognised in OCI is limited to the cumulative change in fair
value of the hedged item, determined on a present value basis,
from inception of the hedge. Any ineffective portion of changes
in the fair value of the derivative is recognised immediately in
statement of profit and loss.
If a hedge no longer meets the criteria for hedge accounting
or the hedging instrument is sold, expires, is terminated or is
exercised, then hedge accounting is discontinued prospectively.
When hedge accounting for cash flow hedges is discontinued,
the amount that has been accumulated in other equity remains
there until, for a hedge of a transaction resulting in recognition
of a non-financial item, it is included in the non-financial item's
cost on its initial recognition or, for other cash flow hedges, it is
reclassified to profit or loss in the same period or periods as the
hedged expected future cash flows affect profit or loss.
If the hedged future cash flows are no longer expected to occur,
then the amounts that have been accumulated in other equity
are immediately reclassified to statement of profit and loss.
vii. Treasury shares
The Company has created an Employee Welfare Trust (EWT) for
providing share-based payment to its employees. Own equity
instruments that are reacquired (treasury shares) are recognised
at cost and deducted from equity. When the treasury shares
are issued to the employees by EWT, the amount received is
recognised as an increase in equity and the resultant gain/(loss)
is transferred to/from securities premium.
viii. Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise
cash at banks and on hand and short-term deposits with an
original maturity of three months or less, which are subject
to an insignificant risk of changes in value. For the purpose of
the statement of cash flows, cash and cash equivalents consist
of cash and short-term deposits, as defined above, net of
outstanding bank overdrafts as they are considered an integral
part of the Company's cash management.
Cash dividend to equity holders
The Company recognises a liability to make cash distribution
to equity holders 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 equity. Interim dividends are recorded as
a liability on the date of declaration by the Company's Board of
Directors.
b. Property, plant and equipment
i. Recognition and measurement
Items of property, plant and equipment are measured at cost less
accumulated depreciation and accumulated impairment losses,
if any. The cost of an item of property, plant and equipment
comprises the cost of materials and direct labor, any other
costs including import duty and other non refundable taxes
or levies, that are directly attributable to bringing the item to
working condition for its intended use, and estimated costs of
dismantling and removing the item and restoring the site on
which it is located.
Expenditure incurred on startup and commissioning of the
project and/or substantial expansion, including the expenditure
incurred on trial runs (net of trial run receipts, if any) up to
the date of commencement of commercial production are
capitalised. If significant parts of an item of property, plant and
equipment have different useful lives, then they are accounted
for as separate items (major components) of property, plant and
equipment.
Any gain or loss on disposal of an item of property, plant and
equipment is recognised in statement of profit and loss.
Subsequent expenditure is capitalised only if it is probable that
the future economic benefits associated with the expenditure
will flow to the Company and cost can be measured reliably.
Advances paid towards acquisition of property, plant and
equipment outstanding at each Balance Sheet date, are shown
under other non-current assets and cost of assets not ready for
intended use before the year end, are shown as capital work-in¬
progress.
ii. Depreciation
Depreciation is calculated on cost of items of property, plant
and equipment less their estimated residual values over their
estimated useful lives using the straight-line method. Freehold
land is not depreciated.
Depreciation method, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate. Based on technical
evaluation and consequent advice, the management believes that its estimates of useful lives as given above best represent the period over which
management expects to use these assets.
Depreciation on additions (disposals) is provided on a pro-rata basis i.e. from (upto) the date on which asset is ready for use (disposed of).
iii. Reclassification to investment property
When the use of a property changes from owner-occupied to investment property, the property is reclassified as investment property at its
carrying amount on the date of reclassification.
c. Intangible assets
Internally generated: Research and development
Expenditure on research activities is recognised in statement of profit
and loss as incurred.
Development expenditure is capitalised as part of the cost of the
resulting intangible asset only if the expenditure can be measured
reliably, the product or process is technically and commercially feasible,
future economic benefits are probable, and the Company intends to
and has sufficient resources to complete development and to use or
sell the asset. Otherwise, it is recognised in statement of profit and loss
as incurred. Subsequent to initial recognition, the asset is measured at
cost less accumulated amortisation and any accumulated impairment
losses.
Others
Other intangible assets are initially measured at cost. Subsequently,
such intangible assets are measured at cost less accumulated
amortisation and any accumulated impairment losses.
i. Subsequent expenditure
Subsequent expenditure is capitalised only when it increases
the future economic benefits embodied in the specific asset to
which it relates. All other expenditure, including expenditure on
brands, is recognised in statement of profit and loss as incurred
and cost can be measured reliably.
ii. Amortisation
Intangible assets are amortised on a straight line basis over the
estimated useful life as follows:
— Computer software 3-5 years
— Marketing and Manufacturing rights 5-10 years
— Customer related intangibles 5 years
— Intellectual property rights 5-10 years
Amortisation method, useful lives and residual values are reviewed at
the end of each financial year and adjusted if appropriate.
d. Investment property
Investment property is property held either to earn rental income or
for capital appreciation or for both, but not for sale in the ordinary
course of business, use in the production or supply of goods or
services or for administrative purposes. Upon initial recognition,
an investment property is measured at cost. Subsequent to initial
recognition, investment property is measured at cost less accumulated
depreciation and accumulated impairment losses, if any.
Based on technical evaluation and consequent advice, the
management believes a period of 25 years as representing the best
estimate of the period over which investment properties (which are
quite similar) are expected to be used. Accordingly, the Company
depreciates investment properties over a period of 25 years on a
straight-line basis. The useful life estimate of 25 years is different from
the indicative useful life of relevant type of buildings mentioned in Part
C of Schedule II to the Act i.e. 30 years. Any gain or loss on disposal of
an investment property is recognised in statement of profit and loss.
e. Business combination
In accordance with Ind AS 103, Business combinations, the Company
accounts for business combinations after acquisition date using the
acquisition method when the acquired set of activities and assets
meets the definition of a business and control is transferred to the
Company. In determining whether a particular set of activities and
assets is a business, the Company assesses whether the set of assets
and activities acquired includes, at minimum, an input and substantive
process and whether the acquired set has the ability to produce
output.
The consideration transferred in the acquisition is measured at the
fair value of the assets given, equity instruments issued and liabilities
incurred or assumed at the date of exchange. The cost of acquisition
also includes the fair value of any contingent consideration and
deferred consideration, if any. Any goodwill that arises is tested
annually for impairment. Any gain on a bargain purchase is recognised
in OCI and accumulated in equity as capital reserve if there exists
clear evidence of the underlying reasons for classifying the business
combination as resulting in a bargain purchase; otherwise the gain is
recognised directly in equity as capital reserve. Transaction costs are
expensed as incurred.
Business combinations between entities under common control is
accounted for at carrying value.
f. Inventories
Inventories are measured at the lower of cost and net realisable value.
The cost of inventories is based on the first-in first-out formula, and
includes expenditure incurred in acquiring the inventories, production
or conversion costs and other costs incurred in bringing them to
their present location and condition. In the case of manufactured
inventories and work-in-progress, cost includes an appropriate share
of fixed production overheads based on normal operating capacity.
Provisions are made towards slow-moving and obsolete items based
on historical experience of utilisation on a product category basis,
which consideration of product lines and market conditions.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and selling
expenses. The net realisable value of work-in-progress is determined
with reference to the selling prices of related finished products.
Raw materials, components and other supplies held for use in the
production of finished products are not written down below cost
except in cases where material prices have declined and it is estimated
that the cost of the finished products will exceed their net realisable
value.
The comparison of cost and net realisable value is made on an item-
by-item basis.
g. Foreign currency Transactions and translations:
Foreign currency transactions are translated into the functional
currency using the exchange rates at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation of monetary assets and
liabilities denominated in foreign currencies at balance sheet date
exchange rates are generally recognised in Statement of Profit and
Loss.
Non-monetary items that are measured at fair value in a foreign
currency are translated using the exchange rates at the date when
the fair value was determined. Translation differences on assets and
liabilities carried at fair value are reported as part of the fair value gain
or loss. For example translation differences on non-monetary assets
such as equity investments classified as FVOCI are recognised in other
comprehensive income (OCI).
h. Impairment
i. Impairment of financial assets
In accordance with Ind AS 109 Financial Instruments, the
Company applies expected credit loss ("ECL") model for
measurement and recognition of impairment loss on following:
— financial assets measured at amortised cost; and
Loss allowance for trade receivables with no significant
financing component is measured at an amount equal to
lifetime expected credit losses. For all other financial assets,
ECL are measured at an amount equal to the 12-month ECL,
unless there has been a significant increase in credit risk
from initial recognition in which case those are measured
at lifetime ECL.
Loss allowance for financial assets measured at amortised
cost are deducted from gross carrying amount of the assets.
ii. Impairment of non-financial assets
The Company assess at each reporting date whether there is any
indication that the carrying amount may not be recoverable. If
any such indication exists, then the asset's recoverable amount
is estimated and an impairment loss is recognised if the carrying
amount of an asset or Cash Generating Unit (CGU) exceeds its
estimated recoverable amount in the statement of profit and
loss.
The recoverable amount of a CGU (or an individual asset) is
higher of its value in use and its fair value less costs to sell. Value
in use is based on the estimated future cash flow, discounted
to their present value using a pre-tax discount rate that reflects
current market assessment of the time value of money and the
risks specific to CGU (or the asset).
The Company's non-financial assets, 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.
Impairment loss recognised in respect of a CGU is allocated first
to reduce the carrying amount of any goodwill allocated to the
CGU, and then to reduce the carrying amounts of the other assets
of the CGU (or group of CGUs) on a pro rata basis. Impairment
losses are recognized in statement of profit and loss.
An impairment loss in respect of other 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.
i. Employee benefits
i. Short-term employee benefits:
All employee benefits falling due within twelve months from
the end of the period in which the employees render the related
services are classified as short-term employee benefits, which
include benefits like salaries, wages, short term compensated
absences, performance incentives, etc. and are recognised as
expenses in the period in which the employee renders the
related service and measured accordingly.
ii. Post-employment benefits:
Post-employment benefit plans are classified into defined
benefits plans and defined contribution plans as under:
Defined Contribution plans - Gratuity
The Company provides for gratuity, a defined benefit plan ("the
Gratuity Plan") covering the eligible employees of the Company.
The Gratuity Plan provides a lump-sum payment to vested
employees at retirement, death, incapacitation or termination of
employment, of an amount based on the respective employee's
salary and the tenure of the employment with the Company.
Liability with regard to the Gratuity Plan are determined by
actuarial valuation, performed by an independent actuary, at
each balance sheet date using the projected unit credit method.
The defined benefit plan is administered by a trust formed for this
purpose through the Company gratuity scheme.
The Company recognises the net obligation of a defined benefit
plan as a liability in its balance sheet. Gains or losses through re¬
measurement of the net defined benefit liability are recognised
in other comprehensive income and are not reclassified to
profit and loss in the subsequent periods. The actual return of
the portfolio of plan assets, in excess of the yields computed by
applying the discount rate used to measure the defined benefit
obligation is recognised in other comprehensive income. The
effect of any plan amendments are recognised in the statement
of profit and loss.
Defined Contribution plans - Provident Fund
Eligible employees of the Company receive benefits from
provident fund, which is a defined contribution plan. Both
the eligible employees and the Company make monthly
contributions to the Government administered provident
fund scheme equal to a specified percentage of the eligible
employee's salary. Amounts collected under the provident fund
plan are deposited with in a government administered provident
fund. The Company has no further obligation to the plan beyond
its monthly contributions.
Defined Contribution plans - Other funds
The Company's contributions to other funds are charged to
the consolidated statement of profit and loss as and when the
services are received from the employees.
iii. Compensated absences:
The Company has a policy on compensated absences which
are both accumulating and non-accumulating in nature. The
expected cost of accumulating compensated absences is
determined by actuarial valuation performed by an independent
actuary at each balance sheet date using the projected unit credit
method on the additional amount expected to be paid/availed
as a result of the unused entitlement that has accumulated at the
balance sheet date. Expense on non-accumulating compensated
absences is recognised is the period in which the absences
occur. The obligations are presented as current liabilities in the
Balance sheet if the Company does not have an unconditional
right to defer the settlement for at least twelve months after the
reporting date.
The liability in respect of all defined benefit plans and other long
term benefits is accrued in the books of account on the basis
of actuarial valuation carried out by an independent actuary
using the Projected Unit Credit Method. The obligation is
measured at the present value of estimated future cash flows.
The discount rates used for determining the present value of
obligation under defined benefit plans, is based on the market
yields on Government securities as at the Balance Sheet date,
having maturity periods approximating to the terms of related
obligations.
Remeasurement gains and losses on other long term benefits
are recognised in the Statement of Profit and Loss in the year in
which they arise. Remeasurement gains and losses in respect of
all defined benefit plans 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 other equity in the Statement of Changes in
Equity and in the Balance Sheet. Changes in the present value of
the defined benefit obligation resulting from plan amendments
or curtailments are recognised immediately in profit or loss as
past service cost. Gains or losses on the curtailment or settlement
of any defined benefit plan are recognised when the curtailment
or settlement occurs. Any differential between the plan assets
(for a funded defined benefit plan) and the defined benefit
obligation as per actuarial valuation is recognised as a liability if it
is a deficit or as an asset if it is a surplus (to the extent of the lower
of present value of any economic benefits available in the form of
refunds from the plan or reduction in future contribution to the
plan).
Past service cost is recognised as an expense in the Statement
of Profit and Loss on a straight-line basis over the average period
until the benefits become vested. To the extent that the benefits
are already vested immediately following the introduction
of, or changes to, a defined benefit plan, the past service cost
is recognised immediately in the Statement of Profit and Loss.
Past service cost may be either positive (where benefits are
introduced or improved) or negative (where existing benefits are
reduced).
iv. Share-based compensation
The grant date fair value of equity settled share-based payment
awards granted to employees is recognised as an employee
benefits expense, with a corresponding increase in equity, over
the period that the employees unconditionally become entitled
to the awards. The amount recognised as expense is based on the
estimate of the number of awards for which the related service
and non-market vesting conditions are expected to be met, such
that the amount ultimately recognised as an expense is based on
the number of awards that do meet the related service and non¬
market vesting conditions at the vesting date.
The grant date fair value of options granted (net of estimated
forfeiture) to employees of the Company is recognised as an
employee benefits expense.
The Company has adopted the policy to account for Employees
Welfare Trust as a legal entity separate from the Company but as
a subsidiary of the Company. Any loan from the Company to the
trust is accounted for as a loan in accordance with its term.
The expense is recorded for each separately vesting portion of
the award as if the award was, in substance, multiple awards. The
increase in equity recognised in connection with share based
payment transaction is presented as a separate component
in equity under "share based payment reserve". The amount
recognised as an expense is adjusted to reflect the actual
number of stock options that vest. For the option awards, grant
date fair value is determined under the option-pricing model
(Black-Scholes-Merton). Forfeitures are estimated at the time of
grant and revised, if necessary, in subsequent periods if actual
forfeitures materially differ from those estimates.
When the terms of an equity-settled award are modified, the
minimum expense recognised by the Company is the grant
date fair value of the unmodified award, provided the vesting
conditions (other than a market condition) specified on grant
date of the award are met. Further, additional expense, if any, is
measured and recognized as at the date of modification, in case
such modification increases the total fair value of the share based
payment plan, or is otherwise beneficial to the employee.
Termination benefits are recognised as an expense in the
statement of profit and loss when the Company is demonstrably
committed, without realistic possibility of withdrawal, to a formal
detailed plan to either terminate employment before the normal
retirement date, or to provide termination benefits as a result of
an offer made to encourage voluntary redundancy. Termination
benefits for voluntary redundancies are recognized as an
expense in the statement of profit and loss if the Company has
made an offer encouraging voluntary redundancy, it is probable
that the offer will be accepted, and the number of acceptances
can be estimated reliably.
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