3. MATERIAL ACCOUNTING POLICIES
A summary of the material accounting policies applied in the
preparation of the standalone financial statements are as given
below. These accounting policies have been applied consistently
to all the periods presented in the financial statements.
3.1 Inventories
I nventories are valued at Cost or Net Realizable Value, whichever
is lower. Cost comprise of all costs of purchase (Net of Input Tax
Credit), costs of conversion and other costs incurred in bringing
the inventories to their present location and condition. Cost is
determined on moving weighted average basis. Net Realizable
Value is the estimated selling price in the ordinary course of
business less estimated cost of completion and the estimated
cost necessary to make the sale. However, materials and other
items held for use in the production of inventories are not written
down below cost if the finished products in which they will be
incorporated are expected to be sold at or above cost.
3.2 Cash and Cash Equivalents
Cash and cash equivalents in the Balance Sheet comprise cash
in hand, balance with Banks and short term deposits with an
original maturity of three months or less, which are subject to
an insignificant risk of change in value. However, for the purpose
of the Cash Flow Statement the same is net of outstanding bank
overdrafts.
3.3 Income Tax
Income Tax comprises current and deferred tax. It is recognized in
the Statement of Profit and Loss except to the extent that it relates
to an item recognized directly in equity or in other comprehensive
income.
3.3.1. Current Tax
Current tax liabilities (or assets) for the current and prior periods
are measured at the amount expected to be paid to (recovered
from) the taxation authorities using the tax rates (and tax laws)
that have been enacted or substantively enacted, at the end of
the reporting period. Current tax assets and current tax liabilities
are offset when there is a legally enforceable right to set off the
recognized amounts and there is an intention to settle the asset
and the liability on a net basis.
3.3.2. Deferred Tax
• Deferred tax assets and liabilities shall be measured at the
tax rates that are expected to apply to the period when
the asset is realized or the liability is settled based on tax
rates (and tax laws) that have been enacted or substantively
enacted by the end of the reporting period.
• Deferred tax is recognized 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 (i.e., tax
base). Deferred tax is also recognized for carry forward of
unused tax losses and unused tax credits.
• Deferred tax assets are recognized to the extent that it is
probable that taxable profit will be available against which
the deductible temporary differences, and the carry forward
of unused tax credits and unused tax losses can be utilized.
• The carrying amount of deferred tax assets is reviewed at
the end of each reporting period. The Company reduces the
carrying amount of a deferred tax asset to the extent that
it is no longer probable that sufficient taxable profit will be
available to allow the benefit of part or that entire deferred
tax asset to be utilized. Any such reduction is reversed to
the extent that it becomes probable that sufficient taxable
profit will be available.
• Deferred tax relating to items recognized outside the
Statement of Profit and Loss is recognized either in other
comprehensive income or in equity. Deferred tax items
are recognized in correlation to the underlying transaction
either in other comprehensive income or directly in equity.
• Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income
taxes levied by the same taxation authority and the
Company intends to settle its current tax assets and liabilities
on a net basis.
• The Government of India, on 20th September, 2019, vide
the Taxation Laws (Amendment) Ordinance 2019, inserted
a new Section 115BAA in the Income Tax Act, 1961, which
provides an option to the Company for paying Income Tax
at reduced rates as per the provisions/conditions defined
in the said section. The Company is continuing with higher
income tax rate option, based on the available outstanding
MAT credit entitlement and different exemptions and
deduction enjoyed by the Company. However, the
Company has estimated and applied the lower income tax
rate on the deferred tax assets / liabilities to the extent these
are expected to be realized or settled in the future period
when the Company would be subjected to lower tax rate.
3.4 Property, Plant and Equipment
3.4.1. Recognition and Measurement
• Property, plant and equipment held for use in the production
or/ and supply of goods or services, or for administrative
purposes, are stated in the Balance Sheet at cost, less
accumulated depreciation and accumulated impairment
losses (if any) except freehold land where the Company
had opted revaluation model, and the same is stated in
the Balance Sheet at revalued amount less accumulated
depreciation and accumulated impairment losses (if any).
(Refer Note No.5.2).
• Cost of an item of property, plant and equipment acquired
comprises its purchase price including import duties
and non-refundable purchase taxes, directly attributable
borrowing costs, any other directly attributable costs of
bringing the assets to its working condition and location for
its intended use and present value of any estimated cost of
dismantling and removing the item and restoring the site
on which it is located.
• I n case of self-constructed assets, cost includes the costs of
all materials used in construction, direct labour, allocation
of directly attributable overheads, directly attributable
borrowing costs incurred in bringing the item to working
condition for its intended use and estimated cost of
dismantling and removing the item and restoring the site
on which it is located. The costs of testing whether the asset
is functioning properly, after deducting the net proceeds
from selling items produced are also added to the cost of
self-constructed assets.
• 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.
• Material items such as spare parts, stand-by equipment
and service equipment are classified as property, plant and
equipment when they meet the definition of property,
plant and equipment.
3.4.2. Subsequent Expenditure
• Subsequent costs are included in the asset's carrying
amount, only when it is probable that future economic
benefits associated with the cost incurred will flow to the
Company and the cost of the item can be measured reliably.
The carrying amount of any component accounted for as a
separate asset is derecognized when replaced.
• Major Inspection/ Repairs/ Overhauling expenses are
recognized in the carrying amount of the item of property,
plant and equipment as a replacement if the recognition
criteria are satisfied. Any unamortized part of the previously
recognized expenses of similar nature is derecognized.
3.4.3. Depreciation and Amortization
• Depreciation is the systematic allocation of the depreciable
amount of property, plant and equipment over its useful
lives and is provided on straight line basis at the rates
determined based on the useful lives of respective assets
as prescribed in the Schedule II of the Act, though these
lives in certain cases are different from the lives prescribed
in Schedule II.
• I n case the cost of part of property, plant and equipment
is significant to the total cost of the assets and useful life
of that part is different from the remaining useful life of
the asset, depreciation has been provided on straight line
method based on internal assessment and independent
technical evaluation carried out by external valuers, which
the management believes that the useful lives of the
component best represent the period over which it expects
to use those components.
• Depreciation on additions (disposals) during the year is
provided on a pro-rata basis i.e. from (up to) the date on
which asset is ready for use (disposed off).
• Depreciation method, useful lives and residual values
are reviewed at each financial year-end and adjusted, if
appropriate.
3.4.4. Disposal of Assets
An item of property, plant and equipment is derecognized upon
disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gain or loss arising
on the disposal or retirement of an item of property, plant and
equipment is determined as the difference between net disposal
proceeds and the carrying amount of the asset and is recognized
in the Statement of Profit and loss.
3.4.5. 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. In
case of such property was fair valued, the amount of gain / (loss)
on account of such fair valuation is adjusted with revaluation
reserve.
3.4.6. Capital Work in Progress and Capital Advance
Capital work-in-progress is stated at cost less accumulated
impairment loss, if any, which includes expenses incurred during
construction period, interest on amount borrowed for acquisition
of qualifying assets and other expenses incurred in connection
with project implementation in so far as such expenses relate
to the period prior to the commencement of commercial
production.
3.5 Leases
3.5.1. Determining whether an arrangement contains a lease
The determination of whether an arrangement is (or contains)
a lease is based on the substance of the arrangement at the
inception of the lease. The arrangement is, or contains, a lease
if fulfillment of the arrangement is dependent on the use of a
specific asset or assets and the arrangement conveys a right to
use the asset or assets, even if that right is not explicitly specified
in an arrangement.
3.5.2. Company as lessor
• Finance Lease
Leases which effectively transfer to the lessee substantially
all the risks and benefits incidental to ownership of the
leased item are classified and accounted for as finance lease.
Lease rental receipts are apportioned between the finance
income and capital repayment based on the implicit rate of
return. Contingent rents are recognized as revenue in the
period in which they are earned.
• Operating Lease
Leases in which the Company does not transfer substantially
all the risks and rewards of ownership of an asset are
classified as operating leases. Rental income from operating
leases is recognized on a straight-line basis over the term
of the relevant lease except where scheduled increase in
rent compensates the Company with expected inflationary
costs.
3.5.3. Company as Lessee
The Company's lease asset classes primarily comprise of lease
for land, building and Plant & Machinery. The Company assesses
whether a contract contains a lease, at inception of a contract.
A contract is, or contains, a lease if the contract conveys the right
to control the use of an identified asset for a period of time in
exchange for consideration. To assess whether a contract conveys
the right to control the use of an identified asset, the Company
assesses whether: (i) the contract involves the use of an identified
asset (ii) the Company has substantially all of the economic
benefits from use of the asset through the period of the lease and
(iii) the Company has the right to direct the use of the asset.
The Company applies a single recognition and measurement
approach for all leases, except for short-term leases and leases of
low-value assets. For these short-term and low value leases, the
Company recognizes the lease payments as an operating expense
on a straight-line basis over the term of the lease. The Company
recognizes lease liabilities to make lease payments and right-of-
use assets representing the right to use the underlying assets as
below:
• Right of Use Assets
The Company recognizes right of use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right of use assets are
measured at cost, less any accumulated depreciation and
impairment loss, if any, and adjusted for any remeasurement
of lease liabilities. The cost of right of use assets includes
the amount of lease liabilities recognized, initial direct
costs incurred, and lease payments made at or before the
commencement date less any lease incentives received.
Right of use assets are depreciated on a straight-line basis
over the shorter of the lease term and the estimated useful
lives of the underlying assets.
I f ownership of the leased asset transfers to the Company
at the end of the lease term or the cost reflects the exercise
of a purchase option, depreciation is calculated using the
estimated useful life of the asset. The right of use assets are
also subject to impairment. Refer to the accounting policies
in section 'Impairment of Non-Financial Assets'.
• Lease Liabilities
At the commencement date of the lease, the Company
recognizes lease liabilities measured at the present value of
lease payments to be made over the lease term. The lease
payments include fixed payments (including in substance
fixed payments) less any lease incentives receivable,
variable lease payments that depend on an index or a
rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the
exercise price of a purchase option reasonably certain to be
exercized by the Company and payments of penalties for
terminating the lease, If any.
In calculating the present value of lease payments, the
Company uses its incremental borrowing rate at the lease
commencement date. After the commencement date,
the amount of lease liabilities is increased to reflect the
accretion of interest and reduced for the lease payments
made. In addition, the carrying amount of lease liabilities
is re-measured if there is a modification, a change in the
lease term, a change in the lease payments (e.g., changes to
future payments resulting from a change in an index or rate
used to determine such lease payments) or a change in the
assessment of an option to purchase the underlying asset.
The Company's lease liabilities are included in other current
and non-current financial liabilities.
• Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition
exemption to its short-term leases (i.e., those leases that have
a lease term of 12 months or less from the commencement
date and do not contain a purchase option). It also applies the
lease of low-value assets recognition exemption to leases that
are considered to be low value. Lease payments on short¬
term leases and leases of low-value assets are recognized as
expense on a straight-line basis over the lease term.
"Lease liabilities” have been separately presented in the
Balance Sheet, "Right of Use Assets” have been shown as
part of the Property, Plant and Equipment in the Balance
Sheet and lease payments have been classified as financing
cash flows.
.6 Revenue Recognition
The Company follows Ind AS 115 "Revenue from Contracts with
Customers” in respect of recognition of revenue from contracts
with customers which provides a control-based revenue
recognition model and a five-step application approach for
revenue recognition as under:
• Identification of the contract(s) with customers;
• Identification of the performance obligations;
• Determination of the transaction price;
• Allocation of the transaction price to the performance
obligations;
• Recognition of the revenue when or as the Company
satisfies performance obligation.
Revenue from contracts with customers is recognized 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.
Revenue excludes amounts collected on behalf of third parties.
3.6.1. Sale of Goods
Revenue from the sale of goods is recognized when the Company
satisfies a performance obligation at a point in time by transferring
the goods to customers, i.e., when customers obtain control
of the goods. Revenue towards satisfaction of a performance
obligation is measured at the amount of transaction price (net of
variable consideration) allocated to that performance obligation.
The transaction price of goods sold and services rendered is net
of variable consideration i.e. discounts, rebates, sales claim etc.
offered by the Company as part of the contract.
3.6.2. Variable Consideration
I f the consideration in a contract includes a variable amount, the
Company estimates the amount of consideration to which it will
be entitled in exchange for transferring the goods to customer.
The variable consideration is estimated at contract inception and
constrained until it is highly probable that a significant revenue
reversal in the amount of cumulative revenue recognized will
not occur when the associated uncertainty with the variable
consideration is subsequently resolved.
The Company provides volume rebates to certain customers
once the quantity of products purchased during the period
exceeds a threshold specified in the contract. Rebates are offset
against amounts payable by the customer. The volume rebates/
cash discount give rise to variable consideration. To estimate
the variable consideration for the expected future rebates/ cash
discount, the Company applies the most likely amount method
for contracts with a single volume threshold and the expected
value method for contracts with more than one volume threshold
that best predicts the amount of variable consideration.
3.6.3. Interest Income
For all debt instruments measured either at amortized cost or at
fair value through other comprehensive income (FVTOCI), interest
income is recorded using the effective interest rate (EIR). EIR is the
rate that exactly discounts the estimated future cash receipts over
the expected life of the financial instrument or a shorter period,
where appropriate, to the gross carrying amount of the financial
asset.
3.6.4. Dividend Income
Dividend Income from investments is recognized when the
Company's right to receive payment has been established.
3.7 Employee Benefits
3.7.1. Short Term Benefits
Short term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related services
are provided. Liabilities for wages and salaries, including non¬
monetary benefits that are expected to be settled wholly within
twelve months after the end of the period in which the employees
render the related service are recognized in respect of employee's
services up to the end of the reporting period.
3.7.2. Other Long Term Employee Benefits
The liabilities for earned leaves and sick leaves that are not
expected to be settled wholly within twelve months are
measured as the present value of the expected future payments
to be made in respect of services provided by employees up to
the end of the reporting period using the projected unit credit
method. The benefits are discounted using the government
securities (G-Sec) rates at the end of the reporting period that
have terms approximating to the terms of related obligation.
Remeasurements as the result of experience adjustment and
changes in actuarial assumptions are recognized in the Statement
of Profit and Loss.
3.7.3. Post Employment Benefits
The Company operates the following post employment schemes:
• Defined Benefit Plans
The liability or asset recognized in the Balance Sheet in
respect of defined benefit plans is the present value of
the defined benefit obligation at the end of the reporting
period less the fair value of plan assets. The Company's net
obligation in respect of defined benefit plans is calculated
separately for each plan by estimating the amount of future
benefit that employees have earned in the current and
prior periods. The defined benefit obligation is calculated
annually by Actuaries using the projected unit credit
method.
The liability recognized for defined benefit plans is the
present value of the defined benefit obligation at the
reporting date less the fair value of plan assets, together
with adjustments for unrecognized actuarial gains or losses
and past service costs. The net interest cost is calculated by
applying the discount rate to the net balance of the defined
benefit obligation and the fair value of plan assets. The
benefits are discounted using the government securities
(G-Sec) rates at the end of the reporting period that have
terms approximating to the terms of related obligation.
Remeasurements of the net defined benefit obligation,
which comprise actuarial gains and losses, the return on
plan assets (excluding interest) and the effect of the asset
ceiling, are recognized in other comprehensive income.
Remeasurement recognized in other comprehensive
income is reflected immediately in retained earnings and
will not be reclassified to the Statement of Profit and Loss.
• Defined Contribution Plan
Contributions to defined contribution plans such as
provident fund contribution to government administered
fund in respect of certain employees are charged to the
Statement of Profit and Loss as and when incurred. Such
benefits are classified as defined contribution plans as the
Company does not carry any further obligations, apart from
the contributions made on monthly basis.
Further in respect of other employees, provident fund
contributions are made to various non government
administered trusts. The interest rates payable to the
members of the trust cannot be lower than the statutory
rate of interest notified by the government. The Company
has an obligation to make good the shortfall in the interest
amount, if any. In view of the Company's obligation to meet
the shortfall, the same has been considered as the defined
benefit plan. The expenses on account of provident fund
maintained by the trusts are based on actuarial valuation
using projected unit credit method.
3.7.4. Termination Benefit
Expenditure incurred on Voluntary Retirement Scheme is charged
to the Statement of Profit and Loss immediately.
3.8 Government Grants
• Government grants are recognized at their fair values
when there is reasonable assurance that the grants will
be received and the Company will comply with all the
attached conditions. When the grant relates to an expense
item, it is recognized as income on a systematic basis over
the periods that the related costs, for which it is intended
to compensate, are expensed. Grants related to purchase of
property, plant and equipment are included in current/ non¬
current liabilities as deferred income and are credited to the
Statement of Profit and Loss on a straight line basis over
the expected useful life of the related asset and presented
within other operating revenue or netted off against the
related expenses.
• When loans or similar assistance are provided by
governments or related institutions, without interest or
with an interest rate below the current applicable market
rate, the effect of this favourable interest is regarded as
a government grant. The loan or assistance is initially
recognized and measured at fair value and the government
grant is measured as the difference between the initial
carrying value of the loan and the proceeds received. The
loan is subsequently measured as per the accounting policy
applicable to financial liabilities.
3.9 Foreign Currency Transactions
• Foreign currency transactions are translated into the
functional currency using the spot rates of exchanges
at the dates of the transactions. Monetary assets and
liabilities denominated in foreign currencies are translated
at the functional currency spot rate of exchanges at the
reporting date.
• Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation of
monetary assets and liabilities are generally recognized in
the Statement of Profit and Loss in the year in which they
arise except for exchange differences on foreign currency
borrowings relating to assets under construction for future
productive use, which are included in the cost of those
qualifying assets when they are regarded as an adjustment
to interest costs on those foreign currency borrowings, the
balance is presented in the Statement of Profit and Loss
within finance costs.
• Non monetary items are not retranslated at period end
and are measured at historical cost (translated using the
exchange rate at the transaction date).
3.10 Borrowing Cost
• Borrowing Costs consists of interest and other costs that an
entity incurs in connection with the borrowings of funds.
Borrowing costs also includes exchange difference to the
extent regarded as an adjustment to the borrowing costs.
• Borrowing costs directly attributable to the acquisition or
construction of a qualifying asset are capitalized as a part
of the cost of that asset that necessarily takes a substantial
period of time to complete and prepare the asset for its
intended use or sale. The Company considers a period of
twelve months or more as a substantial period of time.
• Transaction costs in respect of long term borrowing are
amortized over the tenure of respective loans using Effective
Interest Rate (EIR) method. All other borrowing costs are
recognized in the Statement of Profit and Loss in the period
in which they are incurred.
3.11 Interest in Subsidiaries
The Company regardless of the nature of its involvement with
an entity (the investee), determines whether it is a parent by
assessing whether it controls the investee. The Company controls
an investee when it is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to
affect those returns through its power over the investee. Thus, the
Company controls an investee if and only if it has all the following:
(a) power over the investee;
(b) exposure, or rights, to variable returns from its involvement
with the investee and
(c) the ability to use its power over the investee to affect the
amount of the returns.
I nvestments in subsidiaries are carried at cost (as per Ind AS 27)
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
recognized in the Statement of Profit and Loss.
3.12 Financial Instruments
A financial instrument is any contract that gives rise to a financial
asset of one entity and a financial liability or equity instrument of
another entity.
3.12.1. Financial Assets
• Recognition and Initial Measurement:
All financial assets are initially recognized when the
Company becomes a party to the contractual provisions
of the instruments. A financial asset is initially measured at
fair value plus, in the case of financial assets not recorded
at fair value through profit or loss, transaction costs that
are attributable to the acquisition of the financial asset.
However, trade receivables that do not contain a significant
financing component are measured at transaction price.
• Classification and Subsequent Measurement:
For purposes of subsequent measurement, financial assets
are classified in four categories:
o Measured at Amortized Cost;
o Measured at Fair Value Through Other Comprehensive
Income (FVTOCI);
o Measured at Fair Value Through Profit or Loss (FVTPL);
and
o Equity Instruments measured at Fair Value Through
Other Comprehensive Income (FVTOCI).
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.
o Measured at Amortized Cost: A debt instrument is
measured at the amortized cost if both the following
conditions are met:
• The asset is held within a business model
whose objective is achieved by both collecting
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 (SPPI)
on the principal amount outstanding.
After initial measurement, such financial assets are
subsequently measured at amortized cost using the
effective interest rate (EIR) method.
o Measured at FVTOCI: A debt instrument is measured
at the FVTOCI if both the following conditions are met:
• The objective of the business model is achieved
by both collecting contractual cash flows and
selling the financial assets; and
• The asset's contractual cash flows represent
SPPI.
Debt instruments meeting these criteria are measured
initially at fair value plus transaction costs. They are
subsequently measured at fair value with any gains or
losses arising on remeasurement recognized in other
comprehensive income, except for impairment gains
or losses and foreign exchange gains or losses. Interest
calculated using the effective interest method is recognized
in the Statement of Profit and Loss in investment income.
o Measured at FVTPL: FVTPL is a residual category for
debt instruments. Any debt instrument, which does
not meet the criteria for categorization as at amortized
cost or as FVTOCI, is classified as FVTPL. In addition, the
Company may elect to designate a debt instrument,
which otherwise meets amortized cost or FVTOCI
criteria, as at FVTPL. Debt instruments included within
the FVTPL category are measured at fair value with all
changes recognized in the Statement of Profit and
Loss.
o Equity Instruments measured at FVTOCI: All equity
investments in scope of Ind AS 109 are measured
at fair value. Equity instruments which are, held for
trading 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. In case the Company decides
to classify an equity instrument as at FVTOCI, then
all fair value changes on the instrument, excluding
dividends, are recognized in the other comprehensive
income. There is no recycling of the amounts from
other comprehensive income to the Statement of
Profit and Loss, even on sale of investment.
• Derecognition
The Company derecognizes a financial asset on trade date
only when the contractual rights to the cash flows from
the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the
asset to another entity.
• Impairment of Financial Assets
The Company assesses at each date of Balance Sheet
whether a financial asset or a group of financial assets
is impaired. Ind AS 109 requires expected credit losses to
be measured through a loss allowance. The Company
recognizes lifetime expected credit losses for all contract
assets and/ or all trade receivables that do not constitute a
financing transaction. For all other financial assets, expected
credit losses are measured at an amount equal to the
12 month expected credit losses or at an amount equal
to the life time expected credit losses if the credit risk on
the financial asset has increased significantly since initial
recognition.
3.12.2. Financial Liabilities
• Recognition and Initial Measurement:
Financial liabilities are classified, at initial recognition, as
at fair value through profit or loss, loans and borrowings,
payables or as derivatives, as appropriate. All financial
liabilities are recognized initially at fair value and, in the
case of loans and borrowings and payables, net of directly
attributable transaction costs.
• Subsequent Measurement:
Financial liabilities are measured subsequently at amortized
cost or FVTPL. A financial liability is classified as 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 recognized in
the Statement of Profit and Loss. Other financial liabilities
including borrowings and payables are subsequently
measured at amortized cost using the effective interest rate
method. Interest expense and foreign exchange gains and
losses are recognized in the Statement of Profit and Loss.
Any gain or loss on derecognition is also recognized in the
Statement of Profit and Loss.
• Financial Guarantee Contracts:
Financial guarantee contracts issued by the Company are
those contracts that require a payment to be made to
reimburse the holder for a loss it incurs because the specified
debtor fails to make a payment when due in accordance
with the terms of a debt instrument. Financial guarantee
contracts are recognized initially as a liability at fair value,
adjusted for transaction costs that are directly attributable
to the issuance of the guarantee. Subsequently, the liability
is measured at the higher of the amount of loss allowance
determined as per impairment requirement of Ind AS 109
and the amount recognized less cumulative amortization.
• Derecognition:
A financial liability is derecognized when the obligation
under the liability is discharged or cancelled or expires.
• Offsetting financial instruments:
Financial assets and liabilities are offset and the net amount
reported in the Balance Sheet when there is a legally
enforceable right to offset the recognized amounts and
there is an intention to settle on a net basis or realize the
asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events
and must be enforceable in the normal course of business
and in the event of default, insolvency or bankruptcy of the
counter party.
3.12.3. Derivative financial instruments Hedge Accounting:
• The Company enters into derivative financial instruments
viz. foreign exchange forward contracts, interest rate swaps
and cross currency swaps to manage its exposure to interest
rate and foreign exchange rate risks. The Company does
not hold derivative financial instruments for speculative
purposes.
• Derivatives are initially recognized at fair value at the date the
derivative contracts are entered into and are subsequently
remeasured to their fair value at the end of each reporting
period. The resulting gain or loss is recognized in profit or
loss immediately except for the effective portion of cash
flow hedges which is taken in the other comprehensive
income (net of tax).
• The Company designates certain hedging instruments in
respect of certain foreign currency risk and interest rate
risk as cash flow hedges. The Cash flow hedge are initially
recognized at fair value on the date when a derivative
contract is entered into and are subsequently remeasured
to their fair value at the end of each reporting period. The
accounting for subsequent changes in fair value depends
on whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being hedged.
The Company designates certain derivatives as either:
• hedges of the fair value of recognized assets or
liabilities or a firm commitment (fair value hedges); or
• hedges of a particular risk associated with the cash
flows of recognized assets and liabilities and highly
probable forecast transactions (cash flow hedges).
• The Company documents at the inception of the hedging
transaction the relationship between hedging instruments
and hedged items, as well as its risk management objective
and strategy for undertaking various hedge transactions.
The Company also documents its assessment, both at
hedge inception and on an ongoing basis, of whether
the derivatives that are used in hedging transactions have
been and will continue to be highly effective in offsetting
changes in fair values or cash flows of hedged items.
• The full fair value of a hedging derivative is classified as a
non-current asset or liability when the remaining maturity
of the hedged item is more than 12 months; it is classified
as a current asset or liability when the remaining maturity of
the hedged item is less than 12 months.
• The effective portion of changes in the fair value of
derivatives that are designated and qualify as cash flow
hedges is recognized in the other comprehensive income
in cash flow hedging reserve within equity, limited to the
cumulative change in fair value of the hedged item on a
present value basis from the inception of the hedge. The
gain or loss relating to the ineffective portion is recognized
immediately in profit or loss.
• Amounts accumulated in equity are reclassified to profit or
loss in the periods when the hedged item affects profit or
loss.
• When a hedging instrument expires, or is sold or terminated,
or when a hedge no longer meets the criteria for hedge
accounting, any cumulative deferred gain or loss and
deferred costs of hedging in equity at that time remains
in equity until the forecast transaction occurs. When the
forecast transaction is no longer expected to occur, the
cumulative gain or loss and deferred costs of hedging that
were reported in equity are immediately reclassified to
profit or loss.
3.13 Impairment of Non-Financial Assets
• The Company assesses, at each reporting date, whether
there is an indication that an asset may be impaired. If any
such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment
loss (if any). An asset is treated as impaired when the carrying
cost of the asset exceeds its recoverable value being higher
of value in use and net selling price. Value in use is computed
at net present value of cash flow expected over the balance
useful lives of the assets. For the purpose of assessing
impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash inflows which are largely
independent of the cash inflows from other assets or group
of assets (Cash Generating Units - CGU).
• An impairment loss is recognized as an expense in the
Statement of Profit and Loss in the year in which an asset
is identified as impaired. The impairment loss recognized in
earlier accounting period is reversed if there has been an
improvement in recoverable amount.
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