NOTE 3: MATERIAL ACCOUNTING POLICIES
3.1 Business Combination and Goodwill/Capital
Reserve:
The Company uses the pooling of interest method of
accounting to account for common control business
combination and acquisition method of accounting to
account for other business combinations.
The acquisition date is the date on which control is
transferred to the acquirer. Judgement is applied in
determining the acquisition date and determining
whether control is transferred from one party to
another. Control exists when the Company is exposed
to, or has rights to variable returns from its involvement
with the entity and has the ability to affect those returns
through power over the entity. In assessing control,
potential voting rights are considered only if the rights
are substantive.
Goodwill is initially measured at cost, being the excess
of the aggregate of the consideration transferred and
the amount recognized for non-controlling interests,
and any previous interest held, over the net identifiable
assets acquired and liabilities assumed. If the fair
value of the net assets acquired is in excess of the
aggregate consideration transferred, the Company re¬
assesses whether it has correctly identified all of the
assets acquired and all of the liabilities assumed and
reviews the procedures used to measure the amounts
to be recognized at the acquisition date. If the re¬
assessment still results in an excess of the fair value of
net assets acquired over the aggregate consideration
transferred, then the gain is recognized in Other
Comprehensive Income (OCI) and accumulated in
other equity as capital reserve. However, if there
is no clear evidence of bargain purchase, the entity
recognizes the gain directly in other equity as capital
reserve, without routing the same through OCI.
Consideration transferred includes the fair values
of the assets transferred, liabilities incurred by the
Company to the previous owners of the acquiree, and
equity interests issued by the Company. Consideration
transferred also includes the fair value of any
contingent consideration. Consideration transferred
does not include amounts related to the settlement
of pre-existing relationships. Any goodwill that arises
on account of such business combination is tested
annually for impairment.
Any contingent consideration is measured at fair
value at the date of acquisition. If an obligation to pay
contingent consideration that meets the definition of a
financial instrument is classified as equity, then it is not
re-measured and the settlement is accounted for within
other equity. Otherwise, other contingent consideration
is re-measured at fair value at each reporting date and
subsequent changes in the fair value of the contingent
consideration are recorded in the Statement of Profit
and Loss.
A contingent liability of the acquiree is assumed in a
business combination only if such a liability represents
a present obligation and arises from a past event,
and its fair value can be measured reliably. On
an acquisition-by-acquisition basis, the Company
recognizes any non-controlling interest in the acquiree
either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s identifiable net
assets.
In case of Pooling of interest method of accounting,
the assets and liabilities of the combining entities
recognizes at their carrying amounts. No adjustment
is made to reflect the fair value or recognize any new
assets and liabilities. The financial information in the
financial statements in respect of prior periods restates
as if the business combination had occurred from the
beginning of the preceding period. The difference, if
any, between the amount recorded as share capital
issued plus any additional consideration in the form of
cash or other assets and the amount of share capital
of the transferor is transferred to capital reserve and
presented separately from other capital reserves.
Transaction costs that the Company incurs in
connection with a business combination such as
finders’ fees, legal fees, due diligence fees, and other
professional and consulting fees are expensed as
incurred.
3.2 Property, Plant and Equipment:
Property, plant and equipment are carried at cost,
net of recoverable taxes, trade discount and rebates
less accumulated depreciation, amortization and
impairment losses, if any. Cost includes purchase price,
borrowing cost and any cost directly attributable to
bring the assets to its working condition for its intended
use. In case of Property, Plant and Equipment, the
Company has availed the carrying value as deemed
cost on the date of transition i.e. April 01, 2015.
Depreciation on the property, plant and equipment is
provided using straight line method overthe useful life
of assets as specified in schedule II to the Companies
Act, 2013, except in case of Property, Plant and
Equipments as described below:
Depreciation on property, plant and equipment which
are added / disposed off during the year is provided on
pro-rata basis with reference to the date of addition /
deletion. Freehold land is not depreciated.
The assets' residual values, useful lives and method of
depreciation are reviewed at each financial year end
and areadjusted prospectively, ifappropriate.
Capital work-in-progress includes cost of property,
plant and equipment under installation / under
development as at the balance sheet date.
Property, plant and equipment are eliminated from
financial statement, either on disposal or when retired
from active use. Profits / losses arising in the case of
retirement / disposal of property, plant and equipment
are recognized in the statement of profit and loss in the
year of occurrence.
Leasehold land is amortized over the period of
lease. Buildings constructed on leasehold land are
depreciated based on the useful life specified in
schedule II to the Companies Act, 2013, where the
lease period of land is beyond the life of the building. In
other cases, buildings constructed on leasehold lands
is amortized overthe primary lease period of the land.
3.3 Investment Properties:
Investment properties are measured initially at cost,
including transaction costs and net of recoverable
taxes, trade discounts and rebates. Subsequent to
initial recognition, investment properties are stated at
cost less accumulated depreciation and impairment
losses, if any. In case of Investment properties, the
Company has availed the carrying value as deemed
cost on the date of transition i.e. April 01, 2015.
Depreciation on investment properties is provided
using straight line method over the estimated useful
lives as specified in Schedule II to the Companies Act,
2013. Residual values, useful lives and method of
depreciation of investment properties are reviewed at
each financial year end and are adjusted prospectively,
if appropriate. The effects of any revision are included
in the statement of profit and loss when the changes
arises.
Though the Company measures investment properties
using cost based measurement, the fair value of
investment property is disclosed in the notes.
Investment properties are derecognized either
when they have been disposed of or when they
are permanently withdrawn from use and no future
economic benefit is expected from their disposal. The
difference between the net disposal proceeds and the
carrying amount of the asset is recognized in statement
of profit and loss in the period of derecognition.
3.4 Intangible Assets:
Intangible assets are carried at cost, net of recoverable
taxes, trade discount and rebates less accumulated
amortization and impairment losses, if any. Cost
includes expenditure that is directly attributable to
the acquisition of the intangible assets. In case of
Intangible Assets, the Company has availed the
carrying value as deemed cost on the date of transition
i.e. April 01,2015.
Identifiable intangible assets are recognized when it
is probable that future economic benefits attributed to
the asset will flow to the Company and the cost of the
asset can be reliably measured.
Computer softwares are capitalized at the amounts
paid to acquire the respective license for use and
for Development and the same is amortized over
the period of useful lives or period of three years,
whichever is less. The assets’ useful lives and method
of amortization are reviewed at each financial year end
and adjusted prospectively, ifappropriate.
Gains or losses arising from derecognition of an
intangible asset are measured as the difference
between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statement
of profit and loss when the asset is derecognized.
3.5 Inventories:
Inventories are valued at the lower of cost and net
realizable value except scrap (cullet), which is valued
at raw material cost, where it is re-usable, otherwise
at net realizable value. Net realizable value is the
estimated selling price in the ordinary course of
business, less estimated costs of completion and the
estimated costs necessary to make the sale. The cost
of inventories comprises of cost of purchase, cost of
conversion and other costs incurred in bringing the
inventories to their respective present location and
condition. Cost of raw materials, packing materials
and stores, spares and consumables are computed on
the weighted average basis. Cost of work in progress,
finished goods are determined on absorption costing
method.
3.6 Cash and cash equivalents:
Cash and cash equivalent in the balance sheet
comprise cash at banks, cash 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.
3.7 Impairment of non-financial assets - property,
plant and equipment and intangible assets:
The Company assesses at each reporting date as to
whether there is any indication that any property, plant
and equipment and intangible assets or Company
of assets, called cash generating units (CGU)
may be impaired. If any such indication exists the
recoverable amount of an asset or CGU is estimated
to determine the extent of impairment, if any. When
it is not possible to estimate the recoverable amount
of an individual asset, the Company estimates the
recoverable amount of the CGU to which the asset
belongs.
An impairment loss is recognized in the Statement of
Profit and Loss to the extent, asset’s carrying amount
exceeds its recoverable amount. The recoverable
amount is higher of an asset’s fair value less cost of
disposal and value in use. Value in use is based on
the estimated future cash flows, discounted to their
present value using pre-tax discount rate that reflects
current market assessments of the time value of
money and risk specific to the assets.
The impairment loss recognized in prior accounting
period is reversed if there has been a change in the
estimate of recoverable amount.
3.8 Leases:
The Company, as a lessee, recognizes a right of-use
asset and a lease liability for its leasing arrangements,
if the contract conveys the right to control the use of
an identified asset. Initially the right of use assets
measured at cost which comprises initial cost of the
lease liability adjusted for any lease payments made
at or before the commencement date plus any initial
direct costs incurred. Subsequently measured at cost
less any accumulated depreciation/ amortization,
accumulated impairment losses, if any and adjusted
for any remeasurement ofthe lease liability.
The right-of-use assets is depreciated/ amortized using
the straight-line method from the commencement date
over the shorter of lease term or useful life of right-of-
use asset.
The Company measures the lease liability at the
present value of the lease payments that are not paid
at the commencement date of the lease. The lease
payments are discounted using the interest rate implicit
in the lease, if that rate can be readily determined. If
that rate cannot be readily determined, the Company
uses incremental borrowing rate.
For short-term leases, the Company recognizes the
lease payments as an operating expense on a straight¬
line basis over the lease term.
3.9 Financial instruments - initial recognition,
subsequent measurement and impairment:
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.
I) Financial assets -Initial recognition and
measurement:
All financial assets are initially recognized at
fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial
assets, which are not at fair value through profit
or loss, are adjusted to the fair value on initial
recognition. Financial assets are classified, at
initial recognition, as financial assets measured
at fair value or as financial assets measured at
amortized cost. However, trade receivables that
do not contain a significant financing component
are measured attransaction price.
Financial assets - Subsequent measurement:
For the purpose of subsequent measurement,
financial assets are classified in two broad
categories:-
a) Financial assets at fair value
b) Financial assets at amortized cost
Where assets are measured at fair value, gains
and losses are either recognized entirely in
the statement of profit and loss (i.e. fair value
through profit or loss), or recognized in other
comprehensive income (i.e. fair value through
other comprehensive income).
A financial asset that meets the following two
conditions is measured at amortized cost (net of
any write down for impairment) unless the asset
is designated at fair value through profit or loss
under the fair value option.
a) Business model test: The objective of the
Company's business model is to hold the
financial asset to collect the contractual
cash flow.
b) Cash flow characteristics test: The
contractual terms of the financial asset give
rise on specified dates to cash flow that are
solely payments of principal and interest on
the principal amount outstanding.
A financial asset that meets the following two
conditions is measured at fair value through
other comprehensive income unless the asset
is designated at fair value through profit or loss
under the fair value option.
a) Business model test: The financial asset
is held within a business model whose
objective is achieved by both collecting
contractual cash flow and selling financial
assets.
b) Cash flow characteristics test: The
contractual terms of the financial asset give
rise on specified dates to cash flow that are
solely payments of principal and interest on
the principal amount outstanding.
All other financial asset is measured at fair value
through profit or loss.
Financial assets - Derecognition:
A financial assets (or, where applicable, a part
of a financial asset or part of a Company of
similar financial assets) is primarily derecognized
(i.e. removed form the Company's statement of
financial position) when:
a) The rights to receive cash flows from the
asset have expired, or
b) The Company has transferred its rights to
receive cash flowfrom the asset.
Impairment offinancial assets
In accordance with Ind AS 109, the Company
uses ‘Expected Credit Loss’ (ECL) model, for
evaluating impairment of financial 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:
a) 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
b) 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 Company applies ‘simplified
approach’ which requires expected lifetime
losses to be recognized 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
analyzed.
For other assets, the Company uses 12 month
ECL to provide for impairment loss where there
is no significant increase in credit risk. If there is
significant increase in credit risk full lifetime ECL
is used.
II) Financial liabilities - Initial recognition and
measurement:
The financial liabilities are recognized initially at
fair value and, in the case of borrowings and
payables, net of directly attributable transaction
costs.
Financial liabilities-Subsequentmeasurement:
Financial liabilities are subsequently carried
at amortized cost using the effective interest
method. For trade and other payables maturing
within one year from the balance sheet date, the
carrying amounts approximate at their fair value
due to the short maturity ofthese instruments.
Financial Liabilities - Derecognition:
A financial liability is derecognized 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 recognized in the statement of profit
and loss.
Ill) Derivative Instruments
The Company holds derivative financial
instruments such as foreign exchange forward
contract to mitigate the risk of changes in
exchange rates on foreign currency exposures.
The counter party for such contracts is generally
a bank.
a) Financial Assets or Liabilities, carried at
fair value through profit or loss
This category includes derivative financial
assets or liabilities which are not designated
as hedges.
Although the Company believes that these
derivatives constitute hedges from an
economic perspective, they may not qualify
for hedge accounting under Ind AS 109,
Financial Instruments. Any derivative that
is either not designated as hedge, or is so
designated but is ineffective as per Ind As
109, is categorized as a financial asset or
financial liability, at fair value through profit
or loss
Derivatives not designated as hedges
are recognized intially at fair value and
attributable transaction costs are recognized
in net profit in the statement of profit and
loss when incurred. Subsequent to initial
recognization, this derivatives are measured
at fair value through profit or loss and
resulting gains or losses are included in
other income/other expenses. Assets/
Liabilities in this category are presented as
Current Assets/ Current Liabilities if they are
either held for trading or are expected to be
realized within 12 months after the Balance
sheet date.
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