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.
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 and impairment losses,
if any. Cost includes purchase price, borrowing cost
and any cost directly attributable to the bringing
the assets to its working condition for its intended
use. Subsequent costs are included in the asset's
carrying amount or recognized as a separate asset,
as appropriate, only when it is probable that future
economic benefits associated with the item will flow
to the entity and the cost can be measured reliably. 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.
Property, Plant and Equipment not ready for the
intended use on the date of Balance Sheet are
disclosed as “Capital Work-in-Progress” and expenses
incurred relating to it, net of income earned during the
development stage, are disclosed as pre-operative
expenses under “Capital Work-in-Progress”.
Depreciation on the Property, Plant and Equipment
is provided using straight line method over the useful
life of the assets as specified in Schedule II to the
Companies Act, 2013 and following assets where the
useful life is different as per technical evaluation than
those prescribed in Schedule II.
Freehold land is not depreciated.
The asset's residual values, useful lives and method of
depreciation are reviewed at each financial year end
and are adjusted prospectively, if appropriate.
Property, Plant and Equipment are eliminated from
financial statements, either on disposal or when retired
from active use. Gains / 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.
3.3 Intangible Assets:
Intangible assets are carried at cost less accumulated
amortisation 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 are
amortized on a straight line method over the period of
useful lives or period of three years, whichever is less
and in the case of technical know how amortisation
period is 6 years. The assets' useful lives and method
of depreciation are reviewed at each financial year
end.
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.
3.4 Inventories:
Inventories are valued at the lower of cost and net
realizable value. Net realizable value is the estimated
selling price in the ordinary course of business, less
estimated costs of completion and 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. The
cost of raw materials, stores, spares & consumables
and packing materials are computed on the weighted
average basis. Scrap (cullet) are valued at raw
materials cost. Cost of work in progress and finished
goods is determined on absorption costing method.
3.5 Cash and Cash Equivalents:
Cash and cash equivalents 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.
3.6 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 group
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.
3.7 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 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 Receivable that
do not contain a significant financing component
are measured at transaction 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 and 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 - Equity Investment in
subsidiaries and associates
The Company has accounted for its equity
investment in subsidiaries and associates at
cost.
Financial assets - Derecognition
A financial assets (or, where applicable, a part
of a financial asset or part of a group of similar
financial assets) is primarily derecognized (i.e.
removed from 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 flow from the asset.
Impairment of Financial 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 - Subsequent measurement:
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 fair value due to
the short maturity of these instruments.
Financial liability - 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.
III) Derivative Instruments
Derivative Financial Instruments The Company
uses various derivative financial instruments
such as interest rate swaps and currency swaps
to mitigate the risk of changes in interest rates
and exchange rates. The counter party for such
contracts is generally a bank. These derivative
financial instruments are categorized as a
financial assets or financial liabilities, at fair value
through profit or loss.
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