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 preceeding 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. And if the Company acquires
assets that does not constitute a business combination,
transaction costs is allocated to that assets acquired based
on their relative fair value.
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. 1st April,
2015.
Depreciation on the property, plant and equipment is provided
using straight line method over the useful life of assets as
specified in schedule II to the Companies Act, 2013.
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
are adjusted prospectively, if appropriate. The effects of any
revision are included in the statement of profit and loss when
the changes arises.
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
land is amortized over the primary lease period of the land.
.3 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. 1st April, 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, if appropriate.
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.
.4 Inventories:
Inventories are valued at the lower of cost and net realizable
value except scrap (cullet), which is valued 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,consumables and stock-in-trade are computed on the
weighted average basis. Cost of work in progress and finished
goods are determined on absorption costing method.
3.5 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.
3.6 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 Impairment of Goodwill:
Goodwill is tested for impairment on an annual basis
and whenever there is an indication that goodwill may be
impaired, relying on a number of factors including operating
results, business plans and future cash flows. For the purpose
of impairment testing, goodwill acquired in a business
combination is allocated to the Company's cash generating
units (CGU) or groups of CGU's expected to benefit from the
synergies arising from the business combination. A CGU is
the smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from
other assets or group of assets. Impairment occurs when the
carrying amount of a CGU including the goodwill, exceeds the
estimated recoverable amount of the CGU. The recoverable
amount of a CGU is the higher of its fair value less cost to
sell and its value-in-use. Value-in-use is the present value
of future cash flows expected to be derived from the CGU.
Total impairment loss of a CGU is allocated first to reduce the
carrying amount of goodwill allocated to the CGU and then
to the other assets of the CGU pro-rata on the basis of the
carrying amount of each asset in the CGU. An impairment
loss on goodwill is recognized in the statement of profit or
loss and is not reversed in the subsequent period.
3.8 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 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 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 - Equity Investment in subsidiary:
The Company has accounted for its equity investment
in subsidiary 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 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 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 are
approximate at their fair value due to the short maturity
of these 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.
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