NOTE - 2 | MATERIAL ACCOUNTING POLICIES
2.1 Basis of preparation
The financial statements are prepared in accordance with
Indian Accounting Standards (Ind AS) as notified under the
Companies (Indian Accounting Standards) Rules, 2015 read
with Section 133 of the Companies Act, 2013 (the Act) (as
amended from time to time)] and presentation requirements
of Division II of Schedule III to the Companies Act, 2013
as applicable and other relevant provisions of the Act as
applicable.
The financial statements have been prepared on a historical
cost basis, except for the following assets and liabilities
which have been measured at fair value:
• Certain financial assets and liabilities that are measured
at fair value (refer accounting policy regarding financial
instrument) at the end of each reporting period and
• Derivative financial instruments.
The Company has prepared the financial statements on the
basis that it will continue to operate as a going concern.
This financial statement has been reported in Rs. Million
(Mio INR), except for information pertaining to number of
shares and earnings per share information. The functional
and presentation currency of the Company is Indian Rupee
(“INR”) which is the currency of the primary economic
environment in which the Company operates.
2.2 Summary of material accounting policies
a. Current versus non-current classification:
The Company segregates assets and liabilities into
current and non-current categories for presentation in
the balance sheet after considering its normal operating
cycle and other criteria set out in Ind AS 1, “Presentation
of Financial Statements”. For this purpose, current
assets and liabilities include the current portion of non¬
current assets and liabilities respectively.
Deferred tax assets and liabilities are classified as non¬
current assets and liabilities.
The operating cycle is the time between the acquisition
of assets for processing and their realization in cash
and cash equivalents. The Company has identified
twelve months as its operating cycle.
b. Fair Value measurement
The Company measures financial instruments at fair
value at each balance sheet date. Fair value is the
price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair
value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability
takes place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must be
accessible by the Company.
The fair value of an asset or a liability is measured using
the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes
into account a market participant's ability to generate
economic benefits by using the asset in its highest and
best use or by selling it to another market participant
that would use the asset in its highest and best use.
The Company uses valuation techniques that are
appropriate in the circumstances and for which
sufficient data are available to measure fair value,
maximizing the use of relevant observable inputs and
minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorized
within the fair value hierarchy, described as follows,
based on the lowest level input that is significant to the
fair value measurement as a whole:
• Level 1 — Quoted (unadjusted) market prices in
active markets for identical assets or liabilities.
• Level 2—Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is 'directly or indirectly observable
• Level 3 — Valuation techniques for which the
lowest level input that is significant to the fair
value measurement is unobservable
For assets and liabilities that are recognized in the
financial statements on a recurring basis, the Company
determines whether transfers have occurred between
levels in the hierarchy by re-assessing categorization
(based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each
reporting period.
For the purpose of fair value disclosures, the Company
has determined classes of assets and liabilities on the
basis of the nature, characteristics and risks of the
asset or liability and the level of the fair value hierarchy
as explained above.
c. Revenue recognition:
Revenue from contracts with customers is recognized
when control of the goods or services are transferred
(performance obligation) 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. The Company has concluded that it is
the principal in its revenue arrangements, because
it typically controls the goods or services before
transferring them to the customer. Goods and Service
Tax ('GST') is not received by the Company on its own
account. Rather, it is tax collected on value added to the
commodity by the seller on behalf of the government.
Accordingly, it is excluded from revenue.
Sale of goods:
Revenue from sale of goods is recognized at the point
in time when control of the asset is transferred to the
customer. The Company considers whether there
are other promises in the contract that are separate
performance obligations to which a portion of the
transaction price needs to be allocated. In determining
the transaction price for the sale of goods, the Company
considers the effects of variable consideration, the
existence of significant financing components, non¬
cash consideration, and consideration payable to the
customer (if any).
Sale of services:
Sale of services with respect to fixed price contracts
are recognized upon transfer of control of promised
services (“performance obligations”) to customers in
an amount that reflects the consideration the Company
has received or expects to receive in exchange for
these services (“transaction price”). Revenue on
time-and-material and unit of work-based contracts
are recognized as the related services are performed.
When there is uncertainty associated with the variable
consideration, revenue recognition is postponed until
such uncertainty is resolved.
If the Company has a contract that is onerous, the
present obligation under the contract is recognized and
measured as a provision.
An onerous contract is a contract under which the
unavoidable costs (i.e., the costs that the Company
cannot avoid because it has the contract) of meeting
the obligations under the contract exceed the
economic benefits expected to be received under it.
The unavoidable costs under a contract reflect the
least net cost of exiting from the contract, which is the
lower of the cost of fulfilling it and any compensation
or penalties arising from failure to fulfil it. The cost of
fulfilling a contract comprises the costs that relate
directly to the contract (i.e., both incremental costs
and an allocation of costs directly related to contract
activities).
Rental income:
Rental income arising from operating lease of
investment properties is accounted on accrual basis
based on contractual terms with the lessee and is
disclosed under other operating revenue in Statement
of Profit and Loss. Refer to the accounting policy on
leases under note (j) below.
Export incentive entitlement
Export incentive entitlements including duty
drawbacks and duty credit scrips are recognized when
there is a reasonable assurance that the Company has
complied with the conditions attached to them and it
is reasonably certain that the ultimate realization will
be made. These are recognized in the period in which
the right to receive the same is established, i.e., the
year during which the exports eligible for incentives are
made.
Warranty obligations
The Company typically provides warranties for general
repairs of defects that existed at the time of sale, as
required by law. These assurance-type warranties are
accounted for under Ind AS 37 Provisions, Contingent
Liabilities and Contingent Assets. Refer to the
accounting policy on warranty provisions under note
(0) below.
d. Government grants
Government grants are recognized where there is
reasonable assurance that the grant will be received,
and all attached conditions will be complied with.
Government grants relating to the purchase of
property, plant and equipment are deducted while
calculating the carrying amount of the asset resulting in
reduced depreciation over the life of property, plant and
equipment.
e. Taxes
Tax expense comprises current tax expense and
deferred tax:
(1) Current Tax:
Current income tax assets and liabilities are
measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax
rates and tax laws used to compute the amount
are those that are enacted or substantively
enacted, at the reporting date in the country
(i.e., India) where the Company operates and
generates taxable income.
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.
(ii) Deferred Tax:
Deferred tax is provided using the balance sheet
approach on temporary differences between the
tax base of assets and liabilities and their carrying
amounts for financial reporting purposes at the
reporting date.
Deferred tax assets are recognized for all
deductible temporary differences, the carry
forward of unused tax credits and any unused tax
losses. 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 each reporting date and reduced
to the extent that it is no longer probable that
sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilized.
Unrecognized deferred tax assets are re-assessed
at each reporting date and are recognized to the
extent that it has become probable that future
taxable profits will allow the deferred tax asset to
be recovered.
Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply in the
year when the asset is realized, or the liability is
settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the
reporting date.
The Company offsets deferred tax assets and
deferred tax liabilities if and only if it has a legally
enforceable right to set off current tax assets and
current tax liabilities and the deferred tax assets
and deferred tax liabilities relate to income taxes
levied by the same taxation authority on either the
same taxable entity or different taxable entities
which intend either to settle current tax liabilities
and assets on a net basis, or to realize the assets
and settle the liabilities simultaneously, in each
future period in which significant amounts of
deferred tax liabilities or assets are expected to
be settled or recovered.
Current and deferred tax is recognized in the
Statement of Profit and Loss, except to the
extent that it relates to items recognized in Other
Comprehensive Income. In this case, the tax is
also recognized in Other Comprehensive Income.
Property, plant and equipment:
Freehold land is carried at historical cost. Property, plant
and equipment are stated at cost, net of accumulated
depreciation and accumulated impairment losses,
if any. The cost comprises purchase price, directly
attributable cost of bringing the asset to its working
condition for the intended use. Any trade discounts and
rebates are deducted in arriving at the purchase price.
Capital work in progress (CWIP) is carried at cost, net
of accumulated impairment loss, if any. All the direct
expenditures related to the implementation including
incidental expenditure incurred during the period of
implementation of a project, till it is commissioned
is accounted as Capital Work in Progress and such
properties are classified as appropriate categories of
Property, plant and equipment when completed and
ready for the intended use.
Items of stores and spares that meet the definition of
property, plant and equipment are capitalized at cost
and depreciated over their useful life. Otherwise, such
items are classified as a part of inventories.
Each part of an item of property, plant and equipment
with a cost that is significant in relation to the total cost
of the item is depreciated separately. This applies mainly
to components of machinery. When significant parts
of plant and equipment are required to be replaced at
intervals, the Company depreciates them separately
based on their specific useful lives. Likewise, when a
major inspection is performed, its cost is recognized
in the carrying amount of the plant and equipment as
a replacement if the recognition criteria are satisfied.
All other repair and maintenance costs are recognized
in profit or loss as incurred. Depreciation is calculated
on a written down value basis over the estimated useful
lives of the assets as mentioned in note (h.) below.
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 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. All other repairs and maintenance are
charged to profit and loss during the reporting period in
which they are incurred.
Advances paid towards acquisition of property, plant
and equipment outstanding at each balance sheet
date is classified as capital advances under other non¬
current assets.
An item of property, plant and equipment and any
significant part initially recognized is de-recognized
upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or loss
arising on derecognition of the asset (calculated as
the difference between the net disposal proceeds
and the carrying amount of the asset) is included in
the statement of profit and loss when the asset is
derecognized.
g. Investment Property
Investment properties are measured initially at cost,
including transaction costs. Subsequent to initial
recognition, investment properties are stated at cost
less accumulated depreciation and accumulated
impairment loss, if any.
The cost includes the cost of replacing parts if the
recognition criteria are met. When significant parts of
the investment properties are required to be replaced
at intervals, the Company depreciates them separately
based on their specific useful lives. All other repair and
maintenance costs are recognized in profit or loss as
incurred.
The Company depreciates the building (component
of investment property) using the written down value
method over estimated useful lives as mentioned in
note h below.
Though the Company measures investment properties
using cost-based measurement, the fair value of
investment properties are disclosed in the notes. Fair
values are determined based on an annual evaluation
performed by an accredited external independent
valuer applying a valuation model recommended by the
International Valuation Standards Committee.
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 profit
or loss in the period of derecognition. In determining
the amount of consideration from the derecognition
of investment properties the Company considers
the effects of variable consideration, existence
of a significant financing component, non-cash
consideration, and consideration payable to the buyer
(if any)
Transfers are made to (or from) investment properties
only when there is a change in use. Transfers between
investment property, owner-occupied property and
inventories do not change the carrying amount of the
property transferred and they do not change the cost of
that property for measurement or disclosure purposes.
h. Depreciation
Depreciation on property, plant and equipment is
provided using the written down value method. As
required under Schedule II to the Companies Act 2013,
the Company periodically assesses the estimated
useful life of its property, plant and equipment based
on the technical evaluation considering anticipated
technological changes and actual usage of the assets.
The estimated useful life for various property, plant and
equipment is given below:
The Company, based on technical assessment of usage
patterns made by the technical experts, believes that
the useful lives as mentioned above best represents the
period over which management expects to use these
assets.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate.
In respect of additions, depreciation is provided on pro¬
rata basis from the quarter of addition and in respect of
disposals, the same is provided up to the quarter prior
to disposal. Cost of application software is expensed
off on purchase.
. Inventories
Inventories are valued at lower of cost and net realizable
value. Cost of inventories is determined on weighted
average basis. 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. Materials 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. Obsolete/ slow moving inventories are adequately
provided for.
Costs incurred in bringing each product to its present
location and condition are accounted for as follows:
• Raw materials, traded goods and indirect
materials: Cost includes cost of purchase and
other costs incurred in bringing the inventories to
their present location and condition.
• Work-in-progress: Cost includes direct materials
and labor and a proportion of manufacturing
overheads based on normal operating capacity.
• Finished goods: Cost includes direct materials
and labor and a proportion of manufacturing
overheads based on normal operating capacity.
j. Leases
The Company assesses at contract inception whether a
contract is, or contains, a lease. That is, if the contract
conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.
Company as a lessee
The Company's lease asset classes primarily consist of
leases for land and buildings. The Company applies a
single recognition and measurement approach for all
leases, except for short-term leases and leases of low-
value assets. The Company recognizes lease liabilities
to make lease payments and right-of-use assets
representing the right to use the underlying assets.
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 losses, 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
assets. The useful life of Right-of-use assets varies from
3 to 7 years.
The present value of the expected cost for the
decommissioning of an asset after its use is included
in the cost of the respective right-of-use asset if the
recognition criteria for a provision are met.
The right-of-use assets are also subject to impairment.
Refer to the accounting policies stated under note n
below.
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 exercised by
the Company and payments of penalties for terminating
the lease, if the lease term reflects the Company
exercising the option to terminate. Variable lease
payments that do not depend on an index or a rate are
recognized as expenses (unless they are incurred to
produce inventories) in the period in which the event or
condition that triggers the payment occurs.
In calculating the present value of lease payments, the
Company uses the interest rate implicit in the lease
or, if not readily determinable, using the incremental
borrowing rates in the country of domicile of the leases.
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 remeasured
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.
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 of office equipment
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.
Company as a lessor
Leases in which the Company does not transfer
substantially all the risks and rewards incidental to
ownership of an asset is classified as operating leases.
Rental income arising is accounted for on a straight-line
basis over the lease terms. Initial direct costs incurred
in negotiating and arranging an operating lease are
added to the carrying amount of the leased asset and
recognized over the lease term on the same basis as
rental income. Contingent rents are recognized as
revenue in the period in which they are earned.
Leases are classified as finance leases when
substantially all of the risks and rewards of ownership
transfer from the Company to the lessee. Amounts
due from lessees under finance leases are recorded
as receivables at the Company's net investment in the
leases. Finance lease income is allocated to accounting
periods so as to reflect a constant periodic rate of
return on the net investment outstanding in respect of
the lease.
k. Employee benefits
(i) Defined contribution scheme
Contributions towards Superannuation Fund,
Pension Fund and government administered
Provident Fund are treated as defined contribution
schemes. The Company has no obligation, other
than the monthly contribution payable under the
schemes. The Company recognizes contribution
payable under the schemes as an expense,
when an employee renders the related service.
If the contribution payable under the scheme
for service received before the balance sheet
date exceeds the contribution already paid, the
deficit payable to the scheme is recognized as a
liability after deducting the contribution already
paid. If the contribution already paid exceeds the
contribution due for services received before the
balance sheet date, then excess is recognized as
an asset to the extent that the pre-payment will
lead to, for example, a reduction in future payment
or a cash refund.
(ii) Defined benefit obligation
Provident Fund contributions made to Trusts
administered by the Company are treated as
defined benefit plan. The interest payable to
the members of these Trusts shall not be lower
than the statutory rate of interest declared by
the Central Government under the Employees'
Provident Funds and Miscellaneous Provisions
Act, 1952 and shortfall, if any, shall be made good
by the Company. The cost of providing benefits
under the defined benefit plan is determined
using the projected unit credit method using
actuarial valuation to be carried out at each
balance sheet date.
Remeasurements, comprising of actuarial
gains and losses, the effect of the asset ceiling,
excluding amounts included in net interest on
the net defined benefit liability and the return
on plan assets (excluding amounts included in
net interest on the net defined benefit liability),
are recognized immediately in the balance sheet
with a corresponding debit or credit to retained
earnings through OCI in the period in which they
occur. Remeasurements are not reclassified to
profit or loss in subsequent periods. Further, as
required under Ind AS Schedule III, the Company
transfers those amounts recognized in other
comprehensive income to retained earnings
Net interest is calculated by applying the discount
rate to the net defined benefit liability or asset.
The Company recognizes the following changes in
the net defined benefit obligation as an expense
in the statement of profit and loss:
a. Service costs comprising current service
costs, past-service costs, gains and
losses on curtailments and non-routine
settlements; and
b. Net interest expense.
The Company also provides for post-employment
defined benefit in the form of Gratuity. The cost of
defined benefit is determined using the projected
unit credit method, with actuarial valuation being
carried out at each balance sheet date. Actuarial
gains and losses in respect of the same are charge
to the Other Comprehensive Income (OCI).
(iii) Other employee benefits
All employee benefits other than post¬
employment benefits and termination benefits,
which do not fall due wholly within twelve months
after the end of the period in which the employees
render the related service, including long term
compensated absences, service awards, and ex-
gratia. Such long-term compensated absences
are provided for based on the actuarial valuation
using the projected unit credit method at the year
end. Actuarial gains/ losses are immediately taken
to the statement of profit and loss and are not
deferred.
Accumulated leave, which is expected to be
utilized within the next 12 months, is treated
as short-term employee benefit. The Company
measures the expected cost of such absences
based on the actuarial valuation using the
projected unit credit method at the year end.
The Company presents the entire leave liability
as a current liability in the balance sheet, since it
does not have an unconditional right to defer its
settlement for twelve months after the reporting
date.
(iv) Termination benefits
Termination benefits are payable when
employment is terminated by the Company before
the normal retirement date, or when an employee
accepts voluntary retirement in exchange of these
benefits. The Company recognizes termination
benefits at the earlier of the following dates: (a)
when the Company can no longer withdraw the
offer of those benefits; and (b) when the entity
recognizes costs for a restructuring that is within
the scope of Ind AS 37 Provisions, Contingent
Liabilities and Contingent Assets and involves the
payment of termination benefits. The termination
benefits are measured based on the number of
employees expected to accept the offer in case of
voluntary retirement scheme
l. Foreign currencies
Functional and presentation currency
Items included in the financial statements of the
Company are measured using the currency of the
primary economic environment in which the Company
operates ('the functional currency'). The financial
statements are presented in Indian Rupee (INR), which
is the Company's functional and presentation currency.
Foreign currency transactions and balances(i) Initial recognition
Foreign currency transactions are recorded in
the reporting currency, by applying to the foreign
currency amount the exchange rate between the
reporting currency and the foreign currency at the
date of the transaction.
(ii) Conversion
Monetary assets and liabilities denominated in
foreign currencies are translated at the functional
currency spot rates of exchange at the reporting
date. Non-monetary items that are measured in
terms of historical cost in a foreign currency are
translated using the exchange rates at the dates
of the initial transactions.
(iii) Exchange differences
The Company accounts for exchange differences
arising on translation/ settlement of foreign
currency monetary items as income or as
expenses in the period in which they arise.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using
the exchange rates at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the
date when the fair value is determined. The gain or loss
arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of the
gain or loss on the change in fair value of the item (i.e.,
translation differences on items whose fair value gain
or loss is recognized in OCI or profit or loss are also
recognized in OCI or profit or loss, respectively).
m. 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.
(i) Financial Assets
Initial recognition and measurement
Financial assets are classified, at initial recognition,
as subsequently measured at amortized cost,
fair value through other comprehensive income
(OCI) and fair value through profit or loss.
The classification of financial assets at initial
recognition depends on the financial asset's
contractual cash flow characteristics and the
Company's business model for managing them.
With the exception of trade receivables that do
not contain a significant financing component or
for which the Company has applied the practical
expedient, the Company initially measures a
financial asset at its fair value plus, in the case of
a financial asset not at fair value through profit or
loss, transaction costs. Trade receivables that do
not contain a significant financing component or
for which the Company has applied the practical
expedient are measured at the transaction price
as disclosed under Revenue recognition policy.
In order for a financial asset to be classified
and measured at amortized cost or fair value
through OCI, it needs to give rise to cash flows
that are 'solely payments of principal and interest
(SPPI)' on the principal amount outstanding. This
assessment is referred to as the SPPI test and is
performed at an instrument level. Financial assets
with cash flows that are not SPPI are classified
and measured at fair value through profit or loss,
irrespective of the business model.
The Company's business model for managing
financial assets refers to how it manages its
financial assets in order to generate cash flows.
The business model determines whether cash
flows will result from collecting contractual
cash flows, selling the financial assets, or both.
Financial assets classified and measured at
amortized cost are held within a business model
with the objective to hold financial assets in
order to collect contractual cash flows while
financial assets classified and measured at fair
value through OCI are held within a business
model with the objective of both holding to collect
contractual cash flows and selling.
Purchases or sales of financial assets that require
delivery of assets within a time frame established
by regulation or convention in the market place
(regular way trades) are recognized on the trade
date, i.e., the date that the Company commits to
purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement,
financial assets are classified in four categories:
• Financial assets at amortized cost (debt
instruments)
• Financial assets at fair value through other
comprehensive income (FVTOCI) (debt
instruments)
• Financial assets at fair value through OCI
(equity instruments)
• Financial assets at fair value through profit
or loss
Financial assets at amortized cost (debt
instruments)
Financial assets are subsequently measured at
amortized cost if these financial assets are held
within a business whose objective is to hold these
assets in order 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 ('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. The
EIR amortization is included in finance income
in the profit or loss. The losses arising from
impairment are recognized in the profit or loss.
The effective interest method is a method of
calculating the amortized cost of a financial
instrument and of allocating interest income or
expense over the relevant period. The effective
interest rate is the rate that exactly discounts
future cash receipts or payments through the
expected life of the financial instrument, or where
appropriate, a shorter period.
Financial assets at fair value through other
comprehensive income (debt instruments)
Financial assets are measured at fair value
through other comprehensive income if these
financial assets are held within a business
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.
Debt instruments included within the FVTOCI
category are measured initially as well as at each
reporting date at fair value. For debt instruments,
at fair value through OCI, interest income, foreign
exchange revaluation and impairment losses or
reversals are recognized in the profit or loss and
computed in the same manner as for financial
assets measured at amortized cost. The remaining
fair value changes are recognized in OCI. Upon
derecognition, the cumulative fair value changes
recognized in OCI is reclassified from the equity
to profit or loss.
Financial assets at fair value through other
comprehensive income (equity instruments)
Upon initial recognition, the Company can elect
to classify irrevocably its equity investments
as equity instruments designated at fair value
through OCI when they meet the definition of
equity under Ind AS 32 Financial Instruments:
Presentation and are not held for trading. The
classification is determined on an instrument-by¬
instrument basis. The Company elects to measure
all equity investments at fair value through other
comprehensive income, except for investments in
subsidiary/ associate which is measured at cost.
Equity instruments which are held for trading
and contingent consideration recognized by an
acquirer in a business combination to which Ind
AS 103 applies are classified as at FVTPL.
Gains and losses on these financial assets are
never recycled to profit or loss. Dividends are
recognized as other income in the statement of
profit and loss when the right of payment has
been established, except when the Company
benefits from such proceeds as a recovery of
part of the cost of the financial asset, in which
case, such gains are recorded in OCI. Equity
instruments designated at fair value through OCI
are not subject to impairment assessment.
Financial assets at fair value through profit
or loss
Financial assets at fair value through profit or
loss are carried in the balance sheet at fair value
with net changes in fair value recognized in the
statement of profit and loss. Financial assets
are measured at fair value through profit or loss
unless it is measured at amortized cost or at fair
value through other comprehensive income on
initial recognition. The transaction costs directly
attributable to the acquisition of financial assets
and liabilities at fair value through profit or loss
are immediately recognized in statement of profit
and loss.
Embedded derivatives
A derivative embedded in a hybrid contract,
with a financial liability or non-financial host,
is separated from the host and accounted
for as a separate derivative if: the economic
characteristics and risks are not closely related
to the host; a separate instrument with the same
terms as the embedded derivative would meet the
definition of a derivative; and the hybrid contract
is not measured at fair value through profit or
loss. Embedded derivatives are measured at fair
value with changes in fair value recognized in
profit or loss. Reassessment only occurs if there
is either a change in the terms of the contract that
significantly modifies the cash flows that would
otherwise be required or a reclassification of a
financial asset out of the fair value through profit
or loss category.
Impairment of financial assets
The Company recognizes an allowance for
expected credit losses (ECLs) for all debt
instruments not held at fair value through profit or
loss. ECLs are based on the difference between
the contractual cash flows due in accordance
with the contract and all the cash flows that the
Company expects to receive, discounted at an
approximation of the original effective interest
rate. The expected cash flows will include cash
flows from the sale of collateral held or other
credit enhancements that are integral to the
contractual terms.
ECLs are recognized in two stages. For credit
exposures for which there has not been a
significant increase in credit risk since initial
recognition, ECLs are provided for credit losses
that result from default events that are possible
within the next 12-months (a 12-month ECL). For
those credit exposures for which there has been
a significant increase in credit risk since initial
recognition, a loss allowance is required for credit
losses expected over the remaining life of the
exposure, irrespective of the timing of the default
(a lifetime ECL).
For trade receivables, the Company applies
a simplified approach in calculating ECLs.
Therefore, the Company does not track changes in
credit risk, but instead recognizes a loss allowance
based on lifetime ECLs at each reporting date. The
Company has established a provision matrix that
is based on its historical credit loss experience,
adjusted for forward-looking factors specific to
the debtors and the economic environment.
De-recognition of financial assets
The Company de-recognizes a financial asset only
when the contractual rights to the cash flows
from the financial asset expire, or it transfers the
financial asset and the transfer qualifies for de¬
recognition under Ind AS 109.
If the Company neither transfers nor retains
substantially all the risks and rewards of
ownership and continues to control the
transferred asset, the Company recognizes its
retained interest in the assets and an associated
liability for amounts it may have to pay. If the
Company retains substantially all the risks and
rewards of ownership of a transferred financial
asset, the Company continues to recognize the
financial asset and recognizes a collateralized
borrowing for the proceeds received.
On de-recognition of a financial asset in its
entirety, the difference between the carrying
amounts measured at the date of de-recognition
and the consideration received is recognized in
statement of profit or loss.
(ii) Financial Liabilities and equity instruments
Initial recognition and measurement
Financial liabilities and equity instruments issued
by the Company are classified according to the
substance of the contractual arrangements
entered into and the definitions of a financial
liability and an equity instrument.
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. The Company's financial liabilities include
trade and other payables, capital creditors,
unpaid dividend and employee dues.
An equity instrument is any contract that
evidences a residual interest in the assets of
the Company after deducting all of its liabilities.
Equity instruments are recorded at the proceeds
received, net of direct issue costs
Subsequent measurement
For purposes of subsequent measurement,
financial liabilities are classified in two categories:
• Financial liabilities at fair value through
profit or loss
• Financial liabilities at amortized cost
Financial liabilities at fair value through
profit or loss
Financial liabilities at fair value through profit or
loss include financial liabilities held for trading
and financial liabilities designated upon initial
recognition as at fair value through profit or
loss. Financial liabilities are classified as held
for trading if they are incurred for the purpose of
repurchasing in the near term. This category also
includes derivative financial instruments entered
into by the Company that are not designated as
hedging instruments as defined by Ind AS 109.
Gains or losses on liabilities held for trading are
recognized in the profit or loss.
Financial liabilities at amortized cost
Financial liabilities are subsequently carried at
amortized cost using the effective interest ('EIR')
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.
De-recognition of financial liabilities
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 de-recognition 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.
Supplier finance arrangements
The Company has established supplier finance
arrangements [refer note 14(c)]. The Company
evaluates whether financial liabilities covered
such arrangements continue to be classified
within trade payables, or they need to be
classified as a borrowing or as part of other
financial liabilities/ as a separate line item on
the face of the balance sheet. Such evaluation
requires exercise of judgment basis specific terms
of the arrangement.
The Company classifies financial liabilities
covered under supplier finance arrangement
within trade payables in the balance sheet only if
(i) the obligation represents a liability to pay for
goods and services, (ii) is invoiced and formally
agreed with the supplier, (iii) is part of the working
capital used in its normal operating cycle, (iv) the
Company is not legally released from its original
obligation to the supplier, and has not assumed
a new obligation toward the bank, and another
party (iv) there is no substantial modification to
the terms of the liability.
If one or more of the above criteria are not met, the
Company derecognizes its original liability toward
the supplier and recognize a new liability toward
the bank which is classified as bank borrowing or
other financial liability, depending on factors such
as whether the Company (i) has obligation toward
bank, (ii) is getting extended credit period such
that obligation is no longer part of its working
capital cycle, (iii) is paying interest directly or
indirectly, (iv) has provided guarantee or security,
and/ or (v) is recognized as borrower in the bank
books.
Cash flows related to liabilities arising from
supplier finance arrangements that continue to
be classified in trade payables in the standalone
balance sheet are included in operating activities
in the standalone statement of cash flows, when
the Company finally settles the liability.
In cases, where the Company has derecognized its
original liability toward the supplier and recognize
a new liability toward the bank, the Company
has assessed that the bank is acting as its agent
in making payment to the supplier. Accordingly,
the Company presents operating cash outflow
and financing cash inflow, when bank made
payment to the supplier. The payment made by
the Company to the bank toward interest, if any,
as well as on settlement is presented as financing
cash outflow.
(iii) Reclassification of financial assets and
liabilities
The Company determines classification of financial
assets and liabilities on initial recognition. After
initial recognition, no reclassification is made
for financial assets which are equity instruments
and financial liabilities. For financial assets which
are debt instruments, a reclassification is made
only if there is a change in the business model for
managing those assets. Changes to the business
model are expected to be infrequent.
(iv) Off-setting of financial instruments
Financial assets and financial liabilities are offset
and the net amount is reported in the balance
sheet if there is a currently enforceable legal right
to offset the recognized amounts and there is an
intention to settle on a net basis, to realize the
assets and settle the liabilities simultaneously
(v) Derivative financial instruments
The Company uses derivative financial
instruments, such as forward currency contracts,
to hedge its foreign currency risks. Such derivative
financial instruments are initially recognized
at fair value on the date on which a derivative
contract is entered into and are subsequently re¬
measured at fair value at the end of each reporting
period. Derivatives are carried as financial assets
when the fair value is positive and as financial
liabilities when the fair value is negative. Any gains
or losses arising from changes in the fair value of
derivatives are taken directly to profit or loss.
n. 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 indication exists, or when annual impairment
testing for an asset is required, the Company estimates
the asset's recoverable amount. An asset's recoverable
amount is the higher of an asset's or cash-generating
unit's ('CGU') net selling price and its value in use. The
recoverable amount is determined for an individual
asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets
or groups of assets. When the carrying amount of an
asset or CGU exceeds its recoverable amount, the
asset is considered impaired and is written down to
its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects
current market assessments of the time value of money
and the risks specific to the asset. In determining
net selling price, recent market transactions are
considered, if available. If no such transactions can be
identified, an appropriate valuation model is used.
Impairment losses are recognized in the statement
of profit and loss. After impairment, depreciation is
provided on the revised carrying amount of the asset
over its remaining useful life.
For all non-financial assets, an assessment is made
at each reporting date as to whether there is any
indication that previously recognized impairment
losses may no longer exist or may have decreased. If
such indication exists, the Company estimates the
asset's or cash-generating unit's recoverable amount. A
previously recognized impairment loss is reversed only
if there has been a change in the assumptions used to
determine the asset's recoverable amount since the last
impairment loss was recognized. The reversal is limited
so that the carrying amount of the asset does not
exceed its recoverable amount, nor exceed the carrying
amount that would have been determined, net of
depreciation, had no impairment loss been recognized
for the asset in prior years. Such reversal is recognized
in the statement of profit and loss unless the asset is
carried at a revalued amount, in which case, the reversal
is treated as a revaluation increase.
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