3. Material Accounting Policy
(i) Measurement of Fair value
The Company measures financial instruments, such as investments at fair values at each Balance Sheet date.
Certain accounting policies and disclosures require the measurement of fair values, for both financial and non¬
financial assets and liabilities.
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 in the principal or, in its absence, the most advantageous
market to which the company has access at that date. The fair value of a liability also reflects its non-performance
risk.
The best estimate of the fair value of a financial instrument on initial recognition is normally the transaction price
- i.e. the fair value of the consideration given or received. If the Company determines that the fair value on initial
recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active
market for an identical asset or liability nor based on a valuation technique that uses only data from observable
markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the
fair value on initial recognition and the transaction price. Subsequently that difference is recognized in Statement of
Profit and Loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly
supported by observable market data or the transaction is closed out.
While measuring the fair value of an asset or liability, the Company uses observable market data as far as possible.
Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation
technique as follows:
- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2: inputs other than quoted prices included in Level 1 that are observable for the assets or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices)
- Level 3: inputs for the assets or liability that are not based on observable market data (unobservable inputs)
When quoted price in active market for an instrument is available, the Company measures the fair value of the
instrument using that price. A market is regarded as active if transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on an ongoing basis.
If there are no quoted prices in an active market, then the Company uses a valuation technique that maximizes the
use of relevant observable inputs and minimizes the use of unobservable inputs. The chosen valuation technique
incorporates all of the factors that market participants would take into account in pricing a transaction.
The Company regularly reviews significant unobservable inputs and valuation adjustments. If the third-party
information, such as broker quotes or pricing services, is used to measure fair values, then the Company assesses
the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements
of Ind AS, including the level in the fair value hierarchy in which the valuations should be classified.
(ii) Property, plant and equipment and depreciation
Property, plant and equipment is stated at acquisition cost net of accumulated depreciation and accumulated
impairment losses, if any. 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. All other repairs and maintenance are charged to
the Statement of Profit and Loss during the period in which they are incurred. Gains or losses arising on retirement
or disposal of property, plant and equipment are recognized in the Statement of Profit and Loss.
Depreciation is calculated on a Written Down Value basis over the estimated useful life of the assets (as per the
Schedule II of the Companies Act, 2013)
(iii) Intangible assets and amortization
Intangible fixed assets are recognized when it is probable that the future economic benefits that are attributable to
the assets will flow to the Company and the cost of the assets can be measured reliably. Intangible assets are stated
at cost less accumulated amortization and impairment loss, if any.
Intangible assets are amortized uniformly over the best estimate of their useful lives. Estimated useful life considered
for amortization of Intangible assets is from 3 - 5 years from the date of acquisition.
(iv) Financial Assets
a. Initial recognition and measurement
All financial assets are recognized initially at fair value plus transaction costs that are attributable to the
acquisition of the financial asset.
b. Subsequent measurement
Subsequent measurement is determined with reference to the classification of the respective financial assets.
Based on the business model for managing the financial assets and the contractual cash flow characteristics
of the financial asset, the Company classifies financial assets as subsequently measured at amortized cost, fair
value through other comprehensive income or fair value through profit and loss.
c. Financial Asset Other than Equity instrument at amortized cost
A 'Financial Asset' is measured at the amortized cost if both the following conditions are met:
The asset is held within a business model whose objective is to hold assets for collecting contractual cash
flows, and Contractual terms of the 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. Amortized cost is calculated by taking into account any discount or premium and
fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the
Statement of Profit and Loss. The losses arising from impairment are recognized in the Statement of Profit and
Loss.
d. Financial Asset at Fair value through Other Comprehensive Income (FVOCI)
'Financial Asset' is measured at the fair value through Other Comprehensive Income if both the following
conditions are met:
The asset is held within a business model whose objective is achieved by both collecting contractual cash
flows and selling financial assets and contractual terms of the asset give rise on specified dates to cash flows
that are SPPI on the principal amount outstanding.
After initial measurement, these assets are subsequently measured at fair value. Interest income under
effective interest method, foreign exchange gains and losses and impairment losses are recognized in the
Statement of Profit and Loss. Other net gains and losses are recognized in other comprehensive Income.
e. Financial Asset at Fair value through Profit or Loss (FVTPL)
Fair Value through Profit or Loss is a residual category for debt instruments. Any debt instrument, which does
not meet the criteria for categorization at amortized cost or as FVOCI, is classified as FVTPL.
After initial measurement, any fair value changes including any interest income, foreign exchange gain and
losses, impairment losses and other net gains and losses are recognized in the Statement of Profit and Loss.
f. Equity investments
All equity investments within the scope of Ind-AS 109 are measured at fair value. Such equity instruments
which are held for trading are classified as FVTPL. For all other such equity instruments, the Company decides
to classify the same either as FVOCI or FVTPL. The Company makes such election on an instrument-by¬
instrument basis. The classification is made on initial recognition and is irrevocable.
For equity instruments classified as FVOCI, all fair value changes on the instrument, excluding dividends, are
recognized in Other Comprehensive Income (OCI). Dividends on such equity instruments are recognized in
the Statement of Profit or Loss.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized
in the Statement of Profit and Loss.
g. De-recognition
A financial asset (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 Balance Sheet) when the rights to receive cash
flows from the asset have expired or the Company has transferred its rights to receive cash flows from the
asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party
under a 'pass-through' arrangement; and either:
- The Company has transferred substantially all the risks and rewards of the asset, or
- The Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
On de-recognition, any gains or losses on all debt instruments (other than debt instruments measured at
FVOCI) and equity instruments (measured at FVTPL) are recognized in the Statement of Profit and Loss.
Gains and losses in respect of debt instruments measured at FVOCI and that are accumulated in OCI are
reclassified to profit or loss on de-recognition. Gains or losses on equity instruments measured at FVOCI that
are recognized and accumulated in OCI are not reclassified to profit or loss on de-recognition.
h. Impairment of financial assets
In accordance with Ind-AS 109, the Company applies Expected Credit Loss ("ECL") model for measurement
and recognition of impairment loss on the financial assets measured at amortized cost and debt instruments
measured at FVOCI.
Loss allowances on trade receivables are measured following the 'simplified approach' at an amount equal to
the lifetime ECL at each reporting date. In respect of other financial assets such as debt securities and bank
balances, the loss allowance is measured at 12-month ECL only if there is no significant deterioration in the
credit risk since initial recognition of the asset or asset is determined to have a low credit risk at the reporting
date.
(v) Financial Liabilities
a. Initial recognition and measurement
Financial liabilities are initially recognized when the company becomes a party to the contractual provisions
of the instrument.
Financial liability is initially measured at fair value plus, for an item not at fair value through profit and loss,
transaction costs that are directly attributable to its acquisition or issue.
b. Subsequent measurement
Subsequent measurement is determined with reference to the classification of the respective financial
liabilities.
c. Financial Liabilities at Fair Value through Profit or Loss (FVTPL)
Financial liability is classified as at Fair Value through Profit or Loss (FVTPL) if it is classified as held-for-trading
or is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and
changes therein, including any interest expense, are recognized in Statement of Profit and Loss.
d. Financial Liabilities at amortized cost
After initial recognition, financial liabilities other than those which are classified as FVTPL are subsequently
measured at amortized cost using the effective interest rate ("EIR") method.
Amortized cost is calculated by taking into account any discount or premium and fees or costs that are an
integral part of the EIR. The amortization done using the EIR method is included as finance costs in the
Statement of Profit and Loss.
e. De-recognition
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.
f. Offsetting 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.
(vi) Inventories:
Inventories of Raw Materials, Work-in-Progress, Stores and spares, Finished Goods and Stock-in-trade are stated
'at cost or net realizable value, whichever is lower'. Goods-in-Transit are stated 'at cost'. Cost comprises all cost
of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and
condition. Cost formulae used are 'First-in-First-out'. Due allowance is estimated and made for defective and
obsolete items, wherever necessary.
(vii) Borrowing cost and finance charges:
Borrowing costs are interest and other costs incurred in connection with the borrowing of funds. Borrowing costs
directly attributable to acquisition or construction of an asset which necessarily take a substantial period of time
to get ready for their intended use are capitalized as part of the cost of that asset. Other borrowing costs are
recognized as an expense in the period in which they are incurred. Finance charges incurred in raising long term
borrowing is amortized over the tenure of the borrowing.
(viii) Segment reporting:
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision maker.
(ix) Revenue recognition:
a. Sale of goods and services:
Revenue from sales is recognized when significant risks and rewards of ownership have been transferred to
the buyer which is normally on delivery of goods and is net of value added tax / Goods and Service Tax.
Revenue is recognized on satisfaction of performance obligation upon transfer of control of promised products
or services to customers in an amount that reflects the consideration the Company expects to receive in
exchange for those products or services.
b. Interest Income:
For all debt instruments measured either at amortized cost or at fair value through other comprehensive
income [OCI], interest income is recorded using the effective interest rate [EIR]. EIR is the rate that exactly
discounts the estimated future cash payments or receipts over the expected life of the financial instrument
or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized
cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected
cash flows by considering all the contractual terms of the financial instrument [for example, prepayment,
extension, call and similar options.
c. Dividend income:
Dividend income from investments is recognized when the Company's right to receive payment is established
which is generally when shareholders approve the dividend.
d. Other income:
Other Income is recognized when no significant uncertainty as to its determination or realization exists.
(x) Taxation:
Tax expense comprises of current tax and deferred tax.
a. Current tax:
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, by the end of reporting period.
Current Tax items are recognized in correlation to the underlying transaction either in the Statement of Profit
and Loss, other comprehensive income or directly in equity.
Current tax assets and liabilities are offset only if, the Company has a legally enforceable right to set off the
recognized amounts; and intends either to settle on a net basis, or to realize the asset and settle the liability
simultaneously.
b. Deferred tax
Deferred tax is provided using the Balance Sheet method on temporary differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognized for all taxable temporary differences.
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. Deferred Tax items are recognized in correlation to the underlying
transaction either in the Statement of Profit and Loss, other comprehensive income or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current
tax assets against current tax liabilities and when the deferred taxes relate to the same taxable entity and the
same taxation authority.
(xi) Leases:
Company as Lessee
A lessee measures right-of-use assets similarly to other non-financial assets (such as property, plant and equipment)
and lease liabilities similarly to other financial liabilities. As a consequence, a lessee recognizes depreciation of the
right-of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a
principal portion and an interest portion. As the company do not have any leases as on reporting date, Ind AS 116 is
not expected to impact them.
Company as Lessor
Leases for which the company is a lessor classified as finance or operating.
Lease income from operating leases where the Company is a lessor is recognized in income on a straight-line basis
over the lease term unless the receipts are structured to increase in line with expected inflationary cost increases.
The respective leased assets are included in the balance sheet based on their nature.
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