D Material Accounting Policies
a. Property, Plant & Equipment
(i) Recognition and Measurement
Property, plant and equipment is initially measured at cost net of tax credit availed less
accumulated depreciation and accumulated impairment losses, if any. The cost of an item
of property, plant and equipment comprises:
- its purchase price, including import duties and non-refundable purchase taxes, after
deducting trade discounts and rebates.
- any costs directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended by management.
If significant parts of an item of property, plant and equipment have different useful lives,
then they are accounted for as separate items (major components) of property, plant and
equipment.
Subsequent expenditure is capitalised only if it is probable that future economic benefits
associated with the expenditure will flow to the Company and the cost of the item can be
measured reliably.
When significant parts of Property, Plant and Equipment are required to be replaced,
the Company derecognises the replaced part and recognises the new part with its own
associated useful life and it is depreciated accordingly.
(ii) Depreciation
Depreciable amount for property, plant and equipment is the cost of property, plant and
equipment less its estimated residual value.
Depreciation is provided on Straight Line Method over the estimated useful lives of the
property, plant and equipment prescribed under Schedule II to the Companies Act, 2013 on
pro rata basis.In cases, where the useful lives are different from that prescribed in Schedule
II, they are based on internal technical evaluation.
The estimated useful lives, residual values and depreciation methods are reviewed by the
management at each reporting date and adjusted if appropriate.
(iii) Disposal or Retirement
Property, plant and equipment are derecognised either on disposal or when no economic
benefits are expected from its use. The gain or loss arising from disposal of property, plant
and equipment are determined by comparing the proceeds from disposal with the carrying
amount of property, plant and equipment and recognised in the Statement of Profit and
Loss in the year of occurrence.
b. Capital Work In Progress
Capital work in progress includes the acquisition/commissioning cost of assets under expansion/
acquisition and pending commissioning. Expenditure of revenue nature related to such
acquisition/expansion is also treated as capital work in progress and capitalised along with the
asset.
c. Leases
(i) As a lessee
The Company's lease assets primarily consist of land and buildings. The Company assesses
whether a contract contains a lease at the inception of the contract. Leases of assets
(other than short term leases or leases for which the underlying asset is of low value) are
recognised if the lease contract conveys the right to the Company to control the use of an
identified asset for a period of time in exchange for consideration. A contract conveys the
right to control the use of an identified asset for a period of time, if throughout the period
of lease, the Company has both of the following:
a) The right to obtain substantially all of the economic benefits from use of the identified
asset.
b) The right to direct the use of the identified asset.
At the date of commencement of lease, the Company recognises a Right-Of-Use asset and
a corresponding lease liability for all lease arrangements in which it is a lessee except for
leases for a term of twelve months or less (short term leases) and low value leases. For
short term leases and low value leases, the Company recognises the lease payments as an
expense on a straight-line basis over the lease term. Certain lease arrangements includes
the options to extend or terminate the lease before the end of the lease term. Right-of-use
assets and lease liabilities include these options when it is reasonably certain that they will
be exercised.
The right-of-use asset is initially measured at cost, which comprises the initial amount of
the lease liability adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred. The right-of-use is subsequently depreciated
using the straight-line method from the commencement date to the the end of the lease
term.
The lease liability is initially measured at the present value of the lease payments that are
not paid at the commencement date discounted using the the incremental borrowing rate
in the country of domicile of the leases. The lease liability is measured at amortised cost
using the effective interest method. It is remeasured when there is a change in future lease
payments or if Company changes its assessment of whether it will exercise a purchase,
extension or termination option. When the lease liability is remeasured, a corresponding
adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit
or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Lease liability and Right Of Use asset have been separately presented in the Balance Sheet
and lease payments have been classified as financing cash flows.
As a lessor
The Company's lease assets primarily consist of buildings and plant & machinery.
Leases for which the Company is a lessor is classified either as a finance or operating lease.
Whenever the terms of the lease transfer substantially all the risks and rewards of ownership
to the lessee, the contract is classified as a finance lease. All other leases are classified as
operating leases.
For operating leases, rent income is recognised as income on a straight line basis over lease
term unless the receipts are structured to increase in line with expected general inflation.
d. Investment Property
(i) Recognition and Measurement
Land or building held to earn rentals or for capital appreciation or both rather than for use
in the production or supply of goods or services or for administrative purposes; or sale
in the ordinary course of business is recognised as Investment Property. Land held for a
currently undetermined future use is also recognised as Investment Property.
An investment property is measured initially at cost of acquisition or construction including
transaction cost.
After initial recognition, the Company measures investment property using cost model and
discloses the fair value of investment property in the notes. Fair value is determined based
on the evaluation performed by an external independent valuer.
Investment property is derecognised from the financial statement either on disposal or
when no economic benefits are expected from its use.
The gain or loss arising from disposal of investment property are determined by comparing
the proceeds from disposal with the carrying amount of investment property and recognised
in the Statement of Profit and Loss in the year of occurrence.
e. Intangible Assets
(i) Initial Recognition
Acquired Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost
of intangible assets acquired in a business combination is their fair value at the date of
acquisition.
Internally generated intangible assets
Expenditure on research activities is recognised as expenses in the period in which it is
incurred.
An internally generated intangible asset arising from development is recognised if, and only
if, all of the following conditions have been met:
a) It is technically feasible to complete the intangible asset so that it will be available for
use or sale.
b) There is an intention to complete the asset.
c) There is an ability to use or sell the asset.
d) The asset will generate future economic benefits.
e) Adequate resources are available to complete the development and to use or sell the
asset.
f) The expenditure attributable to the intangible asset during development phase can be
measured reliably.
Where no internally generated intangible asset can be recognised, the development
expenditure is recognised in the Statement of Profit and Loss in the period in which it is
incurred.
(ii) Amortisation
Amortisation is calculated to write off the cost of intangible assets less their estimated
residual values using the Straight-Line Method over their estimated useful lives, and is
recognised in Statement of Profit and Loss.
Estimated useful lives by major class of intangible assets are as follows:
Software - 3 to 6 years
Technical know-how - 10 years
An item of intangible asset is derecognised either on disposal or when no economic benefits
are expected from its use or disposal. The gain or loss arising from disposal of intangible
assets are determined by comparing the proceeds from disposal with the carrying amount
of intangible assets and recognised in the Statement of Profit and Loss in the period of
occurrence.
f. Impairment of non-financial assets
At the end of each reporting period, the Company reviews the carrying amounts of its tangible
and intangible assets to determine whether there is any indication that the assets have suffered
an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of impairment loss (if any).
If the recoverable amount of asset is estimated to be less than its carrying amount, the carrying
amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as
an expense in the Statement of Profit and Loss.
When an impairment loss subsequently reverses, the carrying amount of an asset is increased
to the revised estimate of its recoverable amount, so that the increased carrying amount does
not exceed the carrying amount that would have been determined had no impairment loss been
recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately
in the Statement of Profit and Loss.
g. Investment in Subsidiaries and Associate
Investment in equity shares of subsidiaries and associate are recorded at cost less accumulated
impairment, if any, and reviewed for impairment at each reporting date. Where an indication
of impairment exists, the carrying amount of the investment is assessed and written down
immediately to its recoverable amount. On disposal of investments in subsidiaries and associate,
the difference between net disposal proceeds and the carrying amounts are recognized in the
Statement of Profit and Loss.
h. Financial Instruments
A financial instrument is a contract that gives rise to financial asset of one entity and financial
liability or equity instrument of another entity.
I. Financial Assets
Financial assets are recognised when the Company becomes a party to the contractual provisions
of the instrument.
(i) Initial recognition and measurement
All financial assets are recognized at fair value on initial recognition, except for trade
receivables which are initially measured at transaction price. Transaction costs that are
directly attributable to the acquisition of financial assets, which are not at fair value through
profit or loss, are added to the fair value on initial recognition.
(ii) Subsequent measurement and classification
For the purpose of subsequent measurement, the financial assets are classified into three
categories on the basis of its business model for managing the financial assets :
- Financial assets at amortised cost
- Financial assets at Fair Value through Other Comprehensive Income (FVTOCI)
- Financial assets at Fair Value through profit or loss (FVTPL)
(iii) Financial assets at amortised cost
A financial asset is subsequently measured at amortised cost if it is held within a business
model whose objective is to hold assets for collecting contractual cash flows and the
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 amortised
cost using the effective interest rate (EIR) method, less impairment, if any. The EIR
amortisation is included in other income in the Statement of Profit and Loss. The losses
arising from impairment are recognised in the Statement of Profit and Loss.
(iv) Financial assets at Fair Value Through Other Comprehensive Income (FVTOCI)
A financial asset is measured at Fair Value Through Other Comprehensive Income (FVTOCI)
if it is held within a business model 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. Fair value movements are recognized in the other
comprehensive income (OCI).
Interest income measured using the EIR method and impairment losses, if any are recognised
in the Statement of Profit and Loss. On derecognition, cumulative gain or loss previously
recognised in OCI is reclassified from the equity to 'other income' in the Statement of Profit
and Loss.
(v) Financial assets at Fair Value Through Profit or Loss (FVTPL)
A financial asset which are not classified in any of the above categories are measured
at FVTPL. Such financial assets are measured at fair value with all changes in fair value,
including interest income and dividend income if any, recognised as 'other income' in the
Statement of Profit and Loss.
(vi) Financial assets as Equity Investments
All equity instruments other than investment in subsidiaries and associate are initially
measured at fair value; the Company may, on initial recognition, irrevocably elect to measure
the same either at FVTOCI or FVTPL.
The Company makes such election on an instrument-by-instrument basis. A fair value
change on an equity instrument is recognised as other income in the Statement of Profit
and Loss unless the Company has elected to measure such instrument at FVTOCI. Fair value
changes excluding dividends, on an equity instrument measured at FVTOCI are recognised
in OCI. Amounts recognised in OCI are not subsequently reclassified to the Statement of
Profit and Loss. Dividend income on the investments in equity instruments are recognised
as 'other income' in the Statement of Profit and Loss.
(vii) Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a Company of
similar financial assets) is derecognised (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 and either
(a) the Company has transferred substantially all the risks and rewards of the asset,
or (b) the Company has neither transferred nor retained substantially all the risks and
rewards of the asset, but has transferred control of the asset.
(viii) Impairment of financial assets
The Company recognizes loss allowance using the Expected Credit Loss (ECL) model
for financial assets which are not fair valued through profit and loss. Loss allowance for
trade receivables with no significant financing component is measured at an amount equal
to lifetime ECL. For all other financial assets, expected credit losses are measured at an
amount equal to the 12-month ECL, unless there has been a significant increase in credit
risk from initial recognition in which case those are measured at lifetime ECL.
For trade receivables only, the Company applies the simplified approach permitted by Ind
AS 109 Financial Instruments, which requires expected lifetime losses to be recognised
from initial recognition of the receivables. The application of simplified approach does not
require the Company to track changes in credit risk.
II. Financial Liabilities
(i) Classification
The Company classifies all financial liabilities as subsequently measured at amortised cost
except hybrid instruments with embedded derivatives where the embedded derivative
cannot be measured separately either at inception or at the end of a subsequent reporting
financial period in which case it is measured at Fair Value through Profit or Loss. In case the
embedded derivatives can be separated, the same is measured at Fair Value Through Profit
or Loss and the host contract is measured at amortised cost.
(ii) Initial recognition and measurement
All financial liabilities are recognised initially at fair value and, in case of loans and borrowings
and payables, net of directly attributable transaction costs.
(iii) Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured
at amortised cost using the Effective Interest Rate (EIR) method. Amortised cost is
calculated by taking into account any discount or premium on acquisition and transactions
costs. The EIR amortisation is included as finance costs in the Statement of Profit and Loss.
Gains and losses are recognised in Statement of Profit and Loss when the liabilities are
derecognised.
(iv) Financial guarantee contracts
Financial guarantee contracts issued by a Company are initially measured at their fair values
and, if not designated as at FVTPL, are subsequently measured at the amount initially
recognised less cumulative amount of income recognised in accordance with Ind AS.
(v) Compound financial instruments
Compound financial instruments issued by the Company which can be converted into fixed
number of equity shares at the option of the holders irrespective of changes in the fair
value of the instrument are accounted by separately recognising the liability and the equity
components. The liability component is initially recognised at the fair value of a comparable
liability that does not have an equity conversion option. The equity component is initially
recognised at the difference between the fair value of the compound financial instrument
as a whole and the fair value of the liability component. The directly attributable transaction
costs are allocated to the liability and the equity components in proportion to their initial
carrying amounts. Subsequent to initial recognition, FCCB being a hybrid contract, if the
embedded derivative can be separated and measured, then the same is measured at fair
value and designated as FVTPL, while the remaining liability component is subsequently
measured at amortised cost using effective interest rate method. The equity component of
a compound financial instrument is not remeasured subsequently.
(vi) Derecognition
A financial liability is derecognised 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 recognised in the Statement of Profit and Loss.
III. 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 recognised
at fair value on the date on which a derivative contract is entered into and are subsequently re¬
measured at fair value. Derivatives are carried as financial assets when the fair value is positive
and as financial liabilities when the fair value is negative.
(i) Cash flow hedge
The Company classifies foreign exchange forward contracts that hedge foreign currency
risk associated with highly probable forecast transactions as cash flow hedge and measures
them at fair value. The effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognised in other comprehensive
income and accumulated under hedging reserve. The gain or loss relating to the ineffective
portion is recognised immediately in the profit or loss, and is included in the 'Other income/
expenses' line item. Amounts previously recognised in other comprehensive income and
accumulated in equity relating to effective portion (as described above) are reclassified to
the consolidated profit or loss in the periods when the hedged item affects consolidated
profit or loss, in the same line as the recognised hedged item. The effective portion of the
hedge is determined at the lower of the cumulative gain or loss on the hedging instrument
from inception of the hedge and the cumulative change in the fair value of the hedged item
from the inception of the hedge and the remaining gain or loss on the hedging instrument
is treated as ineffective portion. Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for
hedge accounting. When a forecast transaction is no longer expected to occur, the gain or
loss accumulated in equity is recognised in profit or loss.
(ii) Fair value hedge
Changes in fair value of the designated portion of derivatives that qualify as fair value
hedges are recognised in profit or loss immediately, together with any changes in the
fair value of the hedged asset or liability that are attributable to the hedged risk. Hedge
accounting is discontinued when the hedging instrument expires or is sold, terminated, or
exercised, or when it no longer qualifies for hedge accounting.
IV 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 recognised amounts and there is
an intention to settle on a net basis or to realize the assets and settle the liabilities simultaneously.
V Incremental costs directly attributable to the issue of ordinary equity shares, are recognised as
a deduction from equity.
i. Inventories
Inventories are valued at lower of cost and net realizable value. Costs are computed on weighted
average basis and are net of GST credits.
Raw materials, packing materials and stores: Cost includes cost of purchase and other costs
incurred in bringing the inventories to the present location and condition.
Finished Goods and Work in Progress: In case of manufactured inventories and work in progress,
cost includes all costs of purchase, an appropriate share of production overheads based on the
normal operating capacity and other costs incurred in bringing the inventories to the present
location and condition.
Net Realizable Value: Net realizable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and the estimated costs necessary to make the
sale.
j. Cash and Cash Equivalents
Cash and cash equivalents in the balance sheet comprise cash at bank and 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 flow, cash and cash equivalents consists 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.
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