2.1 Basis of preparation and measurement2.1.1 Basis of preparation
These financial statements have been prepared in
accordance with the Indian Accounting Standards
(hereinafter referred to as the 'Ind AS') as notified
by Ministry of Corporate Affairs pursuant to Section
133 of the Companies Act, 2013 read with Rule 3 of
the Companies (Indian Accounting Standards)
Rules, 2015 as amended from time to time and
presentation requirements of Division II of revised
Schedule III of the Companies Act 2013 (Ind AS
compliant Schedule III).
The financial statements have been prepared on
accrual and going concern basis. The accounting
policies are applied consistently to all the periods
presented in the financial statements.
The financial statements are presented in "S",
the functional currency of the Company. Items
included in the financial statements of the
Company are recorded using the currency of
the primary economic environment in which the
Company operates (the 'functional currency').
All amounts disclosed in the financial statements
and notes have been rounded off to the nearest
lakhs as per the requirements of Schedule III of
the Companies Act, 2013, unless otherwise stated.
Wherever the amount represented '0' (zero)
construes value less than Rupees fifty thousand.
2.1.2 Basis of Measurement
These financial statements are prepared under
the historical cost convention except for the
following assets and liabilities which have been
measured at fair value:
• Derivative financial instruments and
• Investment in others (refer accounting policy
regarding financial instruments)
In addition, the carrying values of recognised
assets and liabilities designated as hedged items
in fair value hedges that would otherwise be carried
at amortised cost are adjusted to record changes
in the fair values attributable to the risks that are
being hedged in effective hedge relationships.
2.2 Current versus non-current classification
The Company presents assets and liabilities in
the Balance Sheet based on current/non-current
classification. An asset is treated as current when
it is:
• Expected to be realised or intended to be sold
or consumed in normal operating cycle.
• Held primarily for the purpose of trading.
• Expected to be realised within twelve months
after the reporting period, or
Cash or cash equivalent unless restricted from
being exchanged or used to settle a liability for at
least twelve months after the reporting period. All
other assets are classified as non-current.
A liability is current when:
• It is expected to be settled in normal
operating cycle.
• It is held primarily for the purpose of trading.
• It is due to be settled within twelve months after
the reporting period, or
• There is no unconditional right to defer the
settlement of the liability for at least twelve
months after the reporting period.
The Company classifies all other liabilities as non¬
current.
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
realisation in cash and cash equivalents. The
Company has identified twelve months as its
operating cycle.
2.3 Revenue from operation2.3.1 Revenue from contracts with customers
Revenues from contracts with customers are
recognised when the performance obligations
towards customer have been met. Performance
obligations are deemed to have been met when
control of the goods or services are transferred
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 acts as the principle in all
of its revenue arrangements since it is the primary
obligor in all the revenue arrangements as it has
pricing latitude and is also exposed to inventory
and credit risks.
An entity collects Goods and Services Tax ('GST')
on behalf of the government and not on its own
account. Hence it is excluded from revenue, i.e.
Revenue is net of GST.
2.3.2 Sale of Goods
Revenue from sale of goods (Tyres, tubes, flaps
and tracks) is recognised at the point of time when
control of the goods is transferred to customer
depending on terms of sales.
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 (e.g. Sales
related obligations). In determining the transaction
price for the sale of goods, the Company considers
the effects of variable consideration, the existence
of significant financing components, if any.
2.3.2.1 Variable consideration
Variable consideration includes various forms
of discounts like volume discounts, price
concessions, incentives, etc. on the goods sold
to its dealers and distributors. In all such cases,
accumulated experience is used to estimate
and provide for the variability in revenue, using
the expected value method and the revenue is
recognised to the extent that it is highly probable
that a significant reversal in the amount of
cumulative revenue recognised will not occur in
future on account of refund or discounts.
2.3.2.2 Significant financing component
Generally, the Company receives short-term
advances from its customers. Using the practical
expedient in Ind AS 115, the Company does not
adjust the promised amount of consideration for
the effects of a significant financing component
if it expects, at contract inception, that the period
between the transfer of the promised good or
service to the customer and when the customer
pays for that good or service will be one year or
less.
2.3.3 Contract balances
Trade receivables
A receivable represents the Company's right to
an amount of consideration that is unconditional
(i.e., only the passage of time is required before
payment of the consideration is due). Refer to note
2.14 - Financial Instruments in accounting policies.
2.3.4 Dividend Income
Dividend income from investments is recognised
when the shareholder's right to receive payment
has been established (provided that it is
probable that the economic benefits will flow to
the Company and the amount of income can be
measured reliably).
2.4 Investments in subsidiaries and
joint ventures
Investments in subsidiaries and associates are
carried at cost less accumulated impairment
losses, if any. 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 associates, the difference
between net disposal proceeds and the carrying
amounts are recognised in the Statement of Profit
and Loss.
2.5 Government grants, subsidies and export
incentives
Government grants/subsidies are recognised
in statement of profit and loss as per income
approach when there is reasonable assurance
that the Company will comply with all the
conditions attached to them and that the grant/
subsidy will be received.
The Company has determined that reasonable
assurance is established upon receipt of
sanction letter approving the incentive amount in
accordance with the respective State Industrial
Promotion Subsidy.
The Company has chosen to adjust grant under
the Export Promotion Capital Goods ('EPCG')
scheme from the carrying value of non-monetary
asset pursuant to amendment in Ind AS 20.
2.6 Taxes2.6.1 Current tax
Current 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 India where the Company
operates and generates taxable income.
Current tax relating to items recognised outside
the Statement of Profit and Loss is either in Other
Comprehensive Income (OCI') or in equity.
Current tax items are recognised in correlation
to the underlying transaction either in the
Statement of Profit and Loss or directly in equity.
Management periodically evaluates positions
taken in the tax returns with respect to situations
in which applicable tax regulations are subject to
interpretation and establishes provisions where
appropriate.
Interest expenses and penalties, if any, related to
income tax are included in finance cost and other
expenses respectively. Interest Income, if any,
related to income tax is included in Other Income.
Uncertainties exist with respect to the interpretation
of complex tax regulations and the amount and
timing of future taxable income. Given the wide
range of business relationships and the long-term
nature and complexity of existing contractual
agreements, differences arising between the
actual results and the assumptions made, or
future changes to such assumptions, could
necessitate future adjustments to tax income
and expense already recorded. The Company
establishes provisions, based on reasonable
estimates, for possible consequences of audits by
the tax authorities of the respective countries in
which it operates. The amount of such provisions
is based on various factors, such as experience of
previous tax audits and differing interpretations of
tax regulations
by the taxable entity and the responsible tax
authority. Such differences of interpretation may
arise on a wide variety of issues depending on the
conditions prevailing in the Company's domicile.
2.6.2 Deferred tax
Deferred tax is recognised in respect of 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 recognised for all
taxable temporary differences, except:
• When the deferred tax liability arises from the
initial recognition of an asset or liability in a
transaction that is not a business combination
and, at the time of the transaction, affects
neither the accounting profit nor taxable profit
and loss.
• In respect of taxable temporary differences
associated with investments in subsidiaries
and interests in joint ventures when the timing
of the reversal of the temporary differences
can be controlled and it is probable that the
temporary differences will not reverse in the
foreseeable future.
Deferred tax assets are recognised for all
deductible temporary differences, the carry
forward of unused tax credits and any unused
tax losses. Deferred tax assets are recognised 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
utilised, except:
• When the deferred tax asset relating to the
deductible temporary difference arises from
the initial recognition of an asset or liability in a
transaction that is not a business combination
and, at the time of the transaction, affects
neither the accounting profit nor taxable profit
and loss.
• In respect of deductible temporary differences
associated with investments in subsidiaries,
associates and interests in joint ventures,
deferred tax assets are recognised only to the
extent that it is probable that the temporary
differences will reverse in the foreseeable future
and taxable profit will be available against
which the temporary differences can be utilised.
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 utilised.
Unrecognised deferred tax assets are re-assessed
at each reporting date and are recognised 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 realised 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 relating to items recognised outside
the Statement of Profit and Loss is recognised
either in OCI or in equity. Deferred tax items
are recognised in correlation to the underlying
transaction either in OCI 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 the deferred taxes relate to the same taxable
entity and the same taxation authority.
2.7 Property, plant and equipment
Property, plant and equipment are stated at
cost, net of accumulated depreciation and
accumulated impairment losses, if any. Such cost
includes the cost of replacing part of the plant and
equipment and borrowing costs for long-term
construction projects if the recognition criteria
are met. 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 recognised 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 recognised in the Statement of Profit and Loss
as incurred. The present value of the expected
cost for the decommissioning of an asset after
its use is included in the cost of the respective
asset if the recognition criteria for a provision
are met. Subsequent expenditure is capitalised
only if it is probable that the future economic
benefits associated with the expenditure will flow
to the Company and the cost of the item can be
measured reliably.
The cost of property, plant and equipment at
April 01, 2015, the Company's date of transition
to Ind AS, was determined with reference to its
carrying value recognised as per the previous
GAAP (deemed cost), as at the date of transition
to Ind AS.
An item of property, plant and equipment
and any significant part initially recognised is
derecognised 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 derecognised.
Property, plant and equipment which are not
ready for intended use as on the date of Balance
Sheet are disclosed as "Capital work-in-progress".
Advances paid towards the acquisition of
property, plant and equipment outstanding at
each Balance Sheet date is classified as capital
advances under "Other non current assets".
Depreciation is provided on a pro-rata basis
on the straight line method based on useful life
estimated by the management and supported by
independent assessment by professionals which
may not be necessarily in the alignment with
the useful lives prescribed by schedule II to the
Companies Act, 2013. Depreciation commences
when the asset is ready for its intended use. The
Company has used the following useful lives to
provide depreciation on its fixed assets.
The identified components are depreciated
over their useful lives, the remaining asset is
depreciated over the life of the principal asset.
The management believes that the depreciation
rates fairly reflect its estimation of the useful lives
and residual values of the fixed assets.
The residual values, useful life and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate.
2.8 Intangible assets
Intangible assets acquired separately are
measured on initial recognition at cost. Following
initial recognition, intangible assets are carried
at cost less any accumulated amortisation and
accumulated impairment losses.
Internally generated intangibles, excluding
capitalised development costs, are not capitalised
and the related expenditure is reflected in the
Statement of Profit and Loss in the period in
which the expenditure is incurred. Subsequent
expenditure is capitalised only if it is probable that
the future economic benefits associated with the
expenditure will flow to the Company and the cost
of the item can be measured reliably. The cost of
intangible assets at 1 April 2015, the Company's
date of transition to Ind AS, was determined with
reference to its carrying value recognised as per
the previous GAAP (deemed cost), as at the date
of transition to Ind AS.
Intangible assets with finite lives are amortised
over the useful economic life and assessed for
impairment whenever there is an indication
that the intangible asset may be impaired. The
amortisation expense on intangible assets with
finite lives is recognised in the Statement of Profit
and Loss unless such expenditure forms part of
carrying value of another asset.
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 recognised
in the Statement of Profit and Loss when the asset
is derecognised.
Intangible assets are amortised on a pro-rata
basis on the straight line method based on useful
life estimated by the management as under:
2.8.1 Technical know-how and Brand
Technical know-how: The Company has originally
generated technical know-how and assistance
from International Tire Engineering Resources LLC,
for setting up of Halol radial plant. Considering the
life of the underlying plant/facility, this technical
know-how, is amortised on a straight-line basis
over a period of twenty years.
Brand: The Company has acquired global rights
of "CEAT" brand from the Italian tyre maker,
Pirelli. Prior to the said acquisition, the Company
was the owner of the brand in only a few Asian
countries including India. With the acquisition of
the brand which is renowned worldwide, new and
hitherto unexplored markets will be accessible to
the Company. The Company will be in a position
to fully exploit the export market resulting in
increased volume and better price realisation.
Therefore, the management believes that the
Brand will yield significant benefits for a period of
at least twenty years.
2.8.2 Research and development costs
(Product development)
Research costs are charged to P&L as and when
they are incurred. Development expenditures
on an individual project are recognised as
an intangible asset when the Company can
demonstrate:
• The technical feasibility of completing the
intangible asset so that the asset will be
available for use or sale.
• Its intention to complete and its ability and
intention to use or sell the asset.
• How the asset will generate future
economic benefits.
• The availability of resources to complete
the asset.
• The ability to measure reliably the expenditure
during development.
The amortisation period and the amortisation
method for an intangible asset with a finite useful
life are reviewed at least at the end of each
reporting period. Changes in the expected useful
life or the expected pattern of consumption of
future economic benefits embodied in the asset
are considered to modify the amortisation period
or method, as appropriate, and are treated as
changes in accounting estimates.
2.8.3 Impairment of Non-Financial Assets
At the end of each reporting year, the Company
reviews the carrying amounts of its tangible assets
and intangible assets to determine whether there
is any indication that those 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 the impairment
loss (if any). Where it is not possible to estimate
the recoverable amount of an individual asset,
the Company estimates the recoverable amount
of the cash-generating unit to which the asset
belongs. Where a reasonable and consistent
basis of allocation can be identified, corporate
assets are also allocated to individual cash¬
generating units, or otherwise they are allocated
to the smallest group of cash-generating units
for which a reasonable and consistent allocation
basis can be identified.
Intangible assets with indefinite useful lives and
intangible assets not yet available for use are
tested for impairment at least annually, and
whenever there is an indication that the asset
may be impaired.
Recoverable amount is the higher of fair value
less costs to sell and value in use. 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 for which the estimates
of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash¬
generating unit) is estimated to be less than its
carrying amount, the carrying amount of the
asset (or cash-generating unit) is reduced to
its recoverable amount. An impairment loss is
recognised immediately in the Statement of Profit
and Loss.
The carrying amounts of the Company's non¬
financial assets are reviewed at each reporting
date to determine whether there is any indication
of impairment. If any such indication exists, then
the asset's recoverable amount is estimated in
order to determine the extent of the impairment
loss, if any.
2.9 Borrowing costs
Borrowing costs directly attributable to the
acquisition, construction or production of an asset
that necessarily takes a substantial period of time
to get ready for its intended use or sale ('qualifying
asset') are capitalised as part of the cost of the
asset. All other borrowing costs are expensed in
the period in which they occur. Borrowing costs
consist of interest and other costs that an entity
incurs in connection with the borrowing of funds.
Borrowing cost also includes exchange differences
to the extent regarded as an adjustment to the
borrowing costs.
To the extent that the Company borrows funds
specifically for the purpose of obtaining a qualifying
asset, the Company determines the amount of
borrowing costs eligible for capitalisation as the
actual borrowing costs incurred on that borrowing
during the period less any investment income on
the temporary investment of those borrowings.
To the extent that the Company borrows funds
generally and uses them for the purpose of
obtaining a qualifying asset, the Company
determines the amount of borrowing costs eligible
for capitalisation by applying a capitalisation
rate to the expenditures on that asset. The
capitalisation rate is the weighted average of the
borrowing costs applicable to the borrowings of
the Company that are outstanding during the
period, other than borrowings made specifically
for the purpose of obtaining a qualifying asset.
2.10 Leases
The Company has entered into various
arrangements like lease of premises and
outsourcing arrangements which has been
disclosed accordingly under Ind AS 116. At inception
of a contract, the Company assesses whether
a contract is, or contains, a lease. A contract is,
or contains, a lease if the contract conveys the
right to control the use of an identified asset for
a period of time in exchange for consideration.
The assessment of whether a contract conveys
the right to control the use of an identified asset
depends on whether the Company obtains
substantially all the economic benefits from the
use of the asset and whether the Company has
the right to direct the use of the asset.
Company as a lessee
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 recognises lease liabilities
to make lease payments and right-of-use assets
representing the right to use the underlying assets.
2.10.1 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). The
cost of right-of-use assets includes the amount
of lease liabilities recognised, initial direct costs
incurred, and lease payments made at or before
the commencement date less any lease incentives
received. Right-of-use assets are measured
at cost, less any accumulated depreciation
and impairment losses, and adjusted for any
remeasurement of lease liabilities. Right-of-use
assets are depreciated on a straight-line basis
over shorter of the lease term or the estimated
useful life of the underlying asset as follows:
If ownership of the leased asset transfers to the
Company at the end of the lease term or the
cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated
useful life of the asset. The Company presents
right-of-use assets separately in the Balance
Sheet.
In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and
adjusted for certain remeasurements of the lease
liability. When the lease liability is remeasured in
this way, 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.
2.10.2 Lease liabilities
At the commencement date of the lease, the
Company recognises lease liabilities measured
at the present value of future 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 recognised
as expenses (unless the cost is included in the
carrying value of 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 its incremental borrowing rate
at the lease commencement date because the
interest rate implicit in the lease is not readily
determinable. 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. The
Company's lease liabilities are included in current
and non-current financial liabilities. Lease liability
has been separately presented in the Balance
Sheet and lease payments have been classified
as financing cash flows.
2.10.3 Short-term leases and leases of
low-value assets
The Company applies the short-term lease
recognition exemption to the contracts which
have a lease term of 12 months or less from the
date of commencement date and do not contain
a purchase option. It also applies the lease of low-
value assets recognition exemption to the lease
contracts that are considered to be low value.
Lease payments on short-term leases and leases
of low-value assets are recognised as expense on
a straight-line basis over the lease term.
2.11 Inventories
Inventories are valued at the lower of cost and net
realisable value on item by item basis.
The cost of inventories includes expenditure
incurred in acquiring the inventories, production
or conversion costs and other costs incurred
in bringing them to their present location and
condition. Cost is determined on a weighted
average basis:
• Cost of raw materials includes the transfer
of gains and losses on qualifying cash flow
hedges, recognised in OCI, in respect of the
purchases of raw materials. Raw materials
and other items 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.
• Work-in-progress and finished goods includes
direct materials, labour and a proportion
of manufacturing overheads based on
normal operating capacity but excluding
borrowing cost.
• Traded goods and stores & spares include
cost of purchase and other costs incurred in
bringing the inventories to their present location
and condition.
Net realisable 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.
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