2. Significant accounting policies.
2.1 Basis of Preparation
The financial statements of the Company have been prepared in compliance with
Indian Accounting Standards (Ind AS) notified under the Companies (Indian
Accounting Standards) Rules, 2015 (as amended) read with section 133 of Companies
Act, 2013, on the historical cost basis except for certain financial instruments that are
measured at fair values, as explained in the accounting policies below.
2.2 Summary of significant accounting policies
a) Property, plant and equipment
Freehold land is carried at historical cost. All other items of property, plant and
equipment are stated at historical cost less depreciation. Historical cost includes
expenditure that is directly attributable to the acquisition of the items.
Subsequent cost 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 derecognised when replaced. All other repairs and maintenance expenses are
charged to profit or loss during the reporting period in which they are incurred.
Assets acquired but not ready for use are classified under Capital work in progress
and are stated at cost comprising direct cost and related incidental expenses.
b) Financial assets.
Initial recognition and measurement
In the case of financial assets, not recorded at fair value through profit or loss (FVPL),
financial assets are recognised initially at fair value plus transaction costs that are
directly attributable to the acquisition of the financial asset. 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 recognised 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 following
categories:
I. Financial Assets at amortised cost
Financial assets are subsequently measured at amortised cost if these financial
assets are held within a business model with an objective 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 on the principal amount outstanding. Interest income from
these financial assets is included in finance income using the effective interest rate
("EIR”) method. Impairment gains or losses arising on these assets are recognised
in the Statement of Profit and Loss.
II. Financial Assets measured at fair value.
Financial assets are measured at fair value through other comprehensive income
(FVOCI) if these financial assets are held within a business model with an objective
to hold these assets in order to collect contractual cash flows or to sell these
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. Movements in the carrying amount are taken
through OCI, except for the recognition of impairment gains or losses, interest
revenue and foreign exchange gains and losses which are recognised in the
Statement of Profit and Loss.
Financial assets that do not meet the criteria for amortised cost or FVOCI are
measured at fair value through profit or loss.
Derecognition of financial assets
The Company derecognizes a financial asset when the contractual rights to the cash
flows from the asset expire, or when it transfers the financial asset and substantially
all the risks and rewards of ownership of the asset to another party.
On derecognition of a financial asset in its entirety, the difference between the
asset’s carrying amount and the sum of the consideration received / receivable and
the cumulative gain or loss that had been recognised in other comprehensive
income and accumulated in equity is recognised in profit or loss if such gain or loss
would have otherwise been recognised in profit or loss on disposal of that financial
asset.
Equity investments
All equity investments in the scope of Ind AS 109, Financial Instruments, are
measured at fair value. For equity instruments, the Company may make an
irrevocable election to present the subsequent fair value changes in Other
Comprehensive Income (OCI). The Company makes such election on an
instrument-by-instrument basis. The classification is made on initial recognition and
is irrevocable.
There is no recycling of the amounts from OCI to profit or loss, even on sale of
investment. Equity instruments included within the FVTPL (fair value through profit
and loss) category are measured at fair value with all changes in fair value
recognized in the profit or loss.
c) Financial liabilities
Initial Recognition
Financial liabilities are classified, at initial recognition, as financial liabilities at FVPL,
loans and borrowings and payables as appropriate. All financial liabilities are
recognised initially at fair value and, in the case of loans and borrowings and
payables, net of directly attributable transaction costs.
Subsequent measurement
Financial liabilities at FVPL
Financial liabilities at FVPL include financial liabilities held for trading and financial
liabilities designated upon initial recognition as FVPL. Financial liabilities are
classified as held for trading if they are incurred for the purpose of repurchasing in
the near term. Gains or losses on liabilities held for trading are recognised in the
Statement of Profit and Loss.
Financial guarantee contracts issued by the Company are those contracts that
require a payment to be made to reimburse the holder for a loss it incurs because
the specified debtor fails to make a payment when due in accordance with the terms
of a debt instrument. Financial guarantee contracts are recognised initially as a
liability at fair value, adjusted for transaction costs that are directly attributable to
the issuance of the guarantee. Subsequently, the liability is measured at the higher
of the amount of loss allowance determined as per impairment requirements of Ind
AS 109 and the amount recognised less cumulative amortisation. Amortisation is
recognised as finance income in the Statement of Profit and Loss.
Financial liabilities at amortised cost
After initial recognition, interest-bearing loans and borrowings are subsequently
measured at amortised cost using the EIR method. Any difference between the
proceeds (net of transaction costs) and the settlement or redemption of borrowings
is recognised over the term of the borrowings in the Statement of Profit and Loss.
Amortised cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR. The EIR
amortisation is included as finance costs in the Statement of Profit and Loss.
De-recognition of Financial Liabilities
Financial liabilities are de-recognised when the obligation specified in the contract
is discharged, cancelled or expired. 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 de-recognition of the original liability and recognition of a new liability.
The difference in the respective carrying amounts is recognised in the Statement of
Profit and Loss.
Offsetting 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, to realise the
assets and settle the liabilities simultaneously.
d) Inventories
Consumables, stores and spares are valued at lower of cost and net realisable
value; cost is computed on first-in-first out basis. The cost of inventories comprises
all costs of purchase and other costs incurred in bringing the inventories to their
present location and condition. Obsolete, defective, unserviceable and
slow/nonmoving stocks are duly provided for. Net realisable value is estimated
selling price in ordinary course of business less the estimated cost necessary to
make the sale.
e) Operating Cycle
Based on the nature of products / activities of the Company and the normal time
between acquisition of assets and their realisation in cash or cash equivalents, the
Company has determined its operating cycle as 12 months for the purpose of
classification of its assets and liabilities as current and non - current.
f) Fair Value Measurement
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, regardless of whether that price is directly observable or estimated using
another valuation technique. In estimating the fair value of an asset or a liability, the
Company takes into account the characteristics of the asset or liability at the
measurement date. The fair value measurement is based on the presumption that
the transaction to sell the financial asset or settle the financial liability takes place
either:
• In the principal market, or
• In the absence of a principal market, in the most advantageous market
The principal or the most advantageous market must be accessible by the
Company. 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. Fair value measurement and / or disclosure purposes in these
financial statements is determined on such a basis, except for measurements that
have some similarities to fair value but are not fair value, such as net realisable
value in Ind AS 2 or value in use in Ind AS 36.
The Company- uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximising the use
of relevant observable inputs and minimising 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
At each reporting date, the Management analyses the movements in the values of
assets and liabilities which are required to be remeasured or re-assessed as per
the Company’s - accounting policies.
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.
g) Revenue Recognition
Effective 01 April 2018, the Company has adopted Indian Accounting Standard 115
(Ind AS 115) -'Revenue from contracts with customers' using the cumulative catch¬
up transition method. Accordingly, the comparative amounts of revenue and the
corresponding contract assets / liabilities have not been retrospectively adjusted.
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.
Revenue is recognised to the extent it is probable that the economic benefits will
flow to the Company and the revenue can be reliably measured. Revenue is
measured at the fair value of the consideration received or receivable excluding
taxes or duties collected on behalf of the government and reduced by any rebates
and trade discount allowed. Contract assets includes costs incurred to fulfill a
contract with a customer. Where the amount of consideration received from a
customer exceeds the amount of revenue recognized, this gives rise to a contract
liability.
The specific recognition criteria described below must also be met before income is
recognized:
i. Revenue from Goods transport service is recognised as and when goods and
documents are transported.
ii. Dividend income is recognised when the right to receive the dividend is
established.
iii. Rent income is recognised on a straight-line basis over the period of the lease.
iv. Interest income from debt instruments is recognised using the effective interest
rate method. The effective interest rate is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial asset
to the gross carrying amount of a financial asset. When calculating the effective
interest rate, the Company estimates the expected cash flows by considering
all the contractual terms of the financial instrument but does not consider the
expected credit losses.
h) Borrowing costs
General and specific borrowing costs directly attributable to the acquisition/
construction of qualifying assets, which are assets that necessarily take a
substantial period of time to get ready for their intended use, are added to the cost
of those assets, until such time the assets are substantially ready for their intended
use. All other borrowing costs are recognised as an expense in Statement of Profit
and Loss in the period in which they are incurred.
i) Employee Benefits
Defined benefit plans:
The Company has an obligation towards gratuity, a defined benefit retirement plan
covering eligible employees through Group Gratuity Scheme. The Company
accounts for the liability for the gratuity benefits payable in future based on an
independent actuarial valuation carried out using Projected Unit Credit Method
considering discounting rate relevant to Government Securities at the Balance
Sheet Date. Defined benefit costs in the nature of current and past service cost
and net interest expense or income are recognized in the statement of profit and
loss in the period in which they occur. Actuarial gains and losses on remeasurement
are reflected immediately in the balance sheet with a charge or credit recognised in
other comprehensive income in the period in which they occur and is reflected
immediately in retained earnings and not reclassified to profit or loss. Past service
cost is recognised in profit or loss in the period of a plan amendment.
Compensated Absences:
Provision for Compensated Absences and its classifications between current and
non-current liabilities are based on independent actuarial valuation. The actuarial
valuation is done as per the projected unit credit method as at the reporting date.
Short term employee benefits: They are recognised at an undiscounted amount
in the Statement of Profit and Loss for the year in which the related services are
rendered.
j) Leases
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other leases
are classified as operating leases.
Rental income from operating leases is generally recognised on a straight-line basis
over the term of the relevant lease. Where the rentals are structured solely to
increase in line with expected general inflation to compensate for the Company’s
expected inflationary cost increases, such increases are recognised in the year in
which such benefits accrue.
Rental expense from operating leases is generally recognised on a straight-line
basis over the term of the relevant lease. Where the rentals are structured solely to
increase in line with expected general inflation to compensate for the lessor’s
expected inflationary cost increases, such increases are recognised in the year in
which such benefits accrue.
k) Taxation
Tax on Income comprises current tax and deferred tax. These are recognised in
statement of profit and loss except to the extent that it relates to a business
combination, or items recognised directly in equity or in other comprehensive
income.
Current Tax
Tax on income for the current period is determined on the basis on estimated taxable
income and tax credits computed in accordance with the provisions of the relevant
tax laws and based on the expected outcome of assessments / appeals. 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. 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.
Deferred Tax
Deferred tax is recognized for the future tax consequences of deductible temporary
differences between the carrying values of assets and liabilities and their respective
tax bases at the reporting date. Deferred tax liabilities are generally recognised for
all taxable temporary differences. Deferred tax assets are recognized to the extent
that it is probable that future taxable income will be available against which the
deductible temporary differences can be utilised. Deferred tax relating to items
recognised outside the statement of profit and loss is recognized outside the
statement of profit and loss, either in other comprehensive income or directly in
equity. 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 asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected
to apply in the period in which the liability is settled or the asset realised, based on
tax rates (and tax laws) that have been enacted or substantially enacted by the end
of the reporting period.
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.
The measurement of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which the company expects, at
the end of the reporting period, to recover or settle the carrying amount of its assets
and liabilities.
l) Earnings per share
Basic earnings per share is computed by dividing the profit / (loss) after tax by the
weighted average number of equity shares outstanding during the year. Diluted
earnings per share is computed by dividing the profit / (loss) after tax as adjusted
for the effects of dividend, interest and other charges relating to the dilutive potential
equity shares by weighted average number of shares plus dilutive potential equity
shares.
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