2 Significant accounting policies A Basis of preparation
These financial statements have been prepared under the historical cost convention on a going concern basis, on the accrual basis of accounting in accordance with the Generally Accepted Accounting Principles in India (Indian GAP). Indian GAAP comprises mandatory accounting standards as specified under section 133 of the Act, read with the Companies (Accounting Standards) Rules, 2021 and other accounting pronouncements of The Institute of Chartered Accountants of India.
All assets and liabilities have been classified as current or non-current as per the Company’s normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realization in cash and cash equivalents, the Company has ascertained its operating cycle as twelve months for the purpose of current/ non-current classification of its assets and liabilities.
B Use of estimates
In preparing the financial statements in conformity with accounting principles generally accepted in India, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Any revisions to accounting estates are recognized prospectively in the current and future years.
C Revenue recognition
a) Revenue from sale of goods is recognized when the significant risks and rewards in respect of ownership of the goods are transferred to the customer and is stated net of Goods and Services Tax and net of trade discounts, and sales returns. No significant uncertainties exist regarding the amount of consideration that will be derived from sale of goods.
b) Revenue from sale of services is recognized as the service is performed by the completed service contract method.
c) Interest income is recognized on a time proportion basis, taking into account the amount outstanding and the rates applicable.
D Property, plant and equipment
Property, plant and equipment are stated at cost (gross block) less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price (net of tax credit availed) and any attributable cost of bringing the asset to its working condition for its intended use.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in statement of profit and loss, when the item is de-recognized. Such gains are not classified as revenue.
Expenditure on account of modification/alteration in plant and machinery/building, which increases the future benefit from the existing asset beyond its previous assessed standard of performance, is capitalized. Items of property, plant and equipment costing less than Rs. 5,000 are fully depreciated in the year of purchase.
Borrowing costs directly attributable to acquisition or construction of fixed assets, which necessarily takes a substantial period of time to get ready for their intended use are capitalized.
The residual value of any asset is calculated at 5% of original cost of any asset in accordance with Schedule I of the Companies Act, 2013.
E Depreciation
Depreciation is calculated on cost of items of PPE less their estimated residual values over their estimated useful lives using the straight-line method based on life prescribed as per Schedule II of the Companies Act, 2013.
F Inventories
Inventories are valued as follows:
1 Raw materials, stores and spares and packing materials: At cost as determined on the basis of First In First Out (FIFO Basis). However, materials and other items held for use in the production of inventories are written down below cost only when both raw material net realizable value and the finished goods in which they will be incorporated are expected to be sold below cost.
2 Work in process and finished goods: Lower of cost and net realizable value. Cost includes direct materials and a proportion of labour and manufacturing overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion to make the sale.
G Employee benefits
Short-term employee benefits
All employee benefits payable/available within twelve months of rendering the service are classified as short-term employee benefits. Benefits such as salaries, wages, bonus, etc. are recognized in the statement of profit and loss in the period in which the employee renders the related service.
Post-employment benefits
Defined contribution plan
The company makes specified contribution towards employee provident fund to Emplovees Provident Fund administered by the Regional Provident Commissioner. The Company’s contribution to provident fund, being a defined contribution plan, is rcognized in the statement of profit and loss in the financial year to which it relates.
Defined benefit plan
Gratuity is a post-employment defined benefit plan. The present value of obligation for gratuity is determined based on actuarial valuation using the Projected Unit Credit Method, together with adjustments for unrecoonized actuarial gains or losses and past service costs. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to the statement of profit and loss in the year in which such gains or losses arise.
Other long-term liability
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognized as a liability determined based on actuarial valuation using the Projected Unit Credit Method at the balance sheet date.
Actuarial gains/losses
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to the statement of profit and loss in the year in which such gains or losses arise.
H Accounting for taxes on income
Tax expense comprises current tax and deferred income tax.
Current tax is determined as the amount of tax payable in respect of taxable income for the year, computed in terms with the provision of Income Tax Act, 1961 and the rules made thereunder.
Deferred income taxes reflect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. In respect of carry forward losses and unabsorbed depreciation, deferred tax assets are recognized only to the extent there is virtual certainty that sufficient future taxable income will be available against which such losses can be realized.
Minimum Alternate tax (MAT’ credit is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in guidance note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the statement of profit and loss and shown as MAT credit entitlement. The Company reviews the same at each balance sheet date and writes down the carrying amount of MAT credit entitlement to the extent there is no longer convincing evidence to the effect that the Company will pay normal income tax during the specified period.
I Earnings per share
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.
For calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.
J Leases
Leases of assets under which significant risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease rentals in respect of assets taken under an operating lease are charged to the statement of profit and loss on a straight-line basis over the lease term.
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