| 3 Material Accounting Policies
3.1 Foreign Currency Transactions
The Company’s functional currency is Indian Rupees.
Foreign currency transactions are recorded at the rate
of exchange prevailing as on the date of the respective
transactions. Monetary assets and liabilities
denominated in foreign currency are converted at year
end rates. Exchange differences arising on settlement
/ conversion are adjusted in the Statement of Profit
and Loss.
3.2 Measurement of Fair Values
A number of the Company’s 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. The fair value measurement is
based on the presumption that the transaction to sell
the asset or transfer the liability takes place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most
advantageous market for the asset or liability
• The principal or the most advantageous market
must be accessible by the Company.
The fair value of an asset or a liability is measured
using the assumptions that market participants would
use when pricing the asset or liability, assuming that
market participants act in their economic best interest.
The Company has an established control framework
with respect to the measurement of fair values. The
Company regularly reviews significant unobservable
inputs and valuation adjustments. If third party
information, is used to measure fair values, then the
Company assesses the evidence obtained from the
third parties to support the conclusion that these
valuation meet the requirements of Ind AS, including
the level in the fair value hierarchy in which the
valuations should be classified.
Fair values are categorised into different levels in a
fair value hierarchy based on the inputs used in the
valuation techniques 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 asset or
liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices).
- Level 3: inputs for the asset or liability that are not
based on observable market data (unobservable
inputs).
When measuring the fair values of an asset or a liability,
the Company uses observable market data as far as
possible. If the inputs used to measure the fair value
of an asset or a liability fall into different levels of the
fair value hierarchy, then the fair value measurement
is categorised in its entirety in the same level of the
fair value hierarchy as the lowest level input that is
significant to the entire measurement.
The Company recognises transfer between levels
of the fair value hierarchy at the end of the reporting
period during which the change has occurred.
For the purpose of fair value disclosures, the Company
has determined class 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.
This note summarises accounting policy for fair value.
Other fair value related disclosures are given in the
relevant notes.
• Disclosures for valuation methods, significant
estimates and assumptions.
• Quantitative disclosures of fair value
measurement hierarchy.
• Investment in unquoted equity shares.
3.3 Financial Instruments
A financial instrument is any contract that gives
rise to a financial asset of one entity and a financial
liability or equity instrument of another entity. Financial
assets and financial liabilities are recognised when
the Company becomes a party to the contractual
provisions of the instrument.
Initial recognition and measurement:
Financial assets and financial liabilities are initially
measured at fair value. The fair value of a financial
instrument on initial recognition is normally the
transaction price (fair value of the consideration
given or received). Subsequent to initial recognition,
the Company determines the fair value of financial
instruments that are quoted in active markets using
the quoted bid prices (financial assets held) or
quoted ask prices (financial liabilities held) and using
valuation techniques for other instruments. Valuation
techniques include discounted cash flow method and
other valuation models.
Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial
liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added
to or deducted from the fair value of the financial
assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to
the acquisition of financial assets or financial liabilities
at fair value through profit or loss are recognised
immediately in profit or loss.
3.3.1 Financial Assets
i. Initial recognition and measurement
All financial assets are recognised initially at
fair value plus, in the case of financial assets
not recorded at fair value through profit or
loss, transaction costs that are attributable
to the acquisition of the financial asset.
ii. Subsequent measurement
For purposes of subsequent measurement,
financial assets are classified as:
a. Debt instruments at amortised cost;
b. Derivatives and equity instruments at
fair value through profit or loss (FVTPL);
a. Debt instruments at amortised cost:
A 'Debt instrument’ is measured at the
amortised cost if both the following
conditions are met:
a) The asset is held within a business
model whose objective is to hold
assets for collecting contractual cash
flows, and
b) 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. 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 in finance
income in the profit or loss. The losses
arising from impairment are recognised in
the profit or loss. This category generally
applies to trade and other receivables.
b. Financial assets at FVTPL:
Financial assets are classified as at FVTPL
when the financial asset is either held for
trading or it is designated as at FVTPL.
All equity investments in scope of Ind
AS 109 are measured at fair value Equity
instruments which are held for trading and
contingent consideration recognised by
an acquirer in a business combination to
which Ind AS 103 applies are classified as
at FVTPL. For all other equity instruments,
the Company may make an irrevocable
election to present in other comprehensive
income subsequent changes in the fair
value. The Company makes such election
on an instrument-by-instrument basis. The
classification is made on initial recognition
and is irrevocable.
Financial assets at FVTPL are stated at fair
value, with any gains or losses arising on
remeasurement recognised in profit or loss.
The net gain or loss recognised in profit or
loss incorporates any dividend or interest
earned on the financial asset and is included
in the 'other gains and losses’ line item in the
income statement. Fair value is determined
in the manner described in Note 36.10.
c. Investments at cost:
In accordance with Ind AS 27 on separate
financial statements, investments in
subsidiary is carried at cost in the separate
financial statements of the Company.
3.3.1.1 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 and credit risk exposure.
• Financial assets that are debt instruments,
and are measured at amortised cost
e.g., loans, debt securities, deposits,
trade receivables and bank balance:
The Company follows 'simplified approach’
for recognition of impairment loss allowance
on trade receivables.
The application of simplified approach does
not require the Company to track changes in
Credit risk. Rather, it recognises impairment
loss allowance based on lifetime ECLs at each
reporting date, right from its initial recognition. For
recognition of impairment loss on other financial
assets, the Company determines that whether
there has been a significant increase in the Credit
risk since initial recognition. If Credit risk has not
increased significantly, 12-month ECL is used to
provide for impairment loss. However, if Credit
risk has increased significantly, lifetime ECL is
used. If, in a subsequent period, Credit quality
of the instrument improves such that there is
no longer a significant increase in Credit risk
since initial recognition, then the entity reverts to
recognising impairment loss allowance based on
12-month ECL.
Lifetime ECL are the expected Credit
losses resulting from all possible default
events over the expected life of a financial
instrument. ECL is the difference between all
contractual cash flows that are due to the
Company in accordance with the contract
and all the cash flows that the Company
expects to receive, discounted at the original
EIR. When estimating the cash flows, the
Company is required to consider:
• All contractual terms of the financial
instrument (including prepayment,
extension, call and similar options)
over the expected life of the financial
instrument. However, in rare cases
when the expected life of the financial
instrument cannot be estimated
reliably, then the Company is required
to use the remaining contractual term
of the financial instrument.
• Cash flows from the sale of collateral
held or other Credit enhancements that
are integral to the contractual terms.
As a practical expedient, the Company uses
a provision matrix to determine impairment
loss allowance on portfolio of its trade
receivables. The provision matrix is based
on its historically observed default rates over
the expected life of the trade receivables and
is adjusted for forward-looking estimates. At
every reporting date, the historical observed
default rates are updated and changes in
the forward-looking estimates are analysed.
ECL impairment loss allowance (or reversal)
recognised during the period is recognised
as income / expense in the Statement
of Profit and Loss (P&L). This amount is
the P&L. The balance sheet presentation for
various financial instruments is described
below:
• Financial assets measured as at
amortised cost: ECL is presented as an
allowance i.e., as an integral part of the
measurement of those assets in the
balance sheet. The allowance reduces
the net carrying amount. Until the asset
meets write-off criteria, the Company
does not reduce impairment allowance
from the gross carrying amount.
For assessing increase in credit risk and
impairment loss, the Company combines
financial instruments on the basis of shared
credit risk characteristics with the objective
of facilitating an analysis that is designed to
enable significant increases in credit risk to
be identified on a timely basis.
3.3.1.2 Derecognition of Financial Assets
The Company derecognises a financial
asset only 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 entity. If
the Company neither transfers nor retains
substantially all the risks and rewards of
ownership and continues to control the
transferred asset, the Company recognises
its retained interest in the asset and an
associated liability for amounts it may have
to pay. If the Company retains substantially
all the risks and rewards of ownership of a
transferred financial asset, the Company
continues to recognise the financial asset
and also recognises a collateralised
borrowing for the proceeds received.
On derecognition of a financial asset, the
difference between the asset’s carrying
amount and the sum of the consideration
received and receivable and the cumulative
gain or loss that had been recognised in other
comprehensive income and accumulated in
equity is recognised in statement of profit
and loss.
3.3.2 Financial Liabilities and Equity Instruments
3.3.2.1 Classification as Debt or Equity
Debt and equity instruments issued by a Company
entity are classified as either financial liabilities or
as equity in accordance with the substance of the
contractual arrangements and the definitions of a
financial liability and an equity instrument as per
Ind AS 32.
3.32.2 Equity Instruments
An equity instrument is any contract that
evidences a residual interest in the assets of
an entity after deducting all of its liabilities.
Equity instruments issued by the Company are
recognised at the proceeds received, net of direct
issue costs.
Repurchase of the Company’s own equity
instruments is recognised and deducted
directly in equity. No gain or loss is recognised
in statement of profit and loss on the purchase,
sale, issue or cancellation of the Company’s own
equity instruments.
3.3.2.3 Convertible Debt Instruments
Convertible debt instruments are separated into
liability and equity components based on the
terms of the contract.
On issuance of the convertible debt instruments,
the fair value of the liability component is
determined using a market rate for an equivalent
non-convertible instrument. This amount is
classified as a financial liability measured at
amortised cost (net of transaction costs) until it
is extinguished on conversion or redemption.
The remainder of the proceeds is allocated to
the conversion option that is recognised and
included in equity since conversion option meets
Ind AS 32 criteria for fixed to fixed classification.
Transaction costs are deducted from equity, net
of associated income tax. The carrying amount
of the conversion option is not re-measured in
subsequent years.
Transaction costs are apportioned between the
liability and equity components of the convertible
debt instruments based on the allocation of
proceeds to the liability and equity components
when the instruments are initially recognised.
Where a convertible debt instrument meets
the criteria of an equity in its entirety, such
instruments are classified under "Instruments
entirely equity in nature."
3.3.2.4 Financial Liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss, loans and borrowings,
payables or as derivatives designated as hedging
instruments in an effective hedge, 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. The Company’s financial liabilities include
trade and other payables, loans and borrowings
including bank overdrafts, financial guarantee
contracts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends
on their classification, as described below:
Loans and borrowings
After initial recognition, interest-bearing loans
and borrowings are subsequently measured at
amortised cost using the EIR method. Gains
and losses are recognised in statement of profit
and loss when the liabilities are derecognised as
well as through the EIR amortisation process.
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. This
category generally applies to borrowings.
3.3.2.5 Financial Guarantees
Company as a beneficiary: Financial guarantee
contracts involving the Company as a beneficiary
are accounted as per Ind AS 109. The Company
assesses whether the financial guarantee is a
separate unit of account (a separate component
of the overall arrangement) and recognises a
liability as may be applicable.
Company as a guarantor: The Company on a
case to case basis elects to account for financial
guarantee contracts as a financial instrument or
as an insurance contract, as specified in Ind AS
109 on Financial Instruments and Ind AS 117 on
Insurance Contracts, respectively.
Wherever the Company has regarded its
financial guarantee contracts as insurance
contracts, at the end of each reporting period
the Company performs a liability adequacy
test, (i.e., it assesses the likelihood of a pay¬
out based on current undiscounted estimates
of future cash flows), and any deficiency is
recognised in statement of profit and loss.
Where they are treated as a financial instrument,
the 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, when appropriate, the cumulative
amount of income recognised in accordance with
the principles of Ind AS 115.
3.3.2.6 Financial Liabilities at FVTPL
Financial liabilities are classified as at FVTPL
when the financial liability is either held for trading
or it is designated as at FVTPL.
Financial liabilities at FVTPL are stated at
fair value, with any gains or losses arising on
remeasurement recognised in profit or loss.
The net gain or loss recognised in profit or loss
incorporates any interest paid on the financial
liability and is included in the 'other gains and
losses’ line item in the statement of profit and
loss. Fair value is determined in the manner
described in Note 36.9
3.3.2.7 Derecognition of Financial Liabilities
The Company derecognises financial liabilities
when, and only when, the Company’s obligations
are discharged, cancelled or they expire. 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 between the carrying
amount of the financial liability derecognised and
the consideration paid and payable is recognised
in profit or loss.
3.3.3 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, to realise the
assets and settle the liabilities simultaneously.
3.3.4 Effective Interest Method
The effective interest method is a method of
calculating the amortised cost of a debt instrument
and of allocating interest expense / income over
the relevant year. The effective interest rate (EIR)
is the rate that exactly discounts estimated future
cash receipts or payments (including all fees and
points paid or received that form an integral part
of the effective interest rate, transaction costs
and other premiums or discounts) but does not
consider the expected credit losses, through the
expected life of the debt instrument, or where
appropriate, a shorter period, to the net carrying
amount on initial recognition.
3.3.5 Derivative Financial Instruments
The Company enters into a variety of derivative
financial instruments to manage its exposure
to foreign exchange rate risks, including foreign
exchange forward contracts. Derivatives are
initially recognised at fair value at the date the
derivative contracts are entered into and are
subsequently remeasured to their fair value at the
end of each reporting period. The resulting gain or
loss is recognised in profit or loss immediately.
3.4 Property, Plant and Equipment
3.4.1 Recognition and Measurement
Property, Plant and Equipment and Capital Work-
in-Progress are initially recognised at cost when
it is probable that future economic benefits
associated with the item will flow to the entity and
the cost of the item can be measured reliably.
Property, plant and equipment were valued at
cost model net of accumulated depreciation until
March 31, 2019. Cost includes purchase price,
including duties and non-refundable taxes, costs
that are directly relatable in bringing the assets
to the present condition and location. 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 profit
and loss account 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 costs are included in asset’s carrying
amount or recognised as a separate asset, as
appropriate, only when it is probable that future
economic benefits associated with the item will
flow to the Company will be included.
On March 31, 2019, the Company had elected
to change the method of accounting for land,
buildings and plant and equipment classified as
property, plant and equipment, as the Company
believes that the revaluation model provides
more relevant information to the users of
its financial statements. In addition, available
valuation techniques provide reliable estimates
of the land, buildings and plant and equipment’s
fair value. The Company applied the revaluation
model prospectively. After initial recognition,
these assets are measured at fair value at the
date of the revaluation less any subsequent
accumulated depreciation and subsequent
accumulated impairment losses.
After recognition land is measured at revaluation
model. Buildings and plant and equipment
are measured at fair value less accumulated
depreciation and impairment losses recognised
after the date of revaluation. Valuations are
performed with sufficient frequency to ensure
that the carrying amount of a revalued asset does
not differ materially from its fair value.
Revaluation surplus is recorded in OCI and
credited to the asset revaluation reserve in
equity. However, to the extent that it reverses a
revaluation deficit of the same asset previously
recognised in profit or loss, the increase is
recognised in statement of profit and loss. A
revaluation deficit if any, is recognised in the
statement of profit and loss, except to the extent
that it offsets an existing surplus on the same
asset recognised in the asset revaluation reserve.
The fair value changes are effected by eliminating
the accumulated depreciation against the gross
carrying amount of the asset. Upon disposal, any
revaluation surplus relating to the particular asset
being sold is transferred to retained earnings.
Apart from the above, the Company follows the
cost model for Motor cars, Office equipments,
Furniture and Fittings. Other assets are measured
at cost less deprecation. Freehold land is not
depreciated.
The Company, based on technical assessment
made by management estimate supported by
external Chartered engineer’s study, depreciates
certain items of building, plant and equipment
over estimated useful lives which are different
from the useful life prescribed in Schedule II to
the Companies Act, 2013 using straight-line
method. The management believes that these
estimated useful lives are realistic and reflect
fair approximation of the period over which the
assets are likely to be used. On addition / deletion,
depreciation is charged on prorata basis based
on month of addition / deletion.
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.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and adjusted
prospectively, if appropriate.
3.5 Intangible Assets
3.5.1 Recognition and Measurement
Intangible assets acquired separately are
measured on initial recognition at cost. The
cost of intangible assets acquired in a business
combination is recognised at fair value at the date
of acquisition. An intangible asset is recognised
only if it is probable that future economic
benefits attributable to the asset will flow to
the Company and the cost of the asset can be
measured reliably. Following initial recognition,
other intangible assets, including those acquired
by the Company in a business combination and
have finite useful lives are measured at cost less
accumulated amortisation and any accumulated
impairment losses.
3.5.2 Subsequent Expenditure
Subsequent expenditure is capitalised only
when it increases the future economic benefits
embodied in the specific asset to which it relates
and the cost of the asset can be measured
reliably. All other expenditure is recognised in
profit or loss as incurred.
3.5.3 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 generally recognised
in depreciation and amortisation in statement of
profit and loss.
The estimated useful lives are as follows:
Non-compete fees - 3 years
Amortisation methods, useful lives and residual
values are reviewed at each reporting date and
adjusted if appropriate.
3.6 Non-Current Assets Held for Sale
The Company classifies non-current assets as held
for sale if their carrying amounts will be recovered
principally through a sale transaction rather than
through continuing use. Non-current assets classified
as held for sale are measured at the lower of their
carrying amount and fair value less costs to sell. Costs
to sell are the incremental costs directly attributable to
the disposal of an asset excluding finance costs and
income tax expense.
The criteria for held for sale classification is regarded
as met only when the sale is highly probable, and the
asset is available for immediate sale in its present
condition. Actions required to complete the sale should
indicate that it is unlikely that significant changes to
the sale will be made or that the decision to sell will
be withdrawn. Management must be committed to
the plan to sell the asset and the sale expected to
be completed within one year from the date of the
classification.
Property, plant and equipment are not depreciated
or amortised once classified as held for sale.
Assets and liabilities classified as held for sale are
presented separately as current items in the Balance
sheet.
3.7 Inventories
Inventories are valued at lower of cost and net realisable
value. Cost is determined on a weighted average basis
and comprises all applicable costs incurred for bringing
the inventories to their present location and condition
and include appropriate overheads wherever applicable.
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.
The Company produces certain joint-products which
are valued on joint cost basis by apportioning the
total costs incurred in the manufacture of those joint-
products. By-products are valued at the net realisable
value.
3.8 Retirement and Employees Benefits
Short-term employees’ benefits including accumulated
compensated absence are recognised as an expense
as per the Company’s Scheme based on expected
obligations on undiscounted basis. The present value of
other long-term employees benefits are measured on a
discounted basis as per the requirements of Ind AS 109.
Post-retirement benefits comprise of employees’
provident fund and gratuity which are accounted for
as follows:
Provident Fund / Employee State Insurance:
This is a defined contribution plan and contributions
made to the fund are charged to revenue. The
Company has no further obligations for future fund
benefits other than annual contributions.
Gratuity:
The Company has an obligation towards gratuity,
a defined benefit retirement plan covering eligible
employees. The plan provides for a lump-sum payment
to vested employees at retirement, death while in
employment or on termination of employment of an
amount equivalent to 15 to 3U days salary payable for
each completed year of service. Vesting occurs upon
completion of five years of service. The Company make
annual contributions to gratuity funds administered
by Life Insurance Corporation of India. The liability
is determined based on the actuarial valuation using
projected unit credit method as at Balance Sheet date.
Remeasurement comprising actuarial gains
and losses and the return on assets (excluding
interest) relating to retirement benefit plans, are
recognised directly in other comprehensive income
in the period in which they arise. Remeasurement
recorded in other comprehensive income is
not reclassified to statement of profit and loss.
Past service cost is recognised immediately to
the extent that the benefits are already vested and
otherwise is amortised on a straight-line basis over
the average period until the benefits become vested.
Net interest is calculated by applying the discount rate
to the net defined benefit liability or asset.
Termination benefits:
Termination benefits are recognised only when the
Company has a constructive obligation, which is
when a detailed formal plan identifies the business
or part of the business concerned, the location and
number of employees affected, a detailed estimate of
the associated costs, an appropriate timeline and the
employees affected have been notified of the plan’s
main features.
3.9 Revenue Recognition
Revenue from contracts with customers:
Revenue from contracts with customers is recognised
when control of the goods or services are transferred
to the customer (primarily upon dispatch or delivery,
as per the terms of sale as applicable) at an amount
that reflects the consideration to which the Company
expects to be entitled in exchange for those goods
or services. Revenue is measured at the transaction
price of the consideration received or receivable, taking
into account contractually defined terms of payment.
The Company has generally concluded that it is the
principal in 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. Goods and Service Tax (GST) is not
received by the Company on its own account. Rather,
it is tax collected on value added to the commodity by
the seller on behalf of the Government. Accordingly, it
is excluded from revenue.
Contract balances:
i) Contract assets:
A contract asset is the right to consideration
in exchange for goods or services transferred
to the customer. If the Company performs by
transferring goods or services to a customer
before the customer pays consideration or before
payment is due, a contract asset is recognised for
the earned consideration that is conditional.
ii) Trade receivables:
A receivable represents the Company’s right to
an amount of consideration that is unconditional
and is measured at transaction price. Refer to
accounting policies of financial assets in Note
3.3.1.
iii) Contract liabilities:
A contract liability is the obligation to transfer
goods or services to a customer for which
the Company has received consideration (or
an amount of consideration is due) from the
customer. If a customer pays consideration
before the Company transfers goods or services
to the customer, a contract liability is recognised
when the payment is made or the payment is
due (whichever is earlier). Contract liabilities
are recognised as revenue when the Company
performs under the contract.
iv) Variable consideration:
If the consideration in a contract includes a
variable amount, the Company estimates the
amount of consideration to which it will be entitled
in exchange for transferring the goods to the
customer. Some contracts provide customers
with volume rebate.
Volume rebates / Price concessions / Special
discounts:
The Company provides for volume rebates,
price concessions, special discounts to certain
customers once the quantity of goods sold
during a period exceeds an agreed threshold.
Rebates are offset against amounts receivable
from customers. To estimate the variable
consideration, the Company applies the most
likely amount method or the expected value
method to estimate the variable consideration in
the contract.
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.
Sale of goods:
Revenue from sale of goods is recognised at
the point in time when control of the asset is
transferred to the customer. Revenue from the
sale of goods is measured at the transaction
price of the consideration received or receivable,
net of returns and allowances, trade discounts
and volume rebates.
Service income:
Income from services rendered is recognised at a
point in time based on agreements / arrangements
with the customers as the service is performed
and there are no unfulfilled obligations.
3.10 Other Income
Interest income:
Interest income is recognised using the effective
interest rate (EIR) method.
3.11 Leases
Company as a lessor:
A lease is classified at the inception date as a finance
lease or an operating lease. Leases in which the
Company does not transfer substantially all the risks
and rewards of ownership of an asset are classified as
operating leases. Rental income from operating lease
is recognised on a straight-line basis over the term of
the relevant lease. Leases are classified as finance
lease when substantially all of the risks and rewards of
ownership transfer from the Company to the lessee.
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.
i) Right-of-use assets
The Company recognises right-of-use assets at
the commencement date of the lease (i.e., the
date the underlying asset is available for use).
Right-of-use assets are measured at cost, less
any accumulated depreciation and impairment
losses and adjusted for any remeasurement
of lease liabilities. 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 depreciated on a straight-line
basis over the shorter of the lease term and the
estimated useful lives of the assets.
ii) Lease liabilities
At the commencement date of the lease, the
Company recognises lease liabilities measured at
the present value of 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.
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 or a change in
the assessment of an option to purchase the
underlying asset.
iii) Short-term leases and leases of low-value assets
The Company applies the short-term lease
recognition exemption to its short-term leases
of machinery and equipment (i.e., those leases
that have a lease term of 12 months or less from
the commencement date and do not contain a
purchase option). It also applies the lease of low-
value assets recognition exemption to leases of
office equipment 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.
3.12 Taxes
Income tax
Income tax comprises current and deferred tax. It is
recognised in statement of profit and loss except to
the extent that it relates to a business combination
or to items recognised directly in equity or in other
comprehensive income.
Current tax
Provision for current tax is made based on the liability
computed in accordance with the relevant tax rates
and tax laws. Current income tax assets and liabilities
are measured at the amount expected to be recovered
from or paid to the taxation authorities.
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.
3.13 Taxes
Deferred tax
Deferred tax is accounted for using the liability
method by computing the tax effect on the tax
bases of temporary differences at the reporting date.
Deferred tax is calculated at the tax rates enacted or
substantively enacted by the Balance Sheet date.
Deferred tax liabilities are recognised for all taxable
temporary differences, except:
• when the deferred tax liability arises from the
initial recognition of goodwill or 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 or loss.
Deferred tax assets are recognised for all deductible
temporary differences the carry forward of any unused
tax losses and unabsorbed depreciation.
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 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 or loss.
Deferred tax assets are recognised only if there is a
reasonable certainty, with respect to unabsorbed
depreciation and business loss, that they will be
realised.
Current tax / deferred tax relating to items recognised
outside the statement of profit and loss is recognised
outside profit or loss (either in other comprehensive
income or in equity).
Current tax / deferred tax items are recognised in
correlation to the underlying transaction either in OCI 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.
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
reassessed 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.
Tax assets and 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.
Appendix C to Ind AS 12 Uncertainty over Income Tax
Treatment
The appendix addresses the accounting for income
taxes when tax treatments involve uncertainty that
affects the application of Ind AS 12 Income Taxes. It
does not apply to taxes or levies outside the scope of
Ind AS 12, nor does it specifically include requirements
relating to interest and penalties associated with
uncertain tax treatments. The Appendix specifically
addresses the following:
• Whether an entity considers uncertain tax
treatments separately.
• The assumptions an entity makes about the
examination of tax treatments by taxation
authorities.
• How an entity determines taxable profit (tax loss),
tax bases, unused tax losses, unused tax credits
and tax rates.
• How an entity considers changes in facts and
circumstances.
The Company determines whether to consider each
uncertain tax treatment separately or together with
one or more other uncertain tax treatments and uses
the approach that better predicts the resolution of the
uncertainty.
The Company applies significant judgement in
identifying uncertainties over income tax treatments.
Upon adoption of the Appendix C to Ind AS 12, the
Company considered whether it has any uncertain
tax positions. The Company has determined, that it is
probable that its tax treatments will be accepted by the
taxation authorities.
3.14 Cash and Cash Equivalents
Cash and cash equivalent in the balance sheet comprise
cash at banks 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 flows, cash
and cash equivalents consist 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.
|