3. MATERIAL ACCOUNTING POLICIES
A summary of the material accounting policies applied in the preparation of the financial statements are given below.
These accounting policies have been applied consistently to all the periods presented in the financial statements
except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard
requires a change in the accounting policy hitherto in use.
3.1. Inventories
• Raw materials, stores and spares and loose tools are valued at lower of cost and net realisable value. However, 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. Cost includes cost of purchase, non-refundable taxes
and other costs incurred in bringing the inventories to their present location and condition. Cost is computed on
weighted average basis.
• Work-in-progress and finished goods are valued at lower of cost and net realisable value. Finished goods and
work-in-progress include cost of conversion and other costs incurred in bringing the inventories to their present
location and condition. Cost is computed on weighted average basis.
• Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and estimated cost necessary to make the sale. Net realisable value of work-in-progress is determined
with reference to the selling prices of related finished goods.
• Adequate provision is made for obsolete and slow-moving stocks, wherever necessary.
3.2. Cash and Cash Equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks and in hand, cheques in hand and short term
deposits with an original maturity of three months or less, which are subject to an insignificant risk of change in value.
3.3. Income Tax
Income tax expense comprises current tax and deferred tax. It is recognised in the statement of profit and loss except to
the extent that it relates to an item recognised directly in equity or in other comprehensive income.
a) Current Tax
Current tax liabilities (or assets) for the current and prior periods are measured at the amount expected to be paid to
(recovered from) the taxation authorities based on tax rates and tax laws that have been enacted during the period.
b) Deferred Tax
• Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period
when the asset is realised or the liability is settled based on tax rates and tax laws that have been enacted or
substantively enacted by the end of the reporting period.
• Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the corresponding amounts used for taxation purposes (i.e., tax
base). Deferred tax is also recognised for carry forward of unused tax losses and unused tax credits.
• 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.
• The carrying amount of deferred tax assets is reviewed at the end of each reporting period. The Company
reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient
taxable profit will be available to allow the benefit of part or that entire deferred tax asset to be utilised. Any
such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available.
• Deferred tax relating to items recognised outside the statement of profit and loss is recognised either in
other comprehensive income or in equity. Deferred tax items are recognised in correlation to the underlying
transaction either in other comprehensive income or directly in equity.
3.4. Property, Plant and Equipment
a) Recognition and Measurement:
• Property, plant and equipment, except freehold land, held for use in the production or/and supply of goods
or services, or for administrative purposes, are stated in the balance sheet at cost, less any accumulated
depreciation/amortisation and accumulated impairment losses (if any).
• Freehold land has been stated at revalued amount. The difference between carrying amount of such land and
fair value less any impairment loss is shown as revaluation surplus net of deferred tax under the head other
equity. The changes in fair value of land is recognised in other comprehensive income net of deferred tax and
accumulated in other equity under the head revaluation surplus. The revaluation surplus shall be transferred to
retained earnings when the asset is derecognised.
• Cost of an item of property, plant and equipment acquired comprises its purchase price, including non¬
refundable import duties and taxes, after deducting any trade discounts and rebates, borrowing cost, if
capitalisation criteria is met and any directly attributable costs of bringing the assets to its working condition
and location for its intended use and present value of any estimated cost of dismantling and removing the item
and restoring the site on which it is located.
• In case of self-constructed assets, cost includes the costs of all materials used in construction, direct labour,
allocation of directly attributable overheads, directly attributable borrowing costs incurred in bringing the
item to working condition for its intended use, and present value of any estimated cost of dismantling and
removing the item and restoring the site on which it is located. The costs of testing whether the asset is
functioning properly, after deducting the net proceeds from selling items produced while bringing the asset
to that location and condition are also added to the cost of self-constructed assets.
• If significant parts of an item of property, plant and equipment have different useful lives, then they are
accounted for as separate items (major components) of property, plant and equipment.
• Profit or loss arising on the disposal of property, plant and equipment are recognised in the statement of profit
and loss.
b) Subsequent Expenditure
• Subsequent costs are included in the asset's carrying amount, only when it is probable that future economic
benefits associated with the cost incurred 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.
• Major inspection/ repairs/ overhauling expenses are recognised in the carrying amount of the item of property,
plant and equipment as a replacement if the recognition criteria are satisfied. Any unamortised part of the
previously recognised expenses of similar nature is derecognised.
c) Depreciation and Amortisation
• Depreciation on property, plant and equipment is provided on straight line method at the rates determined
based on the useful lives of respective assets as prescribed in the Schedule II of the Act.
• Each part of items of property, plant and equipment with a cost that is significant in relation to the total cost of
the item is depreciated separately. Certain components of property, plant and equipment as identified by the
Company have been depreciated at their respective useful lives ranging between 4 and 10 years.
• Depreciation on additions (disposals) during the year is provided on a pro-rata basis i.e., from (up to) the date
on which asset is ready for use (disposed of).
• Depreciation method, useful lives and residual values are reviewed at each financial year-end and adjusted, if
appropriate.
d) Disposal of Assets
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits
are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of
an item of property, plant and equipment is determined as the difference between net disposal proceeds and the
carrying amount of the asset and is recognised in the statement of profit and loss.
e) Capital Work in Progress
Capital work-in-progress is stated at cost which includes expenses incurred during construction period, interest
on amount borrowed for acquisition of qualifying assets and other expenses incurred in connection with project
implementation in so far as such expenses relate to the period prior to the commencement of commercial
production. Advances given towards acquisition or construction of property, plant and equipment outstanding at
each reporting date are disclosed as Capital advances under "Other Non-Current Assets".
3.5. Leases
Assets taken on lease :
The Company mainly has lease arrangements for land and building.
The Company assesses whether a contract is or contains a lease, at inception of a contract in accordance with Ind AS 116.
The assessment involves the exercise of judgement about whether (i) the contract involves the use of an identified asset,
(ii) the Company has substantially all the economic benefits from the use of the asset through the period of the lease,
and (iii) the Company has the right to direct the use of the asset.
The Company recognises a right-of-use asset ("ROU") and a corresponding lease liability at the lease commencement
date. The ROU asset is initially recognised at cost, which comprises the initial amount of the lease liability adjusted for any
lease payments made at or before the commencement date, plus any initial direct costs incurred. They are subsequently
measured at cost less accumulated depreciation and impairment losses.
The ROU asset is depreciated using the straight line method from the commencement date to the earlier of, the end of
the useful life of the ROU asset or the end of the lease term or useful life of the underlying asset if the Company expects
to exercise a purchase option in the lease. The estimated useful lives of ROU assets are determined on the same basis as
those of property and equipment. In addition, the right-of use asset is periodically reduced by impairment losses, if any,
and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, generally discounted using an incremental borrowing rate specific to the Company, term and currency of the
contract.
Lease payments included in the measurement of the lease liability include fixed payments, variable lease payments that
depend on an index or a rate known at the commencement date; and extension option payments or purchase options
payment which the Company is reasonably certain to exercise.
Variable lease payments that do not depend on an index or rate are recognised as an expense in the period in which the
event or condition that triggers those payments occurs and are included in the line "other expenses" in the Statement of
Profit or Loss.
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced
for the lease payments made and remeasured (with a corresponding adjustment to the related ROU asset) when there
is a change in future lease payments in case of renegotiation, changes of an index or rate or in case of reassessment of
options.
Short-term leases and leases of low-value assets
The Company has elected not to recognise ROU assets and lease liabilities for short term leases as well as low value
assets and recognises the lease payments associated with these leases as an expense on a straight-line basis over the
lease term.
3.6. Revenue Recognition
The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable that future
economic benefits will flow to the entity and specific criteria have been met for each of the Company's activities as
described below. The Company bases its estimates on historical results, taking into consideration the type of customer,
the type of transaction and the specific of each arrangement.
a) Sale of Goods
Revenue from sale of goods is recognised when control of the products being sold is transferred to the customer and
when there are no longer any unfulfilled obligations. The Performance Obligations in sales contracts are fulfilled at
the time of dispatch, delivery or upon formal customer acceptance depending on terms with customers.
Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price (net of
variable consideration) allocated to that performance obligation. The transaction price of goods sold and services
rendered is net of variable consideration on account of various discounts and schemes offered by the Company as
part of the contract. This variable consideration is estimated based on the expected value of outflow. Revenue (net
of variable consideration) is recognised only to the extent that it is highly probable that the amount will not be
subject to significant reversal when uncertainty relating to its recognition is resolved.
Transaction price is the amount of consideration in the contract to which the Company expects to be entitled in
exchange for transferring the promised goods or services.
The Company does not expect to have any contracts where the period between transfer of promised goods or
services to the customer and payment by customer exceeds one year. As a consequence, the Company does not
adjust any of the transaction prices for the time value of money.
b) Benefits under Duty Drawback Scheme/Other Export Benefits
Revenue in respect of above benefits is recognized on post export basis and to the extent that the amount
recoverable can be measured reliably and it is reasonable to expect ultimate collection.
c) Insurance claims
Insurance claims are accounted for on the basis of acceptance of claims and to the extent that the amount
recoverable can be measured reliably and it is reasonable to expect ultimate collection.
d) Interest income
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to
the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by
reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly
discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying
amount on initial recognition.
e) Dividend income
Dividends are recognised at the time the right to receive payment is established.
3.7. Employee Benefits
a) Short Term Employee Benefits
Short term employee benefit obligations are measured on an undiscounted basis and are expensed as the related
services are provided. Liabilities for wages and salaries, including non-monetary benefits that are expected to be
settled wholly within twelve months after the end of the period in which the employees render the related service
are recognised in respect of employees' services up to the end of the reporting period.
b) Other Long Term Employee Benefits
The liabilities for earned leaves that are not expected to be settled wholly within twelve months are measured as
the present value of the expected future payments to be made in respect of services provided by employees up to
the end of the reporting period using the projected unit credit method. The benefits are discounted using the rate
of government securities (G-Sec) at the end of the reporting period that have terms approximating to the terms of
related obligation. Remeasurements as the result of experience adjustment and changes in actuarial assumptions
are recognised in the statement of profit and loss.
c) Post-Employment Benefits
The Company operates the following post-employment schemes:
• Defined Benefit Plans
The liability or asset recognised in the balance sheet in respect of defined benefit plans is the present value of
the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The Company's
net obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount
of future benefit that employees have earned in the current and prior periods. The defined benefit obligation is
calculated annually by Actuaries using the projected unit credit method.
The liability recognised for defined benefit plans is the present value of the defined benefit obligation at the
reporting date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or
losses and past service costs. The net interest cost is calculated by applying the discount rate to the net balance
of the defined benefit obligation and the fair value of plan assets. The benefits are discounted using the rate of
government securities (G-Sec) at the end of the reporting period that have terms approximating to the terms of
related obligation.
Remeasurements of the net defined benefit obligation which comprise actuarial gains and losses, the return on
plan assets (excluding interest) and the effect of the asset ceiling are recognised in other comprehensive income.
Remeasurement recognised in other comprehensive income is reflected immediately in retained earnings and
will not be reclassified to the statement of profit and loss.
• Defined Contribution Plan
Defined contributions to Provident Fund, Pension Scheme and Employees' State Insurance Scheme are defined
contribution schemes and are charged to the statement of profit and loss of the year. The Company makes
specified monthly contributions towards employees provident fund to a trust administered by the Company as
well as to provident fund plan operated by the Regional Provident Fund Commissioner. The minimum rate of
interest which is payable every year by the trust to the beneficiaries is notified by the Government. The Company
has an obligation to make good the shortfall, if any, between the return from the investments of the trust and the
notified interest rate.
d) Termination Benefit
Expenditure incurred on Voluntary Retirement Scheme is charged to the statement of profit and loss immediately.
3.8. Foreign Currency Transactions
• Foreign currency transactions are translated into the functional currency using the spot rates of exchanges at the
dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the
functional currency spot rate of exchanges at the reporting date.
• Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of
monetary assets and liabilities are generally recognised in profit or loss in the year in which they arise except for
exchange differences on foreign currency borrowings relating to assets under construction for future productive use,
which are included in the cost of those qualifying assets when they are regarded as an adjustment to interest costs on
those foreign currency borrowings, the balance is presented in the statement of profit and loss within finance costs.
• Non-monetary items are not retranslated at period end and are measured at historical cost (translated using the
exchange rate at the transaction date).
3.9. Borrowing Cost
• Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowings of funds.
Borrowing costs also includes exchange difference to the extent regarded as an adjustment to the borrowing costs.
• Borrowing costs directly attributable to the acquisition or construction of a qualifying asset are capitalised as a part
of the cost of that asset that necessarily takes a substantial period of time to complete and prepare the asset for its
intended use or sale. The Company considers a period of twelve months or more as a substantial period of time.
• Transaction costs in respect of long term borrowing are amortised over the tenure of respective loans using Effective
Interest Rate (EIR) method. All other borrowing costs are recognised in the statement of profit and loss in the period
in which they are incurred.
3.10. 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.
a) Financial Assets
• Initial Recognition and Measurement:
All financial assets are initially recognised when the Company becomes a party to the contractual provisions
of the instruments. A financial asset is initially measured 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. However trade receivables that do not contain a significant financing component are measured
at transaction price.
• Classification and Subsequent Measurement:
For purposes of subsequent measurement, financial assets are classified in four categories:
> Measured at amortised cost;
> Measured at fair value through other comprehensive income (FVTOCI);
> Measured at fair value through profit or loss (FVTPL); and
> Equity instruments measured at fair value through other comprehensive income (FVTOCI).
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company
changes its business model for managing financial assets.
> Measured at amortised cost:
A financial asset is measured at the amortised cost if both the following conditions are met:
• The asset is held within a business model whose objective is achieved by both collecting 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 (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.
> Measured at FVTOCI:
A financial asset is measured at the FVTOCI if both the following conditions are met:
• The objective of the business model is achieved by both collecting contractual cash flows and selling the financial
assets; and
• The asset's contractual cash flows represent SPPI.
Financial assets meeting these criteria are measured initially at fair value plus transaction costs. They are subsequently
measured at fair value with any gains or losses arising on remeasurement recognised in other comprehensive income,
except for impairment gains or losses and foreign exchange gains or losses. Interest calculated using the effective
interest method is recognised in the statement of profit and loss in interest income. Where the asset is disposed of, the
cumulative gain or loss previously accumulated in other comprehensive income reserve is transferred in the statement
of profit and loss.
> Measured at FVTPL:
FVTPL is a residual category for financial assets. Any financial assets, which does not meet the criteria for categorisation
as at amortised cost or as FVTOCI, is classified as FVTPL. In addition, the Company may elect to designate a financial
asset, which otherwise meets amortised cost or FVTOCI criteria, as at FVTPL. Financial asset included within the
FVTPL category are measured at fair value with all changes recognised in the statement of profit and loss.
Interest/dividend income on financial instruments measured at FVTPL are presented separately under other income.
> Equity instruments measured at FVTOCI:
All equity investments in scope of Ind AS - 109 are measured at fair value. Equity instruments which are held for
trading are classified as at FVTPL. For all other equity instruments, the Company may make an irrevocable election
to present subsequent changes in the fair value in other comprehensive income. The Company makes such election
on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable. In case
the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument,
excluding dividends, are recognised in the OCI. There is no reclassification of the amounts from OCI to the statement
of profit and loss, even on sale of investment.
• Derecognition
The Company derecognises a financial asset on trade date 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.
• Impairment of Financial Assets
The Company assesses at each date of balance sheet whether a financial asset or a group of financial assets is
impaired. Ind AS - 109 requires expected credit losses to be measured through a loss allowance. The Company
recognises lifetime expected losses for all contract assets and/ or all trade receivables that do not constitute a
financing transaction. For all other financial assets, expected credit losses are measured at an amount equal to the
12 month expected credit losses or at an amount equal to the life time expected credit losses if the credit risk on the
financial asset has increased significantly since initial recognition.
b) Financial Liabilities
• Initial Recognition and Measurement:
Financial liabilities are classified, at initial recognition, as at fair value through profit or loss, as loans and borrowings,
as payables or as derivatives, 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 are measured subsequently at amortised cost or FVTPL. A financial liability is classified as FVTPL
if it is classified as held-for-trading, or it is a derivative or it is designated as such on initial recognition. Financial
liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are recognised
in profit or loss. Other financial liabilities are subsequently measured at amortised cost using the effective interest
rate method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss
on derecognition is also recognised in profit or loss.
• Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
• Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the
asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events
and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of
the counterparty.
c) Derivative Financial Instruments:
The Company enters into derivative financial instruments viz. foreign exchange forward contracts, interest rate
swaps and cross currency swaps to manage its exposure to interest rate and foreign exchange rate risks. The
Company does not hold derivative financial instruments for speculative purposes.
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 the statement of profit and loss immediately.
3.11. Impairment of Non-Financial Assets
• The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. An
asset is treated as impaired when the carrying cost of the asset exceeds its recoverable value being higher of value
in use and net selling price. Value in use is computed at net present value of cash flow expected over the balance
useful lives of the assets. For the purpose of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets
or group of assets (Cash Generating Units - CGU).
• An impairment loss is recognised as an expense in the statement of profit and loss in the year in which an asset is
identified as impaired. The impairment loss recognised in earlier accounting period is reversed if there has been an
improvement in recoverable amount.
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