3. Material Accounting Policy Information
The Company has consistently applied all the accounting
policies to the period presented in this 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.
The Company presents the material accounting policies
under this note, which should be read in conjunction
with the information presented and disclosed in the
relevant notes referred under these standalone Financial
Statements and are considered to be "Material Accounting
Policy Information".
3.1 Property , Plant and Equipment (PPE)
Recognition and Measurement:
Items of Property, Plant and Equipment are measured
at cost, which includes capitalized borrowing costs,
[ess accumulated depreciation and any accumulated
impairment losses. For the items of Property, Plant and
Equipment existing as on April 1, 2015 i.e Company's
date of transition to IndAS, was carried at deemed cost ie
carrying amount as at that date.
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.
Spare Parts are capitalized when they meet the definition
of Property, Plant and Equipment, i.e., when the Company
intends to use these for a period exceeding 12 months, have
value of more than H5 Lakhs and that can be used only in
connection with an item of Property, Plant and Equipment
and whose use is expected to be irregular are capitalized and
depreciated over the useful life of the spares or principal
item of the relevant assets, whichever is lower.
Any gain or loss on disposal of an item of Property, Plant
and Equipment is recognized in the Statement of Profit
and Loss account.
Subsequent Expenditure:
Subsequent costs 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 items is material and can be measured reliably.
3.2 Capital work in progress
Capital work in progress are Property, Plant and
Equipment that are not yet ready for their intended use
at the reporting date, which are carried at cost, comprising
direct cost, related incidental expenses and attributable
borrowing cost.
Expenditure incurred on assets under construction
(including a project) is carried at cost under Capital work in
Progress ('CWIP').
3.3 Intangible Assets
Design development: Cost incurred on Design
Development which is not directly chargeable on a product
are capitalized as Intangible Asset and amortized on a
straight-line basis over a period of five years.
Software: Cost of software which is not an integral part
of the related hardware acquired for internal use is
capitalized as intangible asset and amortized on a straight¬
line basis over a period of three years.
Internally generated procedure: Cost of internally
generated weld procedure is capitalized as Intangible
Asset and amortized on a straight-line basis over a period
of three years.
For the intangible assets existing as on April 1, 2015 i.e
Company's date of transition to IndAS, was carried at
deemed cost ie carrying amount as at that date.
The residual values, useful lives and methods of
amortization of intangible assets are reviewed at
each financial year end and adjusted prospectively,
if appropriate.
Computer software/ license is under development or is not
yet ready for use, accumulated cost incurred on such items
are accounted as "Intangible Assets Under Development".
3.4 Leases
The Company assesses at contract inception whether
a contract is, or contains, a [ease. That is, if the contract
conveys the right to control the use of an identified asset
for a period of time in exchange for consideration.
The Company's [ease asset classes primarily consist of
[eases for Land and Buildings.
i) As a Lessee:
At the date of commencement of the [ease,
the Company recognizes a [ease [iabi[ity and a
corresponding Right-of-Use ("RoU") asset for aU tease
arrangements in which it is a [essee, except for [eases
with a term of twe[ve months or [ess (short term
[eases) and [eases of [ow va[ue assets. For these short
term and [eases of [ow va[ue assets, the Company
recognizes the [ease payments as an operating
expense on a straight-[ine basis or another systematic
basis over the term of the [ease.
Right of Use (RoU) Assets
The Right-of-Use assets are initia[[y recognized at
cost, which comprises the initia[ amount of the [ease
[iabi[ity adjusted for any [ease payments made at or
prior to the commencement date of the [ease p[us
any initia[ direct costs [ess any [ease incentives. They
are subsequent[y measured at cost [ess accumu[ated
depreciation and impairment [osses, if any. Right-of-
Use assets are depreciated from the commencement
date on a straight-[ine basis over the shorter of the
[ease term and usefu[ [ife of the under[ying asset.
Lease Liabilities
The [ease liability is initially measured at the present
value of the future lease payments ie., amortised cost
under effective interest method.The lease payments
are discounted using the interest rate implicit in
the lease or, if not readily determinable, using the
incremental borrowing rates.
The lease liability is subsequently remeasured by
increasing the carrying amount to reflect interest on
the lease liability and reducing the carrying amount
to reflect the lease payments made.
A lease liability is remeasured upon the occurrence
of certain events such as a change in the lease term
or a change in an index or rate used to determine
lease payments. When a lease liability is remeasured,
a corresponding adjustment is made to the carrying
amount of right of use asset, or is recorded in
Statement of Profit and Loss, if carrying amount of
the right of use asset has been reduced to nil
Modifications to a lease agreement beyond the
original terms and conditions are generally accounted
for as a re-measurement of the lease liability with a
corresponding adjustment to the RoU asset. Any gain
or loss on modification is recognized in the Statement
of Profit and Loss. However, the modifications that
increase the scope of the lease by adding the right
to use one or more underlying assets at a price
commensurate with the stand-alone selling price are
accounted for as a separate new lease. In case of lease
modifications, discounting rates used for measurement
of lease liability and RoU assets is also suitably adjusted.
The Company presents right of use assets in 'Property,
Plant and Equipment' and the lease liabilities
separately from other liabilities in the Balance Sheet.
ii) As a lessor:
Leases for which the Company is a lessor is classified
as a finance or operating lease.
For operating leases, rental income is recognized on a
straight line basis or another systematic basis over the
term of the relevant lease .The difference between the
amount recognized as lease rental income and actual
cashflows receivable as per the lease agreement is
adjusted in ("Accrued Lease Rental asset").
3.5 Depreciation
Depreciation on Property, Plant and Equipment is provided
on straight-line method based on useful life of the asset as
prescribed in part C of Schedule II to the Companies Act,
2013 except to the extent described below:
• For the assets constructed/developed for
International Ship Repair Facility (ISRF) and New Dry
Dock Project, depreciation is provided on the basis of
useful life as assessed by technical experts.
• For the assets acquired from Cochin Port Trust for
International Ship Repair Facility (ISRF), depreciation
is provided on the basis of remaining useful life as
assessed by technical experts.
• Assets on leased premises are depreciated from the
commencement date on a straight line basis over the
shorter of its end of the useful life of the Right Of
Use asset/ Assets on leased premises or the end of
the lease term.
• For certain types of buildings and equipments,
based on technical evaluation, useful life has been
estimated to be different from that prescribed in
Schedule II of the Act.
Depreciation on additions/deletions to Gross Block is
calculated on pro-rata basis from the date of such additions
and up to the date of such deletions.
Depreciable amount is the cost of an asset, or other amount
substituted for cost, less its residual value. A maximum
residual value of 5% of original cost is considered for all
categories of assets.
Depreciation method, useful lives and residual values
are reviewed at each reporting date and adjusted
prospectively, if appropriate.
Based on the technical evaluation of the management, for
few categories of plant and machinery, the useful life is
determined on double shift basis.
Capital Work in Progress included under Property, Plant
and Equipments are not depreciated as these assets are
not yet available for use. However, they are tested for
impairment if any.
3.6 Impairment of Assets -Non Financial Assets
The Company assesses, at each reporting date, whether
there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for
an asset is required, the Company estimates the asset's
recoverable amount. An asset's recoverable amount is the
higher of an asset's or Cash-Generating Unit's (CGU) fair
value less cost of disposal and its value in use. Recoverable
amount is determined for an individual asset, unless the
asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets.
Impairment loss is recognized when the carrying amount
of an asset exceeds recoverable amount. In assessing value
in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of
money and the risks specific to the asset. In determining
fair value less cost of disposal, recent market transactions
are taken into account. If no such transactions can be
identified, an appropriate valuation model is used. These
calculations are corroborated by valuation multiples,
available quoted market prices for public traded companies
or other available fair value indicators.
The Company bases its impairment calculation on detailed
budgets and forecast calculations, which are prepared
separately for each of the Company's CGUs to which the
individual assets are allocated. To estimate cash flow
projections beyond periods covered by the most recent
budgets/forecasts, the Company extrapolates cash flow
projections in the budget using a steady or declining
growth rate for subsequent years, unless an increasing
rate can be justified.
For assets excluding goodwill, an assessment is made at
each reporting date to determine whether there is an
indication that previously recognized impairment losses
no longer exist or have decreased. If such indication
exists, the Company estimates the asset's or CGU's
recoverable amount. A previously recognized impairment
loss is reversed only if there has been a change in the
assumptions used to determine the asset's recoverable
amount since the last impairment loss was recognized. The
reversal is limited so that the carrying amount of the asset
does not exceed its recoverable amount, nor exceed the
carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognized for
the asset in prior years.
3.7 Inventories
Inventory valuation is as per provisions of Ind AS 2.
Raw materials and components are valued at weighted
average cost method . When they are intended to project
use, valuation is done at project specific weighted average
cost method.
Work in progress have been valued at lower of cost and
net realisable value.
Stores and spares are valued at weighted average
cost method.
Goods in transit are valued at cost.
3.8 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 recognized
when the Company becomes a party to the contractual
provisions of the instruments.
a) Equity Instruments
An equity instrument is a contract that evidences
residual interest in the assets of the Company after
deducting all of its liabilities. Equity instruments
are recognized at the proceeds received net of
direct issue cost.
b) Financial Assets
Initial recognition and measurement
All Financial Assets other than trade receivables are
recognized initially at fair value plus, in the case of
financial assets not recorded at fair value through
profit or loss, transaction cost that are attributable
to the acquisition of the Financial Asset. Transaction
costs directly attributable to the acquisition of
financial assets measured at fair value through profit
or loss are recognized immediately in the Statement
of Profit and Loss.
Subsequent measurement
For the purpose of subsequent measurement,
Financial Assets are classified in three categories:
• Financial assets at amortized cost;
• Financial assets at Fair Value through other
comprehensive income (FVTOCI);
• Financial assets at Fair Value through Statement
of Profit and Loss (FVTPL);
i) Financial assets at amortized cost
Financial assets are subsequently measured at
amortized cost if these financial assets are held
within a business whose objective is 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.
ii) Financial assets at Fair Value through other
comprehensive income (FVTOCI)
Financial assets are measured at fair value
through other comprehensive income if these
financial assets are held within a business
whose objective is achieved by both collecting
contractual cash flows that give rise on specified
dates to solely payments of principal and
interest on the principal amount outstanding
and by selling financial assets.
iii) Financial assets at Fair Value through
Statement of Profit and Loss (FVTPL)
Financial assets are measured at fair value
through profit or loss unless it is measured at
amortized cost or at fair value through other
comprehensive income on initial recognition.
The transaction costs directly attributable to the
acquisition of financial assets and liabilities at
fair value through profit or loss are immediately
recognized in Statement of Profit and Loss.
Investments
All equity investments in scope of Ind AS 109 Financial
Instruments are measured at fair value. Equity
instruments which are held for trading are classified
as at FVTPL. For all other equity instruments, the
Company had made an irrevocable election to
present the 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/
transition and is irrevocable.
There is no recycling/reclassification of the amounts
from OCI to the Statement of Profit and Loss, even
on sale/disposal of the said equity investments.
Investment in preference shares/debentures of the
subsidiaries are treated as equity instruments if the
same are convertible into equity shares. Investment
in preference shares/debentures not meeting the
aforesaid condition is classified as debt instruments
at amortized cost.
Investment in a 'debt instrument' is measured at
the amortized cost if both the following conditions
are met: The asset is held within a business model
whose objective is -
(1) To hold assets for collecting contractual
cash flows, and
(2) 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.
Amortized cost is calculated by taking into account
any discount or premium and fees or costs that are
an integral part of the Effective Interest Rate (EIR).
The EIR amortization is included in other income in
the Statement of Profit and Loss.
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 following
financial assets and credit risk exposure:
a) Financial Assets that are Debt Instruments,
and are measured at amortized cost e.g., loans,
debt securities, deposits, trade receivables
and bank balance
b) Financial Guarantee Contracts which are not
subsequently measured as at FVTPL
c) Lease Receivables under Ind AS 116
Simplified Approach
The Company follows 'simplified approach' for
recognition of impairment loss allowance on
Trade Receivables.
Trade Receivables
The Company classifies the right to consideration
in exchange for deliverables as either a receivable
or as contract asset. A receivable is a right to
consideration that is unconditional and only the
passage of time is required before the payment of
that consideration is due.
The Company assesses at each Balance Sheet date
whether a financial asset or a group of financial asset
is impaired. Ind AS 109 requires expected credit loss
to be measured through a loss allowance.
The Company recognizes lifetime expected credit
losses for all trade receivables that do not constitute
a financing transaction. Impairment loss allowance is
based on a simplified approach as permitted by Ind
AS 109. As a practical expedient, the Company uses a
provision matrix to determine the impairment loss on
the 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 analyzed. On that
basis, the Company estimates provision on trade
receivables at the reporting date.
Impairment loss allowance (or reversal) that is
required to be recognized at the reporting date
is recognized as an impairment loss or gain in the
Statement of Profit & Loss Account.
General Approach
For recognition of impairment loss on other financial
assets and risk exposure, 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-months 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 recognizing impairment loss
allowance based on 12-months ECL.
Lifetime ECL are the expected credit losses resulting
from all possible default events over the expected
life of a financial instrument. The 12-months ECL is a
portion of the lifetime ECL which results from default
events that are possible within 12 months after the
reporting date.
ECL impairment loss allowance (or reversal)
recognized during the period is recognized in the
Statement of Profit and Loss. The Balance Sheet
presentation for various financial instruments is
described below:
• Financial Assets measured as at amortized
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.
• Financial Guarantee Contracts: ECL is presented
as a provision in the Balance Sheet, i.e.
as a liability.
• Debt instruments measured at FVTOCI: Since
financial assets are already reflected at fair
value, impairment allowance is not further
reduced from its value. Rather, ECL amount
is presented as 'accumulated impairment
amount' in the OCI.
c) Financial liabilities
Initial recognition and measurement
Financial Liabilities are classified, at initial recognition,
as financial liabilities at fair value through profit
or loss and financial liabilities at amortized cost,
as appropriate.
All Financial Liabilities are recognized initially at
fair value and, in the case of liabilities subsequently
measured at amortized cost, they are measured net
of directly attributable transaction cost. In case of
Financial Liabilities measured at fair value through
profit or loss, transaction costs directly attributable
to the acquisition of financial liabilities are recognized
immediately in the Statement of Profit and Loss.
The Company's Financial Liabilities include trade
and other payables, loans and borrowings including
Financial Guarantee Contracts and derivative
financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on
their classification, as described below:
• Financial liabilities at Fair Value through
Statement of Profit and Loss (FVTPL);
• Financial liabilities at amortized cost;
• Financial Guarantee Contracts;
i) Financial Liabilities at fair value through profit
or loss
Financial Liabilities at fair value through profit
or loss include financial liabilities held for
trading and financial liabilities designated
upon initial recognition as at fair value through
the Statement of Profit and Loss. Financial
Liabilities are classified as held for trading if they
are incurred for the purpose of repurchasing
in the near term. This category also includes
derivative financial instruments entered into
by the Company that are not designated as
hedging instruments in hedge relationships as
defined by Ind AS 109.
Gains or losses on liabilities held for trading are
recognized in the Statement of Profit and Loss.
ii) Financial Liabilities at amortized cost
Financial Liabilities that are not held-for-trading
and are not designated as at FVTPL are measured
at amortized cost at the end of subsequent
accounting periods. The carrying amounts
of financial liabilities that are subsequently
measured at amortized cost are determined
based on the effective interest method. Gains
and losses are recognized in the Statement
of Profit and Loss when the liabilities are
derecognized as well as through the Effective
Interest Rate (EIR) amortization process.
Amortized cost is calculated by taking into
account any discount or premium on acquisition
and fees or cost that are an integral part of the
EIR. The EIR amortization is included as finance
costs in the Statement of Profit and Loss.
iii) Financial Guarantee Contracts
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 the payment when due in
accordance with the terms of a debt instrument.
Financial Guarantee Contracts are recognized
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 initially recognized less cumulative
i ncome recognized i n accord ance wi th
principles of Ind AS 115.
d) De-recognition of Financial Instruments
A financial asset is de-recognized when:
• The rights to receive cash flows from the asset
have expired, or
• the Company has transferred substantially
all the risks and rewards of the asset, or the
Company has neither transferred nor retained
substantially all the risks and rewards of the
asset, but has transferred control of the asset.
A financial liability or a part of financial liability is
de-recognized from the Balance Sheet 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 the de¬
recognition of the original liability and the recognition
of a new liability. The difference in the respective
carrying amounts is recognized in the statement of
profit or loss.
e) Offsetting of financial instruments
Financial assets and financial liabilities are offset and
the net amount is reported in Financial Statements if
there is a currently enforceable legal right to offset
the recognized amounts and there is an intention to
settle on a net basis, to realize the assets and settle
the liabilities simultaneously.
f) Derivative instruments and hedge accounting:
The Company uses derivative financial instruments,
such as forward currency contracts, to hedge its
foreign currency risks respectively. Such derivative
financial instruments are initially recognized at fair
value on the date on which a derivative contract is
entered into and are subsequently re-measured at
fair value. The accounting for subsequent changes in
fair value of derivatives depends on the designation
or non- designation of derivative as hedging
instruments. Derivatives are carried as financial
assets when the fair value is positive and as financial
liabilities when the fair value is negative.
Derivative that are designated as Hedge Instrument
The Company undertakes foreign exchange forward
contracts for hedging foreign currency risks. The
Company generally designates the whole forward
contract as hedging instrument.
These hedging instruments are governed by the
Company's foreign exchange risk management policy
approved by the Board of Directors.
At the inception of a hedge relationship, the
Company formally designates and documents the
hedge relationship to which the Company wishes to
apply hedge accounting and the risk management
objective and strategy for undertaking the hedge.
The documentation includes the Company's risk
management objective and strategy for undertaking
hedge, the hedging/ economic relationship, the
hedged item or transaction, the nature of the risk
being hedged, hedge ratio and how the entity will
assess the effectiveness of changes in the hedging
instrument's fair value in offsetting the exposure to
changes in the hedged item's fair value or cash flows
attributable to the hedged risk.
Such hedges are expected to be highly effective
in achieving offsetting changes in fair value or
cash flows and are assessed on an ongoing basis to
determine that the hedge is actually have been highly
effective throughout the financial reporting periods
for which it was designated.
The effective portion of change in the fair value of
the designated hedging instrument is recognized
in the Other Comprehensive Income ('OCI') and
accumulated under the heading Cash Flow Hedge
Reserve within Equity. The gain or loss relating to
the ineffective portion is recognized immediately
in the Statement of Profit and Loss and included
in the Other Income or Other Expenses as Gain on
Derivatives or Loss on Derivatives respectively.
Amounts previously recognized in OCI and
accumulated in equity relating to effective portion
are reclassified to Statement of Profit and Loss in the
periods when the hedged item affects profit or loss,
in the same line item as the recognized hedged item
or treated as basis adjustment if a hedged forecast
transaction subsequently results in the recognition of
a non-financial asset or non-financial liability. When a
forecasted transaction is no longer expected to occur,
the cumulative gain or loss accumulated in equity is
transferred to the Statement of Profit and Loss.
Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated or exercised
without replacement or rollover (as part of hedging
strategy), or if its designation as a hedge is revoked,
or when the hedge no longer meets the criteria for
hedge accounting.
g) Contract Assets
Where the Company performs by transferring goods
or services to a customer before the customer
pays consideration or before payment is due, the
Company presents the contract as a contract asset.
A contract asset is Company's right to consideration
in exchange for goods or services that the Company
has transferred to a customer, when that right is
conditioned on something other than the passage of
time. Contract assets are reviewed for impairment in
accordance with Ind AS 109.
h) Contract Liabilities
Where the Company receives consideration, or the
Company has a right to an amount of consideration
that is unconditional (ie a receivable), before the
Company transfers a good or service to the customer,
the Company presents the contract as a contract
liability when the payment is made or the payment
is due (whichever is earlier). A contract liability is
Company's 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.
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