3. MATERIAL ACCOUNTING POLICIES
3.1. Property, Plant and Equipment
i. Recognition and measurement
Property, plant and equipment are stated
at cost of acquisition or construction less
accumulated depreciation and any accumulated
impairment losses. The cost of Plant, Property
& Equipment comprises of its purchase price,
non-refundable taxes & levies, freight and other
incidental expenses related to the acquisition and
installation of the respective assets. Borrowing
cost attributable to financing of acquisition or
construction of the qualifying Property, Plant
and Equipment is capitalized to respective assets
when the time taken to put the assets to use is
substantial.
When major items of property, plant and
equipment have different useful lives, they are
accounted for as separate items of property, plant
and equipment. The cost of replacement of any
property, plant and equipment is recognized in
the carrying amount of the item if it is probable
that the future economic benefit associated with
the item will flow to the Company and its cost can
be measured reliably.
Capital work-in-progress comprises cost of
Property, Plant and Equipment those are not yet
installed and ready for their intended use at the
Balance sheet date.
Pre-operative expenditure comprising of
revenue expenses incurred in connection with
project implementation during the period up
to commencement of commercial production
are treated as part of the project costs and
are capitalized. Such expenses are capitalized
only if the project to which they relate, involve
substantial expansion of capacity or upgradation.
An item of property, plant and equipment is
derecognized upon disposal or when no future
economic benefits are expected to arise from its
use. Difference between the sales proceeds and
the carrying amount of the asset is recognized in
profit and loss.
The cost of property, plant and equipment as at
I April, 2016, the company's date of transition
to Ind AS, was determined with reference to its
carrying value recognised as per the previous
GAAP (deemed cost), as at the date of transition
to Ind AS.
ii. Subsequent expenditure
Subsequent expenditure is capitalized only if
it is probable that the future economic benefits
associated with the expenditure will flow to
the Company and the cost of the item can be
measured reliably.
iii. Depreciation
Freehold land is carried at historical cost and not
depreciated. Depreciation on Property, Plant and
Equipment is provided using straight line method
based as per the useful life prescribed in Schedule
II to the Companies Act, 2013. Depreciation on
assets added / disposed off during the year is
provided on pro-rata basis with reference to
month of addition / disposal. The estimated
useful lives, residual values and depreciation
method are reviewed at each financial year-end
and changes in estimates, if any are accounted for
on a prospective basis. The residual values are not
more than 5% of the original cost of asset.
3.2. Intangible Assets
i. Recognition and measurement
Intangible assets acquired separately are
measured at cost of acquisition. Following initial
recognition, intangible assets are carried at cost
less accumulated amortisation and impairment
losses if any.
Intangible assets (software & technical know¬
how) are amortised over the estimated useful
life of three years which reflects the manner
in which the economic benefit is expected
to be generated. The estimated useful life of
amortizable intangibles is reviewed at the end of
each reporting period and change in estimates if
any are accounted for on a prospective basis.
ii. Subsequent Expenditure
Subsequent expenditure is capitalized only
when it increases the future economic benefits
embodied in the specific asset to which it relates.
All other expenditure, including expenditure
on internally generated goodwill and brands, is
recognized in profit or loss as incurred.
iii. Amortisation
Intangible assets are amortised on a straight line
basis over the estimated useful life.
Amortisation method, useful lives and residual
values are reviewed at the end of each financial
year and adjusted if appropriate.
The cost of intangibles as at 1 April, 2016,
the Group's date of transition to Ind AS, was
determined with reference to its carrying value
recognised as per the previous GAAP (deemed
cost), as at the date of transition to Ind AS.
3.3. Foreign currency Transaction and Translation
Foreign currency transactions are recorded at exchange
rates prevailing on the date of the transaction. The
net gain or loss on account of exchange differences
arising on settlement of foreign currency transactions
are recognized as income or expense of the period
in which they arise. Monetary assets and liabilities
denominated in foreign currency as at the balance
sheet date are translated at the closing rate. The
resultant exchange rate differences are recognized in
the statement of profit and loss. Non-monetary assets
and liabilities are carried at the rates prevailing on the
date of transaction.
3.4. 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 an entity
becomes a party to the contractual provisions of the
instruments.
3.4.1. Financial assets
(a) Classification of financial assets:
All financial assets not classified as measured
at amortised cost or FVOCI as described
above are measured at FVTPL. On initial
recognition, the company may irrevocably
designate a financial asset that otherwise
meets the requirements to be measured at
amortised cost or at FVOCI as at FVTPL if
doing so eliminates or significantly reduces
an accounting mismatch that would
otherwise arise.
Financials Assets are not reclassified
subsequent to their initial recognition unless
the company changes its business model for
managing financial assets, in which case all
affected financial assets are reclassified on
the first day of the first reporting period
following the change in the business model.
(b) Recognition and initial measurement:
Financial assets are initially measured at
fair value. Transaction costs that are directly
attributable to the acquisition or issue of
financial assets (other than financial assets
at fair value through profit or loss) are
added to or deducted from the fair value
of the financial assets, as appropriate, on
initial recognition. Transaction costs that
are directly attributable to the acquisition or
issue of financial assets at fair value through
profit or loss are recognised immediately in
profit or loss.
(c) Subsequent measurement:
• Amortised Cost
Assets that are held for collection of
contractual cash flows where those
cash flows represent solely payments
of principal and interest are measured
at amortised cost. A gain or loss on a
debt investment that is subsequently
measured at amortised cost and is
not part of a hedging relationship is
recognised in profit or loss when the
asset is derecognised or impaired.
Interest income from these financial
assets is included in finance income
using the effective interest rate
method.
• Fair value through other
comprehensive income (FVOCI):
Assets that are held for collection
of contractual cash flows and for
selling the financial assets, where the
assets' cash flows represent solely
payments of principal and interest,
are measured at fair value through
other comprehensive income (FVOCI).
Movements in the carrying amount
are taken through OCI, except for the
recognition of impairment gains or
losses, interest revenue and foreign
exchange gains and losses which are
recognised in profit and loss. When
the financial asset is derecognised,
the cumulative gain or loss previously
recognised in OCI is reclassified from
equity to profit or loss and recognised
in other gains / (losses). Interest
income from these financial assets
is included in other income using
the effective interest rate method.
Foreign exchange gains and losses are
presented in other gains and losses
and impairment expenses in other
expenses.
• Fair value through profit or loss
(FVTPL)
Assets that do not meet the criteria for
amortised cost or FVOCI are measured
at fair value through profit or loss. A
gain or loss on a debt investment that
is subsequently measured at fair value
through profit or loss and is not part of
a hedging relationship is recognised
in profit or loss and presented net in
the statement of profit and loss within
other gains / (losses) in the period in
which it arises. Interest income from
these financial assets is included in
other income.
(d) Derecognition of financial assets:
A financial asset (or, where applicable, a part
of a financial asset or part of a group of similar
financial assets) is primarily derecognised
(i.e. removed from the Company's balance
sheet) when:
• The rights to receive cash flows from
the asset have expired, or
• The Company has transferred its rights
to receive cash flows from the asset
When the Company has transferred an
asset, the Company evaluates whether
it has transferred substantially all risks
and rewards of ownership of the financial
asset. In such cases, the financial asset is
derecognised. Where the Company has
not transferred substantially all risks and
rewards of ownership of the financial asset,
the financial asset is not derecognised.
Where the Company has neither transferred
a financial asset nor retains substantially all
risks and rewards of ownership of financial
asset, the financial asset is derecognised if
the Company has not retained control over
the financial asset. Where the Company
retains control of the financial asset, the
asset is continued to be recognised to the
extent of continuing involvement in the
financial asset.
(e) Income recognition:
Dividend is accounted when the right to
receive payment is established.
(f) Cash and cash equivalents:
Cash and cash equivalents consists of cash
on hand, bank balances, short demand
deposits and highly liquid investments
that are readily convertible into known
amounts of cash and which are subject
to an insignificant risk of change in value.
Short term means investments with original
maturities / holding period of three months
or less from the date of investments. Bank
overdrafts that are repayable on demand
and form an integral part of the Company's
cash management are included as a
component of cash and cash equivalent for
the purpose of statement of cash flow.
(g) Investments:
I investments in mutual funds are primarily
held for the Company's temporary cash
requirements and can be readily convertible
in cash. These investments are initially
recorded at fair value and classified as fair
value through profit or loss.
(h) Trade receivables:
Trade receivables are amounts due from
customers for sale of goods or services
performed in the ordinary course of
business. Trade receivables are initially
recognized at its transaction price which
is considered to be its fair value and are
classified as current assets as it is expected
to be received within the normal operating
cycle of the business.
3.4.2. Financial liabilities
The Company's financial liabilities include trade
payables, loans, borrowing and derivative
financial instruments.
(a) Classification:
All the Company's financial liabilities, except
for financial liabilities at fair value through
profit or loss, are measured at amortised
cost.
(b) Initial measurement:
Financial liabilities are initially measured at
fair value. Transaction costs that are directly
attributable to the acquisition or issue of
financial liabilities (other than financial
liabilities at fair value through profit or loss)
are added to or deducted from the fair value
of the financial liabilities, as appropriate, on
initial recognition. Transaction costs that
are directly attributable to the acquisition
or issue of financial liabilities at fair value
through profit or loss are recognised
immediately in profit or loss.
(c) Subsequent measurement:
Financial liabilities are subsequently
measured at amortised cost using the
Effective Interest Rate Method. The Effective
Interest Rate Method is a method of
calculating the amortised cost of a financial
liability and of allocating interest expense
over the relevant period. The effective
interest rate is the rate that exactly discounts
estimated future cash payments (including
transaction costs and other premiums or
discounts) through the expected life of the
financial liability, or (where appropriate) a
shorter period, to the net carrying amount
on initial recognition.
(d) Derecognition of financial liabilities:
The Company derecognises financial
liabilities when, and only when, the
Company's obligations are discharged,
cancelled or waived off or have expired.
An exchange between the Company
and the lender of debt instruments with
substantially different terms is accounted for
as an extinguishment of the original financial
liability and the recognition of a new
financial liability. The difference between
the carrying amount of the financial liability
derecognised and the consideration paid
and payable is recognised in profit or loss.
(e) Borrowings:
Borrowings are initially recorded at fair value
and subsequently measured at amortised
costs using effective interest rate method.
Transaction costs are charged to statement
of profit and loss as financial expenses over
the term of borrowing.
(f) Trade payables:
Trade payables are amounts due to vendors
for purchase of goods or services acquired
in the ordinary course of business and are
classified as current liabilities to the extent
it is expected to be paid within the normal
operating cycle of the business
3.4.3. Derivative Financial Instruments:
The Company enters into derivative financial
instruments to manage its foreign exchange rate
risk. Derivatives are initially recognized at fair
value at the date a derivative contract is entered
into and are subsequently re-measured to their
fair value at the end of each reporting period. The
resulting gain or loss is recognized in profit or loss
immediately.
3.5 Leases - Company as lessee
At inception of a contract, the Company assesses
whether a contract is or contains a lease. A contract
is or contains a lease if the contract conveys the right
to control the use of an identified assets for a period
of time in exchange for consideration. To assess
whether a contract conveys the right to control the
use of an identified asset the Company assesses
whether contract involves the use of an identified
asset, the Company has a right to obtain substantially
all of the economic benefits from the use of the asset
throughout the period of use and the Company has the
right to direct the use of the asset.
At the inception date, right-of-use asset ("ROU") is
recognised at cost which includes present value of
lease payments adjusted for any payments made on
or before the commencement of lease and initial direct
cost, if any. It is subsequently measured at cost less
accumulated depreciation, accumulated impairment
losses, if any and adjusted for any remeasurement
of the lease liability. Right-of-use asset ("ROU") is
depreciated using the straight-line method from the
commencement date over the earlier of useful life of
the asset or the lease term. When the Company has
purchase option available under lease and cost of right-
of-use assets ("ROU") reflects that purchase option will
be exercised, right-of-use asset is depreciated over the
useful life of underlying asset. Right-of-use assets are
tested for impairment whenever there is any indication
that their carrying amounts may not be recoverable.
Impairment loss, if any, is recognised in the statement
of profit and loss.
At the inception date, lease liability is recognised at
present value of lease payments that are not made
at the commencement of lease. Lease liability is
subsequently measured by adjusting carrying amount
to reflect interest, lease payments and remeasurement,
if any.
Lease payments are discounted using the incremental
borrowing rate or interest rate implicit in the lease, if
the rate can be determined.
The Company has elected not to apply requirements
of Ind AS 116 to leases that has a term of 12 months or
less and leases for which the underlying asset is of low
value. Lease payments of such lease are recognised as
an expense on straight line basis over the lease term.
3.6 Inventories
I nventories are Valued at the lower of cost and net
realizable value.
The cost incurred in bringing the inventory to their
existing location and conditions are determined as
follows:
(a) Raw Material and Packing Material - Purchase cost
of materials on FIFO basis.
(b) Finished Goods (Manufactured) and work in
progress - Cost of purchase, conversion cost, and
other costs attributable to inventories.
(c) Trading goods - Purchase cost on FIFO basis.
The cost of purchase of inventories comprises the
purchase price, import duties and other taxes (other
than those subsequently recovered by the Company
from taxing authorities), and transport, handling and
other costs directly attributable to the bringing the
inventory to their existing location and conditions.
Trade discounts, rebates and other similar items are
deducted in determining the costs of purchase.
Net realizable value is the estimated selling price in the
ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make
the sales. The net realisable value of work-in-progress
is determined with reference to the selling prices of
related finished products.
The comparison of cost and net realisable value is
made on an item-by-item basis.
The Company considers various factors like ageing of
inventory, product discontinuation, obsolete items and
any other factor which impact the Company's business
in determining the allowance for inventories. The
Company considers the above factors and adjusts the
inventory provision to reflect its actual experience on a
periodic basis.
3.7 Impairment of Assets
3.7.1 Financial Assets
At each balance sheet date, the Company assesses
whether a financial asset is to be impaired. Ind
AS 109 requires expected credit losses to be
measured through loss allowance. The Company
measures the loss allowance for financial assets
at an amount equal to lifetime expected credit
losses if the credit risk on that financial asset has
increased significantly since initial recognition.
If the credit risk on a financial asset has not
increased significantly since initial recognition,
the Company measures the loss allowance for
financial assets at an amount equal to 12-month
expected credit losses. Loss allowance for financial
assets measured at amortised cost are deducted
from gross carrying amount of the assets. The
amount of ECL (or reversal) that is required to
adjust the loss allowance at the reporting date is
recognised as an impairment gain or loss in the
Statement of Profit and Loss.
3.7.2 Non-financial Assets
Property, plant and equipment and intangible
assets with finite life are evaluated for recoverability
whenever there is any indication that their
carrying amounts may not be recoverable. If any
such indication exists, the recoverable amount (i.e.
higher of the fair value less cost to sell or the value-
in-use) is determined on an individual asset basis
unless the asset does not generate cash flows
that are largely independent of those from other
assets. In such cases, the recoverable amount is
determined for the cash generating unit (CGU) to
which the asset belongs.
If the recoverable amount of an asset (or CGU) is
estimated to be less than its carrying amount, the
carrying amount of the asset (or CGU) is reduced
to its recoverable amount. An impairment
loss is recognized in the profit or loss to such
extent. When an impairment loss subsequently
reverses, the carrying amount of the asset (or a
cash-generating unit) is increased to the revised
estimate of its recoverable amount, such that
the increase in the carrying amount does not
exceed the carrying amount that would have
been determined had no impairment loss been
recognised for the asset (or cash-generating unit)
in prior years. A reversal of an impairment loss is
recognised immediately in profit or loss.
3.7.3 Presentation of allowance for ECL in the
balance sheet
Loss allowances for financial assets measured
at amortised cost are deducted from the gross
carrying amount of the assets. For debt securities
at FVOCI, the loss allowance is charged to profit or
loss and is recognised in OCI.
3.7.4 Credit-impaired financial assets
At each reporting date, the Company assesses
whether financial assets carried at amortised cost
and debt securities at FVOCI are credit-impaired.
A financial asset is 'credit-impaired' when one or
more events that have a detrimental impact on
the estimated future cash flows of the financial
asset have occurred.
Evidence that a financial asset is credit-impaired
includes the following observable data:
• significant financial difficulty of the debtor;
• a breach of contract such as a default or
being more than 90 days past due;
• the restructuring of a loan or advance by the
Company on terms that the Company would
not consider otherwise;
• it is probable that the debtor will enter
bankruptcy or other financial reorganisation;
or
• the disappearance of an active market for a
security because of financial difficulties.
3.7.5 Write Off
The gross carrying amount of a financial asset is
written off when the Company has no reasonable
expectations of recovering a financial asset in
its entirety or a portion thereof. For individual
customers, the Company has a policy of writing
off the gross carrying amount when the financial
asset is 3 years past due based on historical
experience of recoveries of similar assets. For
corporate customers, the Company individually
makes an assessment with respect to the timing
and amount of write-off based on whether
there is a reasonable expectation of recovery.
The Company expects no significant recovery
from the amount written off. However, financial
assets that are written off could still be subject to
enforcement activities in order to comply with the
Company's procedures for recovery of amounts
due.
3.8 Employee Benefits
3.8.1 Short term employee benefits
Short term benefits payable before twelve
months after the end of the reporting period in
which the employees have rendered service are
accounted as expense in profit and loss account.
3.8.2 Long term employment benefits
Defined Contribution Plans
Contributions to defined contribution plans
(provident fund and other social security schemes)
are recognized as expense when employees have
rendered services entitling them to such benefits.
Defined Benefit Plans
The Company's net obligation in respect of an
approved gratuity plan, which is defined benefit
plan, is calculated using the projected unit credit
method and the same is carried out by qualified
actuary. The current service cost and net interest
on the net defined benefit liability (asset) is
recognized in the statement of profit and loss.
Past service cost are immediately recognized
in the statement of profit and loss. Actuarial
gains and losses net of deferred taxes arising
from experience adjustment and changes in
actuarial assumptions are recognized in other
comprehensive income in the period in which
they arise.
Compensated absences and earned leaves
The Company's current policy permit eligible
employees to accumulate compensated absences
up to a prescribed limit and receive cash in lieu
thereof in accordance with the terms of the
policy. The Company measures the expected cost
of accumulating compensated absences as the
additional amount that the Company expects
to pay as a result of unused entitlement that
has accumulated as at the reporting date. The
expected cost of these benefits is calculated using
the projected unit credit method by qualified
actuary every year. Expense on non-accumulating
compensated absences is recognized is the
period in which the absences occur.
The liability in respect of all defined benefit
plans and other long-term benefits is accrued
in the books of account on the basis of actuarial
valuation carried out by an independent actuary
using the Projected Unit Credit Method. The
obligation is measured at the present value
of estimated future cash flows. The discount
rates used for determining the present value of
obligation under defined benefit plans, is based
on the market yields on Government securities
as at the Balance Sheet date, having maturity
periods approximating to the terms of related
obligations.
Remeasurement gains and losses in respect
of all defined benefit plans arising from
experience adjustments and changes in actuarial
assumptions are recognised in the period in
which they occur, directly in other comprehensive
income. They are included in other equity in
the Statement of Changes in Equity and in the
Balance Sheet. Changes in the present value of
the defined benefit obligation resulting from
plan amendments or curtailments are recognised
immediately in profit or loss as past service cost.
Gains or losses on the curtailment or settlement
of any defined benefit plan are recognised
when the curtailment or settlement occurs. Any
differential between the plan assets (for a funded
defined benefit plan) and the defined benefit
obligation as per actuarial valuation is recognised
as a liability if it is a deficit or as an asset if it is
a surplus (to the extent of the lower of present
value of any economic benefits available in the
form of refunds from the plan or reduction in
future contribution to the plan).
Past service cost is recognised as an expense in
the Statement of Profit and Loss on a straight-line
basis over the average period until the benefits
become vested. To the extent that the benefits
are already vested immediately following
the introduction of, or changes to, a defined
benefit plan, the past service cost is recognised
immediately in the Statement of Profit and Loss.
Past service cost may be either positive (where
benefits are introduced or improved) or negative
(where existing benefits are reduced).
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