3. Material Accounting Policies
3.1. Current and non-current classification
The Company presents assets and liabilities in the
Standalone Balance Sheet based on current/ non¬
current classification. An asset is treated as current
when it is:
• Expected to be realised or intended to be sold or
consumed in normal operating cycle.
• Held primarily for the purpose of trading
• Expected to be realised within twelve months after
the reporting period, or
• Cash or cash equivalent unless restricted from
being exchanged or used to settle a liability for at
least twelve months after the reporting period.
A liability is current when:
(Amount in millions, unless otherwise stated)
• I t is expected to be settled in normal operating
cycle
• It is held primarily for the purpose of trading
• I t is due to be settled within twelve months after
the reporting period, or
• There is no unconditional right to defer the
settlement of the liability for at least twelve months
after the reporting period.
The Company classifies all other liabilities as non¬
current. Deferred tax assets and liabilities are classified
as non-current assets and liabilities, respectively.
The operating cycle is the time between the acquisition
of assets for processing and their realisation in cash
and cash equivalents. Based on the nature of service
and the time between rendering of services and their
realization in cash and cash equivalents, 12 months
has been considered by the Company for the purpose
of current / non-current classification of assets and
liabilities.
3.2. Functional and presentation currency
Standalone Financial Statements are measured using
the currency of the primary economic environment in
which the entity operates (‘the functional currency').
The Standalone Financial Statements are presented in
Indian rupee ('), which is also the Company's functional
currency. All amounts have been rounded-off to the
nearest Millions, up to two places of decimal, unless
otherwise indicated. Amounts having absolute value
of less than ' 1,000,000 have been rounded and are
presented as ' Millions in the Standalone Financial
Statements.
3.3. Fair value measurement
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.
A fair value measurement assumes 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 market or
the most advantageous market must be accessible to
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.
A fair value measurement of a non-financial asset takes
into account a market participant's ability to generate
economic benefits by using the asset in its highest and
best use or by selling it to another market participant
that would use the asset in its highest and best use.
The Company uses valuation techniques that are
appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximizing the
use of relevant observable inputs and minimizing the
use of unobservable inputs
All assets and liabilities for which fair value is measured
or disclosed in the Standalone Financial Statements are
categorized within the fair value hierarchy based on
the lowest level input that is significant to the fair value
measurement as a whole. The fair value hierarchy is
described as below:
Level 1 - Quoted (unadjusted) prices in active markets
for identical assets or liabilities.
Level 2 - Other techniques for which all inputs which
have a significant effect on the recorded fair value are
observable, either directly or indirectly.
Level 3 - Techniques which use inputs that have a
significant effect on the recorded fair value that are
not based on observable market data.
For assets and liabilities that are recognised in the
Standalone Financial Statements at fair value on a
recurring basis, the Company determines whether
transfers have occurred between levels in the hierarchy
by re-assessing categorization at the end of each
reporting period.
For the purpose of fair value disclosures, the Company
has determined classes of assets and liabilities on the
basis of the nature, characteristics and risks of the asset
or liability and the level of fair value hierarchy.
Fair values have been determined for measurement and
/ or disclosure purpose using methods as prescribed in
“Ind AS 113 Fair Value Measurement”.
3.4. Use of estimates, judgements and assumptions
The preparation of these Standalone Financial
Statements in conformity with the recognition and
measurement principles of Ind AS requires management
to make judgments, estimates and assumptions in
application of accounting policies that affect the
reported balances of assets and liabilities, disclosure
of contingent liabilities as on the date of Standalone
Financial Statements and reported amounts of income
and expenses for the periods presented. The Company
based its assumptions and estimates on parameters
available when the Standalone Financial Statements
were prepared. Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in
which the estimates are revised and future periods are
affected.
Key assumptions concerning the future and other key
sources of estimation uncertainty at the reporting
date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and
liabilities within the next financial year. Significant
estimates and critical judgement in applying these
accounting policies are described below:
3.4.1. Estimates and assumptions
(i) Impairment of non-financial assets (property,
plant and equipments and right of use asset)
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's) fair value less costs of disposal and its
value in use. It is determined for an individual asset,
unless the asset or CGU exceeds its recoverable amount,
the asset is considered impaired and is written down to
its recoverable amount.
In assessing the 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 risks
specific to the asset. In determining the fair value less
costs to 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 or
other available fair value indicators.
(ii) Defined benefit obligations
The cost of the defined benefit gratuity plan, other
defined benefit plan and other post-employment plans
are determined using actuarial valuations. An actuarial
valuation involves making various assumptions that may
differ from actual developments in the future. These
include the determination of the discount rate, future
salary increases, expected returns on plan assets and
mortality rates. Due to the complexities involved in the
valuation and its long-term nature, a defined benefit
obligation is highly sensitive to changes in these
assumptions. All assumptions are reviewed at each
reporting date.
The mortality rate is based on publicly available
mortality tables for India. Those mortality tables tend
to change only at interval in response to demographic
changes. Future salary increases, discount rate and
return on planned assets are based on expected future
inflation rates for India.
(iii) Impairment of financial assets
The impairment provisions for financial assets are based
on assumptions about risk of default and expected loss
rates. The Company uses judgement in making these
assumptions and selecting the inputs to the impairment
calculation, based on Company's past history, existing
market conditions as well as forward looking estimates
at the end of each reporting period. Further, the
Company also evaluates risk with respect to expected
loss on account of loss in time value of money which
is calculated using average cost of capital for relevant
financial assets.
(iv) Income tax and deferred tax
Deferred tax assets are not recognised for unused
tax losses as it is not probable that taxable profit will
be available against which the losses can be utilised.
Significant management judgement/estimate is required
to determine the amount of deferred tax assets that
can be recognised, based upon the likely timing and
the level of future taxable profits together with future
tax planning strategies. Further details on taxes are
disclosed in note 3.13
(v) Fair value of financial assets and financial
liabilities
Some of the Company's financial assets and financial
liabilities are measured at fair value for financial
reporting purposes. The Company determines the
appropriate valuation techniques and input for fair
value measurements. For estimates relating to fair value
measurement refer note 3.3.
3.5. Property, Plant and Equipment and Depreciation
Recognition and measurement
Under the previous GAAP, property, plant and equipment
were carried at historical cost less depreciation and
impairment losses, if any. On transition to Ind AS, the
Company has availed the optional exemption under Ind
AS 101 and accordingly it has used the carrying value
as at the date of transitions as the deemed cost of the
property, plant & equipment under Ind AS.
Properties plant and equipment are stated at their
cost of acquisition. Cost of an item of property, plant
and equipment includes purchase price including non
- refundable taxes and duties, borrowing cost directly
attributable to the qualifying asset, any costs directly
attributable to bringing the asset to the location and
condition necessary for its intended use and the
present value of the expected cost for the dismantling/
decommissioning of the asset.
Parts (major components) of an item of property,
plant and equipments having different useful lives are
accounted as separate items of property, plant and
equipments.
Subsequent costs are included in the 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. All
other repair and maintenance costs are recognised in
statement of profit and loss as incurred.
Capital work-in-progress comprises of cost incurred
on property, plant and equipment under construction
/ acquisition that are not yet ready for their intended
use at the Balance Sheet Date. Advances paid towards
the acquisition of PPE outstanding at each reporting
date is classified as Capital Advances under “Other
Non-Current Assets” and assets which are not ready
for intended use as on the date of Standalone Financial
Statements are disclosed as "Capital Work-in-Progress".
Depreciation and useful lives
Depreciation on the property, plant and equipment
(other than capital work in progress) is provided on a
written down value method (WDV) over their useful
lives which is in consonance of useful life mentioned in
Schedule II to the Companies Act, 2013 or useful lives as
determined based on internal technical evaluation. The
estimated useful lives are as under:
Depreciation methods, useful lives and residual values,
determined based on internal technical evaluation
are reviewed at each financial year end and adjusted
prospectively.
De-recognition
An item of property, plant and equipment and any
significant part initially recognised is de-recognised
upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or loss
arising on de-recognition 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 de¬
recognised.
3.6. Right of Use Asset
The Company applies single recognition and
measurement approach for all leases, except for
short term leases and leases of low value assets. On
the commencement of the lease, the Company, in
its Standalone Statement of Assets and Liabilities,
recognised the right of use asset at cost and lease
liability at present value of the lease payments to be
made over the lease term.
Subsequently, the right of use asset is measured at cost
less accumulated depreciation [calculated on straight
line method] and any accumulated impairment loss.
Right-of-use assets are depreciated on a straight-line
basis over the lease term as follows:
The right-of-use assets are also subject to impairment.
Refer to the accounting policies in note 3.7 on impairment
of non-financial assets.
3.7. Impairment of non-financial assets
The carrying amounts of assets are reviewed at each
balance sheet date for any indication of impairment
based on internal / external factors. An impairment
loss is recognised wherever the carrying amount of an
asset exceeds its recoverable amount. The recoverable
amount is the higher of a) fair value of assets less cost
of disposal and b) its value in use. Value in use is the
present value of future cash flows expected to derive
from an assets or Cash-Generating Unit (CGU).
Based on the assessment done at each balance sheet
date, recognised impairment loss is further provided or
reversed depending on changes in circumstances. After
recognition of impairment loss or reversal of impairment
loss as applicable, the depreciation charge for the asset
is adjusted in future periods to allocate the asset's
revised carrying amount, less its residual value (if any),
on a systematic basis over its remaining useful life. If the
conditions leading to recognition of impairment losses
no longer exist or have decreased, impairment losses
recognised are reversed to the extent it does not exceed
the carrying amount that would have been determined
after considering depreciation / amortisation had no
impairment loss been recognised in earlier years.
3.8. Inventories
Inventories include raw materials and components,
work-in-progress, traded and manufactured finished
goods.
Cost of inventories have been computed to include all
cost of purchases, cost of conversion and other costs
incurred in bringing the inventories to their present
location and condition.
Raw materials, components is ascertained based on
weighted average method. However, raw materials and
other 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. Costs are determined on weighted
average basis.
Work-in-progress and finished goods are valued at lower
of cost and net realisable value. Cost includes direct
materials and labour and a proportion of manufacturing
overheads based on normal operating capacity. Net
realizable value for work in progress is determined with
reference to the selling price of related finished goods.
Trade goods are considered at landed cost.
Net realizable value is the estimated selling price in the
ordinary course of business, less estimated costs of
completion and estimated costs necessary to make the
sale.
Provision is made for the cost of obsolescence and other
anticipated losses, whenever considered necessary.
3.9. Revenue recognition
Revenue from contracts with customers is recognized
when control of the goods or services are transferred
to the customer at an amount that reflects the
consideration to which the Company expects to be
entitled in exchange for those goods or services. The
Company has concluded that it is principal in its revenue
arrangements, because it typically controls the goods
or services before transferring them to the customer.
The policy of recognizing the revenue is determined by
the five stage model proposed by Ind AS 115 “Revenue
from contract with customers”.
(a) Revenue from operations:
• Revenue from sale of goods is recognised at
the point in time when control of the assets is
transferred to the customer, generally on delivery
of the goods.
• Revenue from sale of services is recognized on
rendering of services to the customers based on
contractual arrangements. Revenue is recorded
exclusive of goods and service tax. Contract
prices are either fixed or subject to price escalation
clauses.
• Revenue is recognised upon transfer of control of
promised products or services to customers in an
amount that reflects the consideration which the
Company expects to receive in exchange for those
products or services
• Revenue is measured based on the transaction
price, which is the consideration, adjusted for
volume discounts and incentives, if any, as specified
in the contract with the customer.
• Revenue also excludes taxes collected from
customers.
• Unearned and deferred revenue (“contract
liability”) is recognised when there is billings in
excess of revenues.
(b) Interest income
For all financial instruments measured at amortised cost,
interest income is recorded using the effective interest
rate (EIR), which is the rate that exactly discounts the
estimated future cash payments or receipts through
the expected life of the financial instrument or a shorter
period, where appropriate, to the net carrying amount
of the financial asset. Interest income is included in
other income in the statement of profit and loss.
(c) Dividends
Dividend income is recognised when the Company's
right to receive the payment is established.
(d) Other income
Other incomes are accounted on accrual basis, except
interest on delayed payment by debtors and liquidated
damages which are accounted on acceptance of the
Company's claim.
3.10. Foreign currency transaction
Transactions in foreign currencies are initially recorded
by the Company in its functional currency spot rates at
the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency
spot rates of exchange at the reporting date. Exchange
difference that arise on settlement of monetary items
or on reporting at each balance sheet date of the
Company's monetary items at the closing rate are
recognized as income or expenses in the period in which
they arise. Non-monetary items that are measured
in terms of historical cost in a foreign currency are
translated using the exchange rates at the dates of the
initial transactions.
Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the
date when the fair value is determined. The gain or loss
arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of the
gain or loss on the change in fair value of the item (i.e.
translation differences on items whose fair value gain
or loss is recognised in OCI or the statement of profit
and loss are also recognised in OCI or the statement of
profit and loss, respectively)
3.11. Employee benefits
• Short term employee benefits
All employee benefits falling due wholly within twelve
months of rendering the service are classified as short
term employee benefits and they are recognized as an
expense at the undiscounted amount in the Statement
of Profit and Loss in the period in which the employee
renders the related service.
• Post-employment benefits & other long term
benefits
a. Defined contribution plan
The defined contribution plan is a post-employment
benefit plan under which the Company contributes
fixed contribution to a Government Administered Fund
and will have no obligation to pay further contribution.
The Company's defined contribution plan comprises
of Provident Fund, Labour Welfare Fund, Employee
State Insurance Scheme, National Pension Scheme, and
Employee Pension Scheme. The Company's contribution
to defined contribution plans are recognized in the
Statement of Profit and Loss in the period in which the
employee renders the related service.
b. Post-employment benefit and other long term
benefits
The Company has defined benefit plans comprising of
gratuity and other long term benefits in the form of leave
benefits. Company's obligation towards gratuity liability
is funded / unfunded. The present value of the defined
benefit obligations and other long term employee
benefits is determined based on actuarial valuation
using the projected unit credit method. The rate used
to discount defined benefit obligation is determined by
reference to market yields at the Balance Sheet date
on Indian Government Bonds for the estimated term of
obligations.
For gratuity plan, re-measurements comprising of (a)
actuarial gains and losses, (b) the effect of the asset
ceiling (excluding amounts included in net interest on
the net defined benefit liability) and (c) the return on plan
assets (excluding amounts included in net interest on
the post-employment benefits liability) are recognised
immediately in the balance sheet with a corresponding
debit or credit to the other comprehensive income
in the period in which they occur. Re-measurements
are not reclassified to statement of profit and loss in
subsequent periods.
Gains or losses on the curtailment or settlement
of defined benefit plan are recognised when the
curtailment or settlement occurs.
Actuarial gains or losses arising on account of experience
adjustment and the effect of changes in actuarial
assumptions for employee benefit plan [other than
gratuity] are recognized immediately in the Statement
of Profit and Loss as income or expense.
In case of funded plans, the fair value of the plan assets
is reduced from the gross obligation under the defined
benefit plans to recognise the obligation on a net basis.
3.12. Borrowing cost
Borrowing costs that are directly attributable to the
acquisition, construction or production of a qualifying
asset are capitalized as part of the cost of the respective
asset till such time the asset is ready for its intended use
or sale. A qualifying asset is an asset which necessarily
takes a substantial period of time to get ready for its
intended use or sale. Ancillary cost of borrowings in
respect of loans not disbursed are carried forward and
accounted as borrowing cost in the year of disbursement
of loan. All other borrowing costs are expensed in the
period in which they occur. Borrowing costs consist of
interest expenses calculated as per effective interest
method, exchange difference arising from foreign
currency borrowings to the extent they are treated as
an adjustment to the borrowing cost and other costs
that an entity incurs in connection with the borrowing
of funds.
3.13. Taxes on income
Tax expenses for the year comprises of current tax,
deferred tax charge or credit and adjustments of taxes
for earlier years. In respect of amounts adjusted outside
profit or loss (i.e. in other comprehensive income or
equity), the corresponding tax effect, if any, is also
adjusted outside profit or loss.
Current tax is measured at the amount of tax expected
to be payable on the taxable income for the year and
any adjustments to the tax payable or receivable in
respect of previous years as determined in accordance
with the provisions of the Income Tax Act,1961 that have
been enacted or subsequently enacted at the end of
the reporting period.
Current tax assets and current tax liabilities are
offset when there is legally enforceable right to set
off the recognised amounts and there is an intention
to settle the asset and the liability on a net basis or
simultaneously.
Deferred tax is provided using the liability method on
temporary differences between the tax bases of assets
and liabilities and their carrying amounts for financial
reporting purposes at the reporting date. Deferred
tax liabilities are recognised for all taxable temporary
differences, and deferred tax assets are recognised for
all deductible temporary differences, carry forward tax
losses and allowances to the extent that it is probable
that future taxable profits will be available against which
those deductible temporary differences, carry forward
tax losses and allowances can be utilised.
Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply in the year when
the asset is realized or the liability is settled, based
on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date. Deferred
tax assets and deferred 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 taxation authority.
Deferred tax assets are recognised only to the extent
that it is probable that future taxable profit will be
available against which such deferred tax assets can be
utilized. In situations where the Company has unused tax
losses and unused tax credits, deferred tax assets are
recognised only if it is probable that they can be utilized
against future taxable profits. Deferred tax assets are
reviewed for the appropriateness of their respective
carrying amounts at each Balance Sheet date.
At each reporting date, the Company re-assesses
unrecognised deferred tax assets. It recognises
previously unrecognised deferred tax assets to the
extent that it has become probable that future taxable
profit allows deferred tax assets to be recovered.
3.14. Cash & cash equivalent
Cash and cash equivalents include cash in hand, bank
balances, deposits with banks (other than on lien) and
all short term and highly liquid investments that are
readily convertible into known amounts of cash and
are subject to an insignificant risk of changes in value.
3.15. Statement of cash flows
Cash flows are reported using the indirect method,
where by net profit before tax is adjusted for the effects
of transactions of a non-cash nature, any deferrals or
accruals of past or future operating cash receipts or
payments and item of income or expenses associated
with investing or financing cash flows. The cash flows
from operating, investing and financing activities are
segregated.
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