3 SUMMARY OF MATERIAL ACCOUNTING POLICIES
A summary of the material accounting policies applied in the preparation of the Financial statements are
as given below. These accounting policies have been applied consistently to all the periods presented in
the Financial Statements.
3.1 Inventories
Inventories are valued at Cost or Net Realizable Value, whichever is lower. Cost comprise all costs of
purchase, costs of conversion and other costs incurred in bringing the inventories to their present
location and condition and is determined on first in first out(FIFO) basis. Net Realizable Value is the
estimated selling price in the ordinary course of business less estimated cost of completion and the
estimated cost necessary to make the sale. However 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.
3.2 Cash and Cash Equivalents
Cash and cash equivalents in the Balance Sheet comprise cash at banks and on hand and short term
deposits with an original maturity of three months or less, which are subject to an insignificant risk of
change in value.
3.3 Income Tax
Income Tax comprises current and deferred tax. It is recognized in the Statement of Profit and Loss
except to the extent that it relates to an item recognized directly in equity or in Other Comprehensive
Income.
3.3.1 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 using the tax rates (and tax laws) that have been
enacted or substantively enacted, at the end of the reporting period.
3.3.2 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 realized 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 recognized 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 recognized for carry forward of unused tax losses and
unused tax credits.
- Deferred tax assets are recognized 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 utilized.
- 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 utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable
profit will be available.
- Deferred tax relating to items recognized outside the Statement of Profit and Loss is recognized either
in Other Comprehensive Income (OCI) or in equity. Deferred tax items are recognized in correlation to
the underlying transaction either in OCI or directly in equity.
- Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current
tax assets against current tax liabilities and when they relate to income taxes levied by the same
taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis
- Deferred tax includes Tax Credit under section 115JAA of Income Tax Act,1961 recognized as an asset
only to the extent that there is convincing evidence that the company will pay normal income tax during
the specified period i.e. the period for which Tax credit is allowed to be carried forward. The company
review the "Tax Credit Entitlement" asset at each reporting date and writes down the assets to the extent
the company does not have convincing evidence that it will pay normal tax during the specified period.
3.4 Property, Plant and Equipment
3.4.1 Recognition and Measurement:
- Property, plant and equipment 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
and accumulated impairment losses (if any).
- Cost of an item of property, plant and equipment acquired comprises its purchase price, including
import duties and non-refundable purchase taxes, after deducting any trade discounts and rebates, 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 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 recognized in the Statement
of Profit and Loss.
3.4.2 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
derecognized when replaced.
- Major Inspection/ Repairs/ Overhauling expenses are recognized in the carrying amount of the item of
property, plant and equipment as a replacement if the recognition criteria are satisfied. Any Unamortized
part of the previously recognized expenses of similar nature is derecognized.
- Depreciation on tangible assets 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.
- In case the cost of part of tangible asset is significant to the total cost of the assets and useful life of that
part is different from the remaining useful life of the asset, depreciation has been provided on straight
line method based on internal assessment and independent technical evaluation carried out by external
valuers, which the management believes that the useful lives of the component best represent the
period over which it expects to use those components. In case of certain components of plant and
machineries depreciation has been provided based on the useful life considered at 2-15 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 on assets built on leasehold land, which is transferrable to the lessor on expiry of lease
period, is amortized over the period of lease.
- Depreciation method, useful lives and residual values are reviewed at each Financial year-end and
adjusted if appropriate.
3.4.4. Disposal of Assets
An item of property, plant and equipment is derecognized 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 recognized in the Statement
of Profit and Loss.
3.4.5. Reclassification to Investment Property
When the use of a property changes from owner-occupied to investment property, the property is
reclassified as investment property at its carrying amount on the date of reclassification.
3.4.6. 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.
3.5 Revenue Recognition
- Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Company and the revenue can be reliably measured, regardless of when the payment is being made.
Revenue is measured at the fair value of the consideration received or receivable, taking into account
contractually defined terms of payment and excluding taxes or duties collected on behalf of the
Government.
- 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.
3.5.1. Sale of Goods
Revenue from the sale of goods is recognized when significant risks and rewards of ownership are
transferred to customers and the company retains neither continuing managerial involvement to the
degree usually associated with ownership nor effective control over the goods sold. Revenue from the
sale of goods is measured at the fair value of the consideration received or receivables, net of returns
and allowances, trade discounts and volume rebates.
3.5.2. Interest Income
For all debt instruments measured either at amortized cost or at Fair Value through Other
Comprehensive Income (FVTOCI), interest income is recorded using the Effective Interest Rate (EIR).
EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the
Financial instrument or a shorter period, where appropriate, to the gross carrying amount of the
Financial asset.
3.6 Employee Benefits
3.6.1. Short Term 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 recognized in respect of employees’ services up to the end of
the reporting period.
3.6.2. Other Long Term Employee Benefits
The liabilities for earned leaves and sick 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 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 recognized in statement
of profit and loss.
3.6.3. Post Employment Benefits
The Company operates the following post employment schemes:
- Defined Benefit Plans
The liability or asset recognized 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 recognized 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 unrecognized
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 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 recognized in Other
Comprehensive Income. Remeasurement recognized 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 contribution plans such as provident fund etc. are charged to the Statement of Profit and Loss
as and when incurred.
Expenditure incurred on Voluntary Retirement Scheme is charged to the Statement of Profit & Loss
immediately.
3.7 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 recognized 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).
3.8 Borrowing Cost
- Borrowing Costs consists 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
capitalized 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 amortized over the tenure of respective loans
using Effective Interest Rate (EIR) method. All other borrowing costs are recognized in the Statement of
Profit and Loss in the period in which they are incurred.
3.9 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.
3.9.1 Financial Assets
- Recognition and Initial Measurement:
All Financial assets are initially recognized 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.
- Classification and Subsequent Measurement:
For purposes of subsequent measurement, Financial assets are classified in four categories:
• Measured at Amortized 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 Amortized Cost : 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 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 amortized cost
using the effective interest rate (EIR) method.
• Measured at FVTOCI : A debt instrument 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.
Debt instruments 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
recognized in Other Comprehensive Income, except for impairment gains or losses and foreign
exchange gains or losses. Interest calculated using the effective interest method is recognized in
the Statement of Profit and Loss in investment income.
• Measured at FVTPL: FVTPL is a residual category for debt instruments. Any debt instrument, which
does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as
FVTPL. In addition, the company may elect to designate a debt instrument, which otherwise meets
amortized cost or FVTOCI criteria, as at FVTPL. Debt instruments included within the FVTPL
category are measured at fair value with all changes recognized in the Statement of Profit and Loss.
• Equity Instruments measured at FVTOCI: Equity instrument in scope of Ind AS - 109 are measured
at fair value. On initial recognition, an equity investment that is not held for trading, the company
may irrevocably elect to present subsequent changes in fair value in OCI. The election is made on
an investment by investment basis.
• All other Financial instruments are classified as measured at FVTPL.
- Derecognition
The Company derecognizes 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 recognizes 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 months 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.
3.9.2. Financial Liabilities
- Recognition and Initial Measurement:
Financial liabilities are classified, at initial recognition, as at fair value through profit or loss, loans and
borrowings, payables or as derivatives, as appropriate. All Financial liabilities are recognized 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 amortized 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 recognized in Statement of Profit and Loss. Other Financial
liabilities are subsequently measured at amortized cost using the effective interest rate method. Interest
expense and foreign exchange gains and losses are recognized in Statement of Profit and Loss. Any
gain or loss on derecognition is also recognized in Statement of Profit and Loss.
- 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 a 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 requirement of Ind AS 109 and the amount recognized less
cumulative amortization.
- Derecognition
A Financial liability is derecognized 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 recognized amounts and there is an intention to settle on a net
basis or realize 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.
3.10 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 recognized as an expense in the Statement of Profit and Loss in the year in
which an asset is identified as impaired. The impairment loss recognized in earlier accounting period is
reversed if there has been an improvement in recoverable amount.
|