2A. Material accounting policies
a) Operating cycle
Based on the nature of products/ activities of the Company and the normal time between acquisition of
assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as
12 months for the purpose of classification of its assets and liabilities as current and non-current.
An asset is classified as current when it satisfies any of the following criteria:
- It is expected to be realised in, or is intended for sale or consumption in, the Company's normal
operating cycle,
- It is held primarily for the purpose of being traded,
- It is expected to be realised within 12 months after the reporting date, or
- It is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability
for at least 12 months after the reporting date.
Current assets include the current portion of non-current financial assets. All other assets are classified as
non-current.
A liability is classified as current when it satisfies any of the following criteria:
- It is expected to be settled in the Company’s normal operating cycle,
- It is held primarily for the purpose of being traded,
- It is due to be settled within 12 months after the reporting date, or
- The Company does not have an right to defer settlement of the liability for at least 12 months after
the reporting date.
Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity
instruments do not affect its classification.
Deferred Tax Assets and Liabilities are classified as non-current only.
b) Property, plant and equipment (PPE)(i) Recognition and measurement
All items of property, plant and equipment are measured at cost, which includes capitalized borrowing costs,
less accumulated depreciation/ amortization and accumulated impairment losses, if any.
Cost of acquisition or construction of property, plant and equipment comprises its purchase price including
import duties and non-refundable purchase taxes after deducting trade discounts and rebates, any directly
attributable cost of bringing the item to its working condition for its intended use and, for assets that
necessarily take a substantial period of time to get ready for their intended use, finance costs. The cost of an
item of property, plant and equipment shall be recognised as an assets if, and only if it is probable that future
economic benefits associated with the item will flow to the Company and the cost of the item can be
measured reliably. The purchase price or construction cost is the aggregate amount paid and the fair value of
any other consideration given to acquire the asset. The present value of the expected cost for the
decommissioning of an asset after its use is included in the cost of the respective asset if the recognition
criteria for a provision are met. Capital work-in-progress is stated at cost, net of impairment loss, if any.
The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly
attributable to bringing the assets to a working condition and location for their intended use, and the
estimated cost of dismantling and removing the items and restoring the site on which they are located.
Interest cost incurred for constructed assets is capitalised up to the date the asset is ready for its intended
use, based on borrowings incurred specifically for financing the asset or the weighted average rate of all
other borrowings, if no specific borrowings have been used for the asset.
When parts of an item of property, plant and equipment having significant cost have different useful lives,
then they are accounted for as separate items (major components) of property, plant and equipment. 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 derecognized.
The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no
further economic benefit is expected from its use and disposal. Assets retired from active use and held for
disposal are generally stated at the lower of their net book value and net realizable value. Any gains or
losses arising on disposal of property, plant and equipment are recognized in the Statement of Profit and
Loss. Incomes and expenses related to the incidental operations not necessary to bring the item to the
location and the condition necessary for it to be capable of operating in the manner intended by management
are recognized in the Statement of Profit and Loss.
Once classified as held-for-sale, property, plant and equipment are no longer depreciated.
Gains or losses arising from de-recognition of property, plant and equipment are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognized in the
Statement of Profit and Loss when the asset is derecognized.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed
at each financial year end and adjusted prospectively, as appropriate.
(ii) Transition to IND AS
The cost of property, plant and equipment as of April 01, 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)'
(iii) Subsequent expenditure
Subsequent expenditure is recognized as an increase in the carrying amount of the asset when it is probable
that future economic benefits, deriving from the cost incurred, will flow to the Company and the cost of the
item can be measured.
(iv) Depreciation
Depreciation is provided on a pro-rata basis using the straight-line method as per the useful lives prescribed
in Schedule II to the Companies Act, 2013. Leasehold improvements are amortised on a straight line basis
over the unexpired period of lease. Leasehold land (being in the nature of perpetual lease) and freehold land
are not depreciated.
Depreciation methods, useful lives and residual values are reviewed in each financial year, and changes, if
any, are accounted for prospectively.
c) Intangible assets
(i) Recognition and initial measurement
Intangible assets acquired separately are measured on initial recognition at cost. The cost of an intangible
asset comprises its purchase price including duties and taxes and any costs directly attributable to making
the assets ready for their intended use. An intangible asset is recognised only if it is probable that future
economic benefits attributable to the asset will flow to the Company. Following initial recognition, intangible
assets are carried at cost less any accumulated amortisation and accumulated impairment losses.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from its
use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the
difference between the net disposal proceeds and the carrying amount of the asset, are recognised in the
Statement of Profit and Loss when the asset is derecognised.
(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 is recognized in profit or loss as incurred.
(iii) Amortisation
Intangible assets, being computer software are amortised in the Statement of Profit and Loss over the
estimated useful life of five years using the straight line method.
The amortisation method and the useful lives of intangible assets are reviewed annually and adjusted, as
necessary.
d) Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is ascertained on a ‘weighted
average’ basis.
Cost includes direct materials, labour, freight inwards, other direct cost, a proportion of manufacturing
overheads based on normal operating capacity, net of refundable duties, levies and taxes, wherever
applicable.
Net realisable 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.
Assessment of net realisable value is made at each reporting date. When the circumstances that previously
caused inventories to be written down below cost no longer exist or when there is clear evidence of an
increase in net realisable value because of changed economic circumstances, the amount so written-down is
adjusted in terms of policy as stated above.
Appropriate adjustments are made to the carrying value of damaged, slow moving and obsolete inventories
based on management’s current best estimate.
The cost of production (including cost of conversion) of joint products is allocated on such joint products
based on a rational and consistent basis, i.e., relative realisable values at the separation point, when the
products become separately identifiable.
By-products are valued at estimated net realizable value.
The comparison of cost and net realisable value is made on an item-by-item basis.
The net realisable value of work-in-progress is determined with reference to the selling price of related
finished goods. Raw materials, component and other supplies held for use in production of finished products
are not written down below cost except in cases, when a decline in the price of materials indicates that the
cost of the finished products shall exceeds the net realisable value.
e) Revenue from contract with customersi. Sale of goods
Revenue from sale of goods is recognised at the point in time when control of products is transferred to the
customer. Amounts disclosed as revenue are net of returns and allowances, trade discounts and rebates.
The Company collects Goods and services tax on behalf of the government and, therefore, these are not
economic benefits flowing to the Company. Hence, these are excluded from the revenue. At contract
inception, the Company assesses the goods or services promised in a contract with a customer and identify,
as a performance obligation, each promise to transfer to the customer.
Revenue from contracts with customers is recognized when control of goods or services 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. The timing of the transfer of control of
products to customers at the time of dispatch, during shipment or receipt of goods by the customers which
vary based on individual terms of the sales agreements.
Revenue is measured based on the transaction price, which is the consideration, adjusted for variable
consideration such as volume discounts, cash discounts, etc., as specified in the contract with the customer.
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.
Contract asset is the entity's right to consideration in exchange for goods or services that the entity has
transferred to the customer. A contract asset becomes a receivable when the entity’s right to consideration
is unconditional, which is the case when only the passage of time is required before payment of the
consideration is due.
Contract liability is the 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. If a customer pays
consideration before the Company transfers goods or services to the customer, a contract liability is
recognised when the payment is received or due, whichever is earlier. Contract liabilities are recognised as
revenue when the Company performs under the contract.
ii. Rendering of services
Revenue from rendering of services are recognised over a period of time as and when underline services
are performed as the customer simultaneously receives and consumes the benefit provided by the
Company’s performance. Payment for the service rendered is received as per the credit terms in the
agreements with the customers. Where the credit period is short term, no financing component is
considered. Job work is recognized upon full completion of the job work.
iii. Income from Renewable Energy Certificates (RECs)
Income from Renewable Energy Certificates (RECs) is recognised at estimated realisable value on
confirmation of RECs by the concerned authorities.
Use of significant judgements in revenue recognition:
- Judgement is required to determine the transaction price for the contract. The transaction price could be
either a fixed amount of customer consideration or variable consideration with elements such as volume
discounts, price concessions and incentives. Any consideration payable to the customer is adjusted to the
transaction price, unless it is a payment for a distinct product or service from the customer. The estimated
amount of variable consideration is adjusted in the transaction price only to the extent that it is highly
probable that a significant reversal in the amount of cumulative revenue recognised will not occur and is
reassessed at the end of each reporting period. The Company allocates the elements of variable
considerations to all the performance obligations of the contract unless there is observable evidence that
they pertain to one or more distinct performance obligations.
- The Company's performance obligation under revenue contracts, is satisfied at a point in time and
judgement is exercised in determining the same.
f) Interest and dividend income
Interest income are reported on an accrual basis using the effective interest method, when the amount of
income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal
outstanding. Dividends income from investments is recognised when the shareholder's right to receive
payment has been established.
g) Income tax
Income tax expense comprises current and deferred tax. It is recognised in Statement of Profit and Loss
except to the extent that it relates to a business combination, or items recognised directly in equity or in
Other Comprehensive Income (OCI).
• Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year
and any adjustment to the tax payable or receivable in respect of previous years. The amount of current
tax payable or receivable is the best estimate of the tax amount expected to be paid or received after
considering uncertainty related to income taxes, if any. It is measured using tax rates enacted or
substantively enacted at the reporting date.
Current tax assets and liabilities are offset only if there is a legally enforceable right to set off the
recognised amounts, and it is intended to realise the asset and settle the liability on a net basis or
simultaneously.
Current tax is recognised in Statement of Profit or Loss, except when they relate to items that are
recognised in other comprehensive income or directly in equity, in which case, the current tax is also
recognised in other comprehensive income or directly in equity respectively. Management periodically
evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations
are subject to interpretation and establishes provisions where appropriate.
• Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax
is not recognised for:
- temporary differences arising on the initial recognition of assets or liabilities in a transaction that is not
a business combination and that effects neither accounting nor taxable profit or loss at the time of the
transaction;
- temporary differences related to freehold land and investments in subsidiaries, to the extent that
the Company is able to control the timing of the reversal of the temporary differences and it is
probable that they will not reverse in the foreseeable future; and
- taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax assets (DTA) include Minimum Alternate Tax (MAT) paid in accordance with the tax laws in
India, which is likely to give future economic benefits in the form of availability of set off against future income
tax liability.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary
differences to the extent that it is probable that future taxable profits will be available against which they can
be used. Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the
extent that it has become probable that future taxable profits will be available against which they can be
used.
Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised
or the liability is settled, based on the laws that have been enacted or substantively enacted by the reporting
date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in
which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and
liabilities.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or
on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax
assets and liabilities will be realised simultaneously.
Minimum Alternative Tax (MAT) Credit
In case of tax payable as Minimum Alternative Tax (‘MAT’) under the provisions of the Income-tax Act, 1961,
the credit available under the Act In respect of MAT paid is recognised as an asset only when and to the
extent there Is convincing evidence that the Company will pay normal Income tax during the period for which
the MAT credit can be carried forward for set-off against the normal tax liability. MAT credit recognised as a
deferred tax asset is reviewed at each balance sheet date and written down to the extent the aforesaid
convincing evidence no longer exists.
h) Employee benefitsi) Short-term benefits
All employee benefits payable wholly within twelve months of receiving employee services are classified as
short-term employee benefits. These benefits include salaries and wages, bonus and ex-gratia. Short-term
employee benefit obligations are measured on an undiscounted basis and are expensed as the related
service is provided. A liability is recognized for the amount expected to be paid, if the Company has a
present legal or constructive obligation to pay the amount as a result of past service provided by the
employee, and the amount of obligation can be estimated reliably.
ii) Defined contribution plans
The defined contribution plans, i.e., provident fund (administered through Regional Provident Fund Office),
superannuation fund and employee state insurance corporation are post-employment benefit plans under
which a Company pays fixed contributions and will have no legal and constructive obligation to pay further
amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit
expense in the Statement of Profit and Loss when they are due. Prepaid contributions are recognised as an
asset to the extent that a cash refund or a reduction in future payments is available.
iii) Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. 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,
discounting that amount and deducting the fair value of any plan assets.
Gratuity
The Company provides for gratuity, a defined benefit plan (the Gratuity Plan) covering all eligible employees.
In accordance with The Payment of Gratuity Act, 1972, the Gratuity plan provides a lump sum payment to
vested employees on retirement, death, incapacitation or termination of employment. These are funded by
the Company and are managed by the Life Insurance Corporation of India (LIC).
The calculation of defined benefit obligation is performed by a qualified actuary separately for each plan
using the projected unit credit method, which recognises each year of service as giving rise to additional unit
of employee benefit entitlement and measures each unit separately to build up the final obligation.
The obligation is measured at the present value of estimated future cash flows. The discount rate 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.
Remeasurements, comprising actuarial gains and losses, the effect of the asset ceiling, excluding amounts
included in net interest on the net defined benefit (excluding amounts included in net interest on the net
defined benefit liability), are recognised immediately in the Balance Sheet with a corresponding debit or
credit to retained earnings through OCI in the period in which they occur. Re-measurements are not
reclassified to profit or loss in subsequent periods.
When the calculation results in a potential asset for the Company, the recognised asset is limited to the
present value of economic benefits available in the form of any future refunds from the plan or reductions in
future contribution to the plan. To calculate the present value of economic benefits, consideration is given to
any applicable minimum funding requirements.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that
relates to past service (‘past service cost’ or ‘past service gain’) or the gain or loss on curtailment is
recognised immediately in Statement of Profit and Loss. The Company recognises gains and losses on the
settlement of a defined benefit plan when the settlement occurs.
The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the
period by applying the discount rate used to measure the defined benefit obligation at the beginning of the
annual period to the then net defined benefit liability (asset), taking into account any changes in the net
defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net
interest expense and other expenses related to defined benefit plans are recognised in the Statement of
Profit and Loss.
When benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates
to past service or the gain or loss on curtailment is recognized immediately in the Statement of Profit and
Loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the
settlement occurs.
iv) Other long-term employee benefits
Benefits under the Company’s privilege leaves and medical leaves are other long term employee benefits.
The Company’s net obligation in respect of privilege leave and medical leave are the amount of future
benefits that employees have earned in return for their service in the current and prior periods. The benefit is
discounted to determine its present value. The obligation is measured on the basis of an actuarial valuation
using the projected unit credit method.
Re-measurements are recognised in Statement of Profit and Loss in the period in which they arise.
i) Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the
grant will be received and the Company will comply with all attached conditions.
Government grants relating to income are deferred and recognised in the Statement of Profit and Loss over
the period necessary to match them with the costs that they are intended to compensate, and presented
within other income (operating or non-operating, as appropriate) other than export benefits which are
accounted for in the year of exports based on eligibility and when there is no uncertainty in receiving the
same.
A government grant that becomes receivable as compensation for expenses or losses incurred in a previous
period, is recognised in profit or loss of the period in which it becomes receivable.
j) Foreign currency transactions and translation
The management has determined the currency of the primary economic environment in which the Company
operates, i.e., functional currency, to be Indian Rupees (INR). The financial statements are presented in INR
which is Company’s functional and presentational currency.
Monetary and non-monetary transactions in foreign currencies are initially recorded in the functional currency
of the Company at the exchange rates at the dates of the transactions or at an average rate if the average
rate approximates the actual rate at the date of the transaction.
Monetary foreign currency assets and liabilities remaining unsettled on reporting date are translated at the
rates of exchange prevailing on reporting date. Gains/ losses arising on account of realisation/ settlement of
foreign exchange transactions and on translation of monetary foreign currency assets and liabilities are
recognised in the Statement of Profit and Loss.
Non-monetary items measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction.
The derivative financial instruments such as forward exchange contracts to hedge its risk associated with
foreign currency fluctuations are stated at fair value. Any gains or losses arising from changes in fair value
are taken directly to Statement of Profit or Loss.
k) Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets (other than inventories and deferred tax assets)
are reviewed at each reporting date to determine whether there is any indication of impairment considering
the provisions of Ind AS 36 ‘Impairment of Assets'. If any such indication exists, then the asset's recoverable
amount is estimated.
The recoverable amount of an asset or cash-generating unit is greater of its value in use and its fair value
less costs to sell. 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. For the purpose of impairment testing, assets that cannot be tested individually
are grouped together into the smallest group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit", or
“CGU”). In determining fair value less costs of disposal, recent market transactions are considered. If no
such transactions can be identified, an appropriate valuation model is used.
The Company's corporate assets (e.g., central office building for providing support to various CGUs) do not
generate independent cash inflows. To determine impairment of a corporate asset, recoverable amount is
determined in relation to the CGU to which a corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated
recoverable amount. Impairment losses are recognized in the Statement of Profit and Loss. Impairment
losses recognized in respect of CGUs are reduced from the carrying amounts of the assets of the CGU.
An impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does
not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.
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