2. MATERIAL ACCOUNTING POLICIES
The accounting policies set out below have been applied
consistently to the periods presented in these standalone
financial statements.
a. Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment are measured
at cost, less accumulated depreciation and accumulated
impairment losses.
The cost of an item of property, plant and equipment
comprises: (a) its purchase price, including import
duties and non-refundable purchase taxes, after
deducting trade discounts and rebates; b) any costs
directly attributable to bringing the asset to the location
and condition necessary for it to be capable of operating
in the manner intended by management.
The cost of a self-constructed item of property, plant and
equipment comprises the cost of materials and direct
labour, any other cost directly attributable to bringing the
item to working condition for its intended use.
The cost of improvements to leasehold premises, if
recognition criteria are met, are capitalised and disclosed
separately under leasehold improvement.
An item of property, plant and equipment and any
significant part initially recognised is derecognised
upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or
loss arising on derecognition of property, plant and
equipment (calculated as the difference between the net
disposal proceeds and the carrying amount of property,
plant and equipment) is included in the Statement of
profit and loss when such asset is derecognised.
Subsequent cost
Subsequent costs are included in the asset's carrying
amount or recognised as a separate asset, as appropriate,
only when it is probable that the future economic benefits
associated with expenditure will flow to the Company
and the cost of the item can be measured reliably. All
other subsequent cost are charged to the Statement of
profit and loss at the time of incurrence.
Depreciation
Depreciation on PPE is provided on the straight-line
method computed on the basis of useful life prescribed
in Schedule II to the Companies Act, 2013 (‘Schedule II’)
on a pro-rata basis from the date the asset is available
for use. Considering the applicability of Schedule II
as mentioned above, in respect of certain class of
assets- the Company has assessed the useful lives (as
mentioned in the table below) lower than as prescribed
in Schedule II, based on the technical assessment.
Freehold land is not depreciated.
Leasehold improvements are depreciated on a straight¬
line basis over the period of the initial lease term or
10 years, whichever is lower. Any refurbishment of
structure is depreciated over a period of 5 years.
Depreciation is calculated on a pro rata basis for assets
purchased/sold during the year.
The residual values, useful lives and methods of
depreciation of property plant and equipment are
reviewed by management at each reporting date and
adjusted prospectively, as appropriate.
Capital work-in-progress
Cost of property, plant and equipment not ready for use
as at the reporting date are disclosed as capital work-in¬
progress.
Investment properties
(Recognition and initial measurement)
Investment properties are properties held to earn rentals
or for capital appreciation, or both. Investment properties
are measured initially at their cost of acquisition, including
transaction costs. Subsequent costs are included in the
asset’s carrying amount or recognized as a separate
asset, as appropriate, only when it is probable that future
economic benefits associated with the asset will flow to
the Company. All other repair and maintenance costs are
recognized in Statement of profit and loss as incurred.
Properties held under leases are classified as investment
properties when it is held to earn rentals or for capital
appreciation or for both, rather than for sale in the
ordinary course of business or for use in production or
administrative functions. In case of subleases, where the
Company is immediate lessor, the right of use arising
out of related sub leases is assessed for classification as
investment property.
Subsequent measurement (depreciation, useful lives
and impairment)
Investment properties are subsequently measured at
cost less accumulated depreciation and accumulated
impairment losses, if any. Depreciation on leased
investment properties is provided on the straight¬
line method over the lease period of the right-of-use
assets, depreciation on owned investment properties is
provided on the straight-line method over the useful life
of the asset.
Though, the Company measures investment properties
using cost based measurement, the fair value of
investment property is disclosed in the notes. Fair
values are determined based on an annual evaluation
performed by an accredited external independent valuer
applying a valuation model acceptable internationally.
Impairment loss is recognised when carrying value
exceeds recoverable value as per Ind AS 36.
De-recognition
Investment properties are de-recognized either when
they have been disposed of or when they are permanently
withdrawn from use and no future economic benefit is
expected from their disposal. The difference between the
net disposal proceeds, if any, and the carrying amount
of the asset is recognized in the Statement of profit and
loss in the period of de-recognition.
b. Business combination and intangible assets
Business combination and goodwill
The Company accounts for the business combinations
using the acquisition method when control is transferred
to the Company. The consideration transferred in the
acquisition is generally measured at fair value as at
the date the control is acquired ('acquisition date'), as
are the net identifiable assets (tangible and intangible
assets) acquired and any non-controlling interest in the
acquired business. Transaction costs are expensed as
incurred, except to the extent related to the issue of debt
or equity securities.
Goodwill is initially measured at cost, being the excess of
the aggregate of the consideration transferred over the
net identifiable assets acquired and liabilities assumed.
If the fair value of the net assets acquired is in excess of
the aggregate consideration transferred, the Company
re-assesses whether it has correctly identified all of the
assets acquired and all of the liabilities assumed and
reviews the procedures used to measure the amounts to
be recognized at the acquisition date. If the reassessment
still results in an excess of the fair value of net assets
acquired over the aggregate consideration transferred,
then the gain is recognized in Other Comprehensive
Income (‘OCI’) and accumulated in equity as capital
reserve. However, if there is no clear evidence of
bargain purchase, the entity recognises the gain directly
in equity as capital reserve, without routing the same
through OCI.
Any goodwill that arises is tested for impairment at
least on an annual basis, based on a number of factors,
including operating results, business plans and future
cash flows.
The consideration transferred does not include amounts
related to the settlement of pre-existing relationships
with the acquirer. Such amounts are generally recognized
in the Statement of profit and loss.
Other intangible assets
Intangible assets that are acquired are recognized only if
it is probable that the expected future economic benefits
that are attributable to the asset will flow to the Company
and the cost of assets can be measured reliably. The
intangible assets are recorded at cost of acquisition
including incidental costs related to acquisition and
installation and are carried at cost less accumulated
amortization and impairment losses, if any.
Gain or losses arising from derecognition of an
intangible asset are measured as the difference between
the net disposal proceeds and the carrying amount of
the intangible asset and are recognised in the Statement
of profit and loss when the asset is derecognized.
i. Subsequent cost
Subsequent costs is capitalized only when it
increases the future economic benefits embodied
in the specific asset to which it relates. All the
subsequent expenditure on intangible assets is
recognized in Statement of profit and loss, as
incurred.
ii. Amortisation
Identified intangible assets with indefinite life are
tested for impairment on annual basis and hence
not amortised.
Amortisation of intangible assets (with definite life) is
calculated over their estimated useful lives as stated below
using straight-line method. Amortisation is calculated on
a pro-rata basis for assets purchased /disposed during
the year. Amortisation has been charged based on the
following useful lives:
Amortisation method, useful lives and residual values
are reviewed at each reporting date and adjusted
prospectively, if appropriate.
*During the previous year, basis the state of operations
attributable to the operational synergies and expansion in
market share in the acquired territories, the management
has carried out a reassessment of useful life of such
franchisee rights and has concluded it to be an asset
with indefinite useful life w.e.f. 1 April 2024.
c. Inventories
Inventories consist of raw materials which are of
a perishable nature and traded goods. Inventories
for traded goods are valued at lower of cost and net
realisable value (‘NRV’). Raw materials are not written
down below cost except in cases where material prices
have declined and it is estimated that the cost of the
finished goods will exceed their NRV. Cost of inventories
has been determined using weighted average cost
method and comprise all costs of purchase after
deducting nonrefundable rebates and discounts and all
other costs incurred in bringing the inventories to their
present location and condition. Provision is made for
items which are not likely to be consumed and other
anticipated losses wherever considered necessary. The
comparison of cost and NRV is made on at item group
level basis at each reporting date.
d. Leases
The Company as a lessee
The Company enters into an arrangement for lease of
buildings and office equipments. Such arrangements
are generally for a fixed period but may have extension
or termination options. In accordance with Ind AS 116
- Leases, at inception of the contract, the Company
assesses whether a contract is, or contains a lease. A
lease is defined as ‘a contract, or part of a contract,
that conveys the right to control the use an asset (the
underlying asset) 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:
• The contract involves the use of an identified asset -
this may be specified explicitly or implicitly, and should
be physically distinct or represent substantially all of the
capacity of a physically distinct asset. If the supplier has
a substantive substitution right, then the asset is not
identified;
• The Company has the right to obtain substantially all of
the economic benefits from use of the asset throughout
the period of use; and
The Company assesses whether it has the right to direct
‘how and for what purpose’ the asset is used throughout
the period of use. At inception or on reassessment of a
contract that contains a lease component, the Company
allocates the consideration in the contract to each lease
component on the basis of their relative stand-alone
prices. However, for the leases of land and buildings
in which it is a lessee, the Company has elected not
to separate non-lease components and account for
the lease and non-lease components as a single lease
component.
Measurement and recognition of leases as a lessee
The Company recognizes a right-of-use asset and a lease
liability at the lease commencement date. The right-of-
use asset is initially measured at cost, which comprises
the initial amount of the lease liability adjusted for any
lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate
of costs to dismantle and remove the underlying asset or
to restore the underlying asset or the site on which it is
located, less any lease incentives received.
The right-of-use assets is subsequently measured at
cost less any accumulated depreciation, accumulated
impairment losses (unless such right of use assets fulfills
the requirements of Ind AS 40 - Investment Property and
is accounted for as there under), if any and adjusted for
any re-measurement of the lease liability. The right-of-
use assets is depreciated using the straight-line method
from the commencement date over the shorter of lease
term or useful life of right-of-use 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
Standalone Statement of profit and loss.
The lease liability is initially measured at the present
value of the lease payments that are not paid at the
commencement date, discounted using the interest
rate implicit in the lease or, if that rate cannot be readily
determined, the Company’s incremental borrowing rate.
Generally, the Company uses its incremental borrowing
rate as the discount rate.
Lease payments included in the measurement of the
lease liability comprise the following:
• Fixed payments, including in-substance fixed
payments;
• Variable lease payments that depend on an index
or a rate, initially measured using the index or rate
as at the commencement date;
• Amounts expected to be payable under a residual
value guarantee; and
• The exercise price under a purchase option that
the Company is reasonably certain to exercise,
lease payments in an optional renewal period if
the Company is reasonably certain to exercise
an extension option, and penalties for early
termination of a lease unless the Company is
reasonably certain not to terminate early.
The lease liability is measured at amortized cost using the
effective interest method. It is remeasured when there is
a change in future lease payments arising from a change
in an index or rate, if there is a change in the Company’s
estimate of the amount expected to be payable under
a residual value guarantee, or if the Company changes
its assessment of whether it will exercise a purchase,
extension or termination option. When the lease liability
is remeasured in this way, a corresponding adjustment
is made to the carrying amount of the right-of-use
asset, or is recorded in Statement of profit and loss if
the carrying amount of the right-of-use asset has been
reduced to zero, as the case may be.
The Company presents right-of-use assets that do not
meet the definition of investment property and lease
liabilities as a separate line item in the standalone
financial statements of the Company.
The Company has elected not to apply the requirements
of Ind AS 116 - Leases to short-term leases of all assets
that have a lease term of 12 months or less and leases
for which the underlying asset is of low value. The lease
payments associated with these leases are recognized
as an expense on a straight-line basis over the lease
term.
As a lessee, the Company determines the lease term
as the noncancellable period of a lease adjusted with
any option to extend or terminate the lease, if the use
of such option is reasonably certain. The Company
makes an assessment on the expected lease term on
a lease-by-lease basis and thereby assesses whether
it is reasonably certain that any options to extend or
terminate the contract will be exercised. In evaluating
the lease term, the Company considers factors such
as any significant leasehold improvements undertaken
over the lease term, costs relating to the termination of
the lease and the importance of the underlying asset
to the Company’s operations taking into account the
location of the underlying asset and the availability of
suitable alternatives. The lease term in future periods
is reassessed to ensure that the lease term reflects
the current economic circumstances. Certain lease
arrangements includes the options to extend or
terminate the lease before the end of the lease term.
ROU assets and lease liabilities includes these options
when it is reasonably certain that they will be exercised.
The Company as a lessor
When the Company acts as an intermediate lessor, it
determines at lease inception whether each lease is
a finance lease or an operating lease. To classify each
lease, the Company makes an overall assessment of
whether the lease transfers substantially all of the risks
and rewards incidental to ownership of the underlying
asset. If this is the case, then the lease is a finance
lease; if not, then it is an operating lease. As part of this
assessment, the Company considers certain indicators
such as whether the lease is for the major part of the
economic life of the asset.
When the Company is an intermediate lessor, it accounts
for its interests in the head lease and the sub-lease
separately. It assesses the lease classification of a sub¬
lease with reference to the right-of-use asset arising
from the head lease, not with reference to the underlying
asset. If a head lease is a short-term lease to which the
Company applies the exemption described above, then it
classifies the sub-lease as an operating lease.
The Company recognizes lease payments received under
operating leases as income on a straight-line basis over
the lease term as part of ‘other income’.
In case of a finance lease, finance income is recognised
over the lease term based on a pattern reflecting a
constant periodic rate of return on the lessor’s net
investment in the lease.
e. Borrowing costs
Borrowing costs attributable to the acquisition or
construction of a qualifying asset are capitalised as part
of the cost of the asset. A qualifying asset is one that
necessarily takes substantial period of time to get ready
for intended use. Other borrowing costs are recognised
as an expense in the period in which they are incurred.
Borrowing cost includes exchange differences to the
extent regarded as an adjustment to the borrowing costs,
if any.
f. Impairment of non-financial assets
At each reporting date, the Company reviews the
carrying amounts of its non-financial assets to determine
whether there is any indication of impairment. If any
such indication of impairment exists, then the asset's
recoverable amount is estimated. For impairment testing,
assets 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 cash generating units (‘CGU’). Goodwill arising
from a business combination is allocated to CGU or
groups of CGUs that are expected to benefit from the
synergies of the combination.
The recoverable amount of an asset or CGU is the greater
of its value in use and its fair value less costs to sell.
Value in use is based on the estimated future cash flows,
discounted to their present value using a discount rate
that reflects current market assessments of the time value
of money and the risks specific to the asset or CGU. An
impairment loss is recognised if the carrying amount of an
asset or CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in the Statement of
profit and loss. They are allocated first to reduce the
carrying amount of any goodwill allocated to the CGU
and then to reduce the carrying amounts of the other
assets in the CGU on a pro-rata basis.
An impairment loss in respect of goodwill is not reversed.
For other assets, an impairment loss is reversed only
if there has been a change in the estimates used to
determine the recoverable amount. Such a reversal is
made 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 amortisation, if
no impairment loss had been recognised.
The key assumptions used to determine the recoverable
amount for the different CGUs, including a sensitivity
analysis, as per management’s best estimates and its
business plans, are as under
• Gross Margins
• Discount Rates
• Material Price inflation
• Growth rate
• Rent expense
• Salaries and wages
• Royalty and marketing fees
The management believes that no reasonably possible
change in any of the key assumptions used in value in
use calculation would cause the carrying value of the
CGU to materially exceed its value in use.
Gross Margins - Gross margins are based on average
values achieved in the preceding years and is expected
to remain constant during the budget period. These have
not increased over the budget period for anticipated
efficiency improvements as the increase, if any, is
expected to be marginal.
Discount rates - Discount rates represent the current
market assessment of the risks specific to each CGU,
taking into consideration the time value of money and
individual risks of the underlying assets that have
not been incorporated in the cash flow estimates.
The discount rate calculation is based on the specific
circumstances of the Company and is derived from its
weighted average cost of capital (WACC). The cost of
equity is derived from the expected return on investment
by the Company’s investors.
Materials price inflation - Past actual material price
movements are used as an indicator of future price
movements.
Growth rate estimates - Rates are based on
management's estimate through internal and published
industry research.
Rent expense, Salaries and wages, Royalty and
Marketing expenses - Past actual rate movements are
used as an indicator of future rate movements. Any
subsequent changes in the above factors could impact
the recoverable value.
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