2.2 Summary of Material accounting policies
i. Revenue Recognition
Ind AS 115 establishes a five-step model to account for revenue arising from contracts with customers and requires that
revenue be recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for
transferring goods or services to a customer.
Sale of Goods
Revenue from sale of goods is recognised when control of the products being sold is transferred to the customer and when
there are no longer any unfulfilled obligations. The Performance Obligations are fulfilled at the time of dispatch, delivery or
upon formal customer acceptance depending on terms of contract with customers.
Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price (net of variable
consideration) allocated to that performance obligation. The transaction price of goods sold is net of variable consideration
on account of various discounts. The period between the date on which the Company transfers the promised goods to the
customer and the date on which the customer pays for these goods is generally one year or less, no financing components are
taken into account.
Sale of Services:
The Company also derives some revenue from job work contracts. In these cases, revenue is recognised as and when services
are rendered i.e. the products on which job work is performed is delivered to the customer at agreed location.
Interest Income:
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial
asset to that asset's net carrying amount on initial recognition. Dividend income is accounted for when the right to receive
payment has been established.
Rental Income:
Rental income on assets given under operating lease arrangements is recognized on a straight-line basis over the period of the
lease.
ii. Government Grant:
Government grants are recognized at fair value where there is reasonable assurance that the grant will be received and all the
conditions will be complied by the Company
Government grants relating to income are recognized in profit and loss account in a systematic manner, in order to match
them with the corresponding costs.
Government grants related to property, plant and equipment are recognized as deferred income and are recognized in the
profit and loss account in a systematic basis, based on the compliance of conditions attached with the grant.
Export incentives:
Export incentives are recognised on accrual basis in accordance with the applicable schemes formulated, by the Government
of India and where there is reasonable assurance that the company will comply with the conditions attached to them.
iii. Property, Plant and Equipment
All Property, Plant and Equipment, except Land are carried at cost less accumulated depreciation and impairment losses, if
any. The cost of Property, Plant and Equipment comprises its purchase price net of any trade discounts and rebates, any
import duties and other taxes (other than those subsequently recoverable from the tax authorities), any directly attributable
expenditure on making the asset ready for its intended use, other incidental expenses.
An item of property, plant and equipment is derecognised 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 the sales proceeds and the carrying amount of the asset and is
recognised in Statement of Profit and Loss.
Depreciable amount for assets is the cost of asset less its estimated residual value. Depreciation on Property, Plant and
Equipment is calculated on a straight-line basis using the rates arrived at based on the useful lives estimated by the
management. The Company has considered the following useful lives for providing depreciation:
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the
effect of any changes in estimate accounted for on a prospective basis.
iv. Intangible assets
Acquired Intangible Assets - Intangible assets with finite useful lives that are acquired separately are carried at cost less
accumulated amortisation and accumulated impairment losses,if any. Amortisation is recognised on a straight-line basis over
their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting
period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite
useful lives that are acquired separately are carried at cost less accumulated impairment losses, if any.
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from 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 Statement of Profit and Loss when the asset is derecognised.
v. Inventories
Inventories are valued at the lower of weighted average cost and the net realizable value. Cost includes all charges in
bringing the goods to the point of sale, including octroi and other levies, transit insurance and receiving charges. Work-in¬
progress and finished goods include appropriate proportion of overheads. Raw Materials and stores and spares are valued at
weighted average cost.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion
and the estimated costs necessary to make the sale.
vi. Financial Instruments
Financial assets and financial liabilities:
Financial assets and financial liabilities are recognised when the company becomes a party to the contractual provisions of
the instruments.
Initial recognition and measurement:
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to
the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised immediately in the Statement of Profit and Loss.
Subsequent measurement:
Financial assets at amortised cost- Financial assets are subsequently measured at amortised cost if these financial assets are
held within a business model whose objective is to hold these assets in order to collect contractual cash flows and contractual
terms of financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
Financial Assets:
Financial Assets at fair value through other comprehensive Income- Financial assets are measured at fair value through other
comprehensive income if these financial assets are held within business model whose objective is achieved by both
collecting contractual cash flows on specified dates that are solely payments of principal and interest on the principal amount
outstanding and selling financial assets.
Financial assets at fair value through profit or loss- Financial assets are measured at fair value through profit or loss unless it
is measured at amortised cost or fair value through other comprehensive income on initial recognition. The transaction cost
directly attributable to the acquisition of financial assets and liabilities at fair value through profit or loss are immediately
recognised in the Statement of Profit and Loss.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments
(including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to
the net carrying amount on initial recognition.
Equity Instrument:
The Company derecognises a financial asset 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 party.
On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the
consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive
income and accumulated in equity is recognised in Statement of Profit and Loss if such gain or loss would have otherwise
been recognised in Statement of profit and loss on disposal of that financial asset.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the
statement of profit or loss.
viii. Impairment of non-financial assets
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not
possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the
cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified,
corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least
annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal and value in use. 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 which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised
immediately in profit or loss.
ix. Cash and cash equivalents
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term, highly liquid investments
that are readily convertible to known amounts of cash and which are subject to an in Immaterial risk of changes in value.
x. Foreign Currency transactions and translations
The functional currency of the Company is Indian Rupee (Rs.).Transactions in foreign currencies are recorded at the
exchange rate prevailing on the date of transaction. At the end of each reporting period, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at that date. Non-monetary assets and liabilities that are measured in
terms of historical cost in foreign currencies are not retranslated. Exchange differences on monetary items are recognised in
the Statement of Profit and Loss in the period in which they arise.
xi. Employee Benefits
Defined Contribution Plan
The Company's contribution to provident fund and employee state insurance scheme are considered as defined contribution
plans and are recognised as an expense when employees have rendered service entitling them to the contributions.
Defined Benefit Plan
For defined benefit plans in the form of gratuity fund, the cost of providing benefits is determined using the projected unit
credit method, with actuarial valuations being carried out at the end of each reporting period. Remeasurement, comprising
actuarial gains and losses is recognised in other comprehensive income in the period in which they occur.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by
employees are recognised during the year when the employees render the service. These benefits include performance
incentive and compensated absences which are expected to occur within twelve months after the end of the period in which
the employee renders the related service.
The cost of short-term compensated absences is accounted as under :
(a) in case of accumulated compensated absences, when employees render the services that increase their entitlement of
future compensated absences; and
(b) in case of non-accumulating compensated absences, when the absences occur.
Other Long-term employee benefits
Compensated absences which are not expected to occur within twelve months after the end of the period in which the
employee renders the related service are recognised as a liability at the present value of the defined benefit obligation as at
the balance sheet date less the fair value of the plan assets out of which the obligations are expected to be settled.
xii. Borrowing Costs
Borrowing costs include:
(i) interest expense calculated using the effective interest rate method,
(ii) finance charges in respect of finance leases, and
(iii) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to
interest costs.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their intended use or sale.
Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the Statement of
Profit and Loss in the period in which they are incurred.
xiii. Leases
At inception of contract, the Company assesses whether the Contract is, or contains, a lease. A contract is, or contains, a
lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for
consideration.
At inception or on reassessment of a contract that contains a lease component, the Company allocates consideration in the
contract to each lease component on the basis of their relative standalone price.
As a lessee
i) Right-of-use assets
The Company recognises right-of-use assets at the commencement date of the lease. Right-of-use assets are measured at cost,
less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, lease payments made at or
before the commencement date less any lease incentives received and estimate of costs to dismantle. Right-of-
use assets are depreciated on a straight-line basis over the lease term as per the contract. The Company presents right-to-use
assets under non-current assets in the Balance Sheet.
ii) Lease liabilities
At the commencement date of the lease, the Company recognises lease liabilities measured at the present value of lease
payments to be made over the lease term. In calculating the present value of lease payments, the Company generally uses its
incremental borrowing rate at the lease commencement date if the discount rate implicit in the lease is not readily
determinable.
After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for
the lease payments made. The carrying amount is remeasured when there is a change in future lease payments arising from a
change in index or rate. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change
in the lease term, a change in the lease payments or a change in the assessment of an option to purchase the underlying asset.
The Company presents lease liabilities under financial liabilities in the Balance Sheet.
iii) Short term leases and leases of low value of assets
The Company applies the short-term lease recognition exemption to its short-term leases. It also applies the lease of low
value assets recognition exemption that are considered to be low value. Lease payments on short-term leases and leases
of low value assets are recognised as rental expense and is generally recognised on a straight-line basis over the term of the
relevant lease.
Leases - As a Lessor
The Company has classified each lease as either an operating lease or a finance lease based on the terms of the lease
arrangement and the extent to which the risks and rewards incidental to ownership of the underlying asset lie with the
Company.
1. Finance
A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the
underlying asset. In such cases:
a) The leased asset is derecognised, and a lease receivable is recognised at an amount equal to the net investment in the lease.
b) The lease income is recognised over the lease term based on a pattern reflecting a constant periodic rate of return on the
net investment.
2. Operating
A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership
of the underlying asset. In such cases:
The underlying asset is continued to be recognised in the balance sheet under property, plant and equipment or investment
property.
Lease income is recognised as income on a straight-line basis over the lease term, unless another systematic basis is more
representative of the time pattern in which benefit derived from the use of the underlying asset is diminished.
Costs, including depreciation, incurred in earning the lease income are recognised as an expense.
3. Lease Modifications
Lease modifications are evaluated to determine whether they result in a separate lease or a modification to an existing lease.
Appropriate accounting adjustments are made in accordance with Ind AS 116.
xiv. Income Taxes
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in
the Statement of Profit and Loss because of items of income or expense that are taxable or deductible in other years and
items that are never taxable or deductible. Company has incurred losses and hence no current tax is calculated
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax assets are generally
recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available
against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not
recognised if the temporary difference arises from the initial recognition of assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit. In addition, deferred tax liabilities are not recognised if the temporary
difference arises from the initial recognition of goodwill.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which the liability is
settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of
the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in
which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and
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