3. SUMMARY OF MATERIAL
ACCOUNTING POLICIES

3.1 Current versus non-current classification

The Company presents assets and liabilities
in the balance sheet on current / non¬
current classification. An asset is treated as
current when it is:

• Expected to be realised or intended to be
sold or consumed in normal operating cycle

• Held primarily for the purpose of trading

• Expected to be realised within twelve months
after the reporting period, or

• Cash or cash equivalent unless restricted
from being exchanged or used to settle a
liability for at least twelve months after the
reporting period

All other assets are classified as non-current.

A liability is current when:

• It is expected to be settled in normal
operating cycle

• It is held primarily for the purpose of trading

• It is due to be settled within twelve months
after the reporting period, or

• There is no unconditional right to defer the
settlement of the liability for at least twelve
months after the reporting period

The Company classifies all other liabilities
as non-current.

Deferred tax assets and liabilities are classified as
non-current assets and liabilities.

3.2 Fair Value Measurement

The Company measures financial instruments,
such as, derivatives at fair value at each
balance sheet date.

Fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. The fair value measurement
is based on the presumption that the transaction
to sell the asset or transfer the liability
takes place either:

• In the principal market for the asset
or liability, or

• In the absence of a principal market, in
the most advantageous market for the
asset or liability

The principal or the most advantageous market
must be accessible by the Company.

The fair value of an asset or a liability is measured
using the assumptions, that market participants
would use when pricing the asset or liability,
assuming that market participants act in their
economic best interest.

A fair value measurement of a non-financial asset
takes into account a market participant's ability to
generate economic benefits by using the asset in
its highest and best use or by selling it to another
market participant that would use the asset in its
highest and best use.

The Company uses valuation techniques that are
appropriate in the circumstances and for which
sufficient data are available to measure fair value,
maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is
measured or disclosed in the financial statements
are categorised within the fair value hierarchy,
described as follows, based on the lowest
level input that is significant to the fair value
measurement as a whole:

• Level 1 — Quoted (unadjusted) market
prices in active markets for identical
assets or liabilities

• Level 2 — Valuation techniques for which
the lowest level input that is significant to
the fair value measurement is directly or
indirectly observable

• Level 3 — Valuation techniques for which the
lowest level input that is significant to the fair
value measurement is unobservable

For assets and liabilities that are recognised in
the financial statements on a recurring basis,
the Company determines whether transfers
have occurred between levels in the hierarchy
by re-assessing categorisation (based on the
lowest level input that is significant to the fair
value measurement as a whole) at the end of each
reporting period.

External valuers are involved for valuation
of significant assets, such as properties and
unquoted financial assets, and significant
liabilities, such as contingent consideration.
Involvement of external valuers is decided
upon annually by the Company. Selection
criteria include market knowledge, reputation,
independence and whether professional standards
are maintained. The Company decides, after
discussions with the Company's external valuers,
which valuation techniques and inputs to
use for each case.

At each reporting date, the Company analyses
the movements in the values of assets and
liabilities which are required to be re-measured
or re-assessed as per the Company's accounting
policies. For this analysis, the Company
verifies the major inputs applied in the latest
valuation by agreeing the information in the
valuation computation to contracts and other
relevant documents.

The Company also compares the change in the
fair value of each asset and liability with relevant
external sources to determine whether the
change is reasonable.

For the purpose of fair value disclosures, the
Company has determined classes of assets and
liabilities on the basis of the nature, characteristics
and risks of the asset or liability and the level of
the fair value hierarchy as explained above.

3.3 Revenue from contract with customers

Revenue from contracts with customers is
recognised when control of the goods or services
are transferred to the customer at an amount that
reflects the consideration to which the Company
expects to be entitled in exchange for those goods
or services. The Company has generally concluded
that it is the principal in its revenue arrangements
because it typically controls the goods or services
before transferring them to the customer.

Sale of manufactured and traded goods

Revenue from sale of goods is recognised at
the point in time when control of the goods is
transferred to the customer;

• Domestic sales are recognised at the time of
dispatch from the point of sale;

• Export sales are recognised on the date when
shipped on board or delivery of goods at

the destination agreed as per the respective
terms of sale and are initially recorded at the
relevant exchange rates prevailing on the
date of the transaction;

The Company offers specific credit period to
certain customers and payment for the sale is
made as per the credit terms in the agreements
with the customers.

The Company considers whether there are
other promises in the contract that are
separate performance obligations to which a
portion of the transaction price needs to be
allocated (e.g., warranties, Road Side Assistance
(RSA), Free Service Coupons (FSC), etc.). In
determining the transaction price for the sale
of goods, the Company considers the effects
of variable consideration, the existence of
significant financing components, non-cash
consideration, and consideration payable to the
customer (if any).

Variable consideration

If the consideration in a contract includes a
variable amount, the Company estimates the
amount of consideration to which it will be entitled
in exchange for transferring the goods to the
customer. The variable consideration is estimated
at contract inception and constrained until it is
highly probable that a significant revenue reversal
in the amount of cumulative revenue recognised
will not occur when the associated uncertainty
with the variable consideration is subsequently
resolved. Some contracts for the sale of traded
goods provide customers with a right of return
for which, the consideration is estimated based
on goods expected to be returned. The rights
of return give rise to variable consideration. For
goods that are expected to be returned, instead of
revenue, the Company recognises a refund liability.

Significant financing component

The Company applies the practical expedient for
short-term advances received from customers.
That is, the promised amount of consideration

is not adjusted for the effects of a significant
financing component if the period between the
transfer of the promised good or service and the
payment is one year or less.

Warranty obligations

The Company typically provides warranties for
general repairs of defects that existed at the time
of sale, as required by law. These assurance-type
warranties are accounted for under Ind AS 37
Provisions, Contingent Liabilities and Contingent
Assets. Refer to the accounting policy on warranty
provisions in section 3.15 Provisions.

The Company provides a one to three years
warranty beyond fixing defects that existed at the
time of sale. These service-type warranties are
sold either separately or bundled together with
the sale of goods. Contracts for bundled sales of
goods and a service-type warranty comprise two
performance obligations because the promises
to transfer the goods and to provide the service-
type warranty are capable of being distinct. Using
the relative stand-alone selling price method, a
portion of the transaction price is allocated to
the service-type warranty and recognised as a
contract liability. Revenue is recognised on the
service-type warranty to the extent of actual cost
incurred on rendering the warranty service.

Trade receivables

A receivable represents the Company's right to
an amount of consideration that is unconditional
(i.e., only the passage of time is required before
payment of the consideration is due). Refer to
accounting policies of financial assets in section
3.16 Financial instruments - initial recognition
and subsequent measurement.

Contract liabilities

A 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 made or the payment is
due (whichever is earlier). Contract liabilities
are recognised as revenue when the Company

performs under the contract (i.e., transfers control
of the related goods or services to the customer).

Dividend and interest income

Dividend income from investments is recognised
when the shareholder's right to receive payment
has been established.

Interest income from a financial asset is
recognised when it is probable that the economic
benefits will flow to the Company and the amount
of income can be measured reliably. Interest
income is accrued on, 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.

3.4 Leases

The Company assesses at the contract inception,
whether a contract is, or contains, a lease. That
is, if the contract conveys the right to control the
use of an identified asset for a period of time in
exchange for consideration.

^s a lessee

The Company applies a single recognition and
measurement approach for all leases, except
for short-term leases and leases of low-value
assets. The Company recognises lease liabilities
to make lease payments and right-of-use assets
representing the right to use the underlying assets.

i) Right-of-use assets

The Company recognises right-of-use assets
at the commencement date of the lease (i.e.,
the date the underlying asset is available
for use). 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, and lease payments made
at or before the commencement date less
any lease incentives received. Right-of-
use assets are depreciated on a straight¬
line basis over the shorter of the lease
term and the estimated useful lives of the
assets as follows:

If ownership of the leased asset transfers to
the Company at the end of the lease term or
the cost reflects the exercise of a purchase
option, depreciation is calculated using the
estimated useful life of the asset.

The right-of-use assets are also subject
to impairment. Refer to the accounting
policies in section 3.13 Impairment of non¬
financial assets.

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.
The lease payments include fixed payments
(including in-substance fixed payments)
less any lease incentives receivable, variable
lease payments that depend on an index
or a rate, and amounts expected to be paid
under residual value guarantees. The lease
payments also include the exercise price of
a purchase option reasonably certain to be
exercised by the Company and payments
of penalties for terminating the lease, if the
lease term reflects the Company exercising
the option to terminate. Variable lease
payments that do not depend on an index
or a rate are recognised as expenses (unless
they are incurred to produce inventories) in
the period in which the event or condition
that triggers the payment occurs.

In calculating the present value of lease
payments, the Company uses its incremental
borrowing rate at the lease commencement
date because the interest 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. 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 (e.g.,
changes to future payments resulting from a
change in an index or rate used to determine
such lease payments) or a change in the

assessment of an option to purchase the
underlying asset.

iii) Short-term leases and leases of
low-value assets

The Company applies the short-term lease
recognition exemption to its short-term
leases of buildings and others (i.e., those
leases that have a lease term of 12 months
or less from the commencement date and
do not contain a purchase option). Lease
payments on short-term leases and leases of
low-value assets are recognised as expense
on a straight-line basis over the lease term.

As a lessor

Leases in which the Company transfers
substantially all the risks and rewards incidental to
ownership of an underlying asset are classified as
finance leases.

Leases in which the Company does not transfer
substantially all the risks and rewards incidental to
ownership of an asset are classified as operating
leases. Rental income arising is accounted for on
a straight-line basis over the lease terms. Initial
direct costs incurred in negotiating and arranging
an operating lease are added to the carrying
amount of the leased asset and recognised over
the lease term on the same basis as rental income.
Contingent rents are recognised as revenue in the
period in which they are earned.

In case of finance lease, as a lessor, the company
recognises, at the commencement date, assets
held under a finance lease in its balance sheet
and present them as a receivable at an amount
equal to the net investment in the lease. Interest
rate implicit is used to measure the net investment
in the lease. Initial direct costs, other than those
incurred by the company, are included in the initial
measurement of the net investment in the lease
and reduce the amount of income recognised
over the lease term. The interest rate implicit in
the lease is arrived in such a way that the initial
direct costs are included automatically in the net
investment in the lease.

At the commencement date, the lease payments
included in the measurement of the net
investment in the lease comprise the following
payments for the right to use the underlying asset

during the lease term that are not received at the
commencement date:

(a) fixed payments less any lease incentives
payable, (b) variable lease payments that depend
on an index or a rate initially measured using the
index or rate as at the commencement date; (c)
any residual value guarantees provided to the
lessor by the lessee, a party related to the lessee
or a third party unrelated to the lessor that is
financially capable of discharging the obligations
under the guarantee, (d) the exercise price of
a purchase option if the lessee is reasonably
certain to exercise that option and (e) payments
of penalties for terminating the lease, if the lease
term reflects the lessee exercising an option to
terminate the lease.

At the commencement date, as a manufacturer or
dealer the Company recognises the following for
each of its finance leases:

(a) revenue being the fair value of the underlying
asset, or, if lower, the present value of the lease
payments accruing to the lessor, discounted
using a market rate of interest; (b) the cost of sale
being the cost, or carrying amount if different, of
the underlying asset less the present value of the
un-guaranteed residual value; and (c) selling profit
or loss (being the difference between revenue
and the cost of sale) in accordance with its policy
for outright sales to which Ind AS 115 applies.

The company also recognise selling profit or loss
on a finance lease at the commencement date,
regardless of whether the company transfers the
underlying asset as described in Ind AS 115.

The company as a manufacturer or dealer
lessor recognises as an expense costs incurred
in connection with obtaining a finance lease
at the commencement date because they are
mainly related to earning the manufacturer
or dealer's selling profit. Costs incurred by the
company in connection with obtaining a finance
lease are excluded from the definition of initial
direct costs and, thus, are excluded from the net
investment in the lease.

Subsequent measurement:

The company recognises finance income over
the lease term, based on a pattern reflecting a
constant periodic rate of return on the lessor's net
investment in the lease.

The finance income is allocated over the lease
term on a systematic and rational basis. The
company applies the lease payments relating
to the period against the gross investment in
the lease to reduce both the principal and the
unearned finance income. The company applies
the de-recognition and impairment requirements
in Ind AS 109 to the net investment in the lease.
The company reviews regularly estimated un¬
guaranteed residual values used in computing the
gross investment in the lease. If there has been a
reduction in the estimated un-guaranteed residual
value, the company revises the income allocation
over the lease term and recognises immediately
any reduction in respect of amounts accrued.

3.5 Foreign currencies

The standalone financial statements are presented
in Indian Rupees, which is also the functional
currency of the Company. In preparing the
financial statements of the Company, transactions
in currencies other than the Company's functional
currency (foreign currencies) are recognised at
the rates of exchange prevailing at the dates of
the transactions.

At the end of each reporting period, monetary
items denominated in foreign currencies are
retranslated at the rates prevailing at that date.

Transactions in foreign currencies are initially
recorded by the foreign operation (branch) at
the functional currency spot rates at the date
the transaction first qualifies for recognition.

In respect of foreign operation, the monetary
assets and liabilities are translated into INR at
the rate of exchange prevailing at the reporting
date and their statement of profit and loss at the
rates prevailing on the date of the transactions.
However, for practical reasons, the Company
uses an average rate to translate the income and
expense items, if the average approximates the
actual rate at the date of the transaction.

Exchange differences arising on settlement or
translation of monetary items are recognised in
the Statement of profit or loss with the exception
of the following:

• Exchange differences arising on monetary
items that forms part of a reporting
entity's net investment in a foreign

operation are initially recognised in the
financial statements of the Company in
the other comprehensive income. These
exchange differences are reclassified
from equity (Foreign currency translation
reserve) to profit or loss on disposal of the
net investment.

• Tax charges and credits attributable
to exchange differences on those
monetary items are also recorded in Other
Comprehensive Income (OCI).

Non-monetary items that are measured in
terms of historical cost in a foreign currency are
translated using the exchange rates at the dates
of the initial transactions.

Non-monetary items measured at fair value
in a foreign currency are translated using the
exchange rates at the date when the fair value is
determined. The gain or loss arising on translation
of non-monetary items measured at fair value
is treated in line with the recognition of the gain
or loss on the change in fair value of the item
(i.e., translation differences on items whose fair
value gain or loss is recognised in OCI or profit
or loss are also recognised in OCI or profit or
loss, respectively).

3.6 Borrowing 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.

All other borrowing costs are recognised in profit
or loss in the period in which they are incurred.

3.7 Government grants

Government grants are not recognised until there
is reasonable assurance that the Company will
comply with the conditions attached to them and
that the grants will be received. When the grant
relates to an expense item, it is recognised as
income on a systematic basis over the periods
that the related costs, for which it is intended
to compensate, are expensed. When the grant
relates to an asset, it is recognised as income in

equal amounts over the expected useful life of
the related asset.

When the Company receives grant of non¬
monetary assets, the asset and the grant are
recorded at fair value amounts and released to
the statement of profit and loss over the expected
useful life in a pattern of consumption of the
benefit of the underlying asset, i.e., by equal
annual instalments.

In the case of Export Promotion Capital Goods
('EPCG') grant, the Company recognise the grant
in the statement of profit and loss on a systematic
basis over the useful life of the assets.

When loans or similar assistance are provided
by governments or related institutions, with an
interest rate below the current applicable market
rate, the effect of this favourable interest is
regarded as a government grant. The loan or
assistance is initially recognised and measured at
fair value and the government grant is measured
as the difference between the initial carrying value
of the loan and the proceeds received. The loan
is subsequently measured as per the accounting
policy applicable to financial liabilities.

3.8 Retirement and other employee benefits

Provident fund

(i) The Company operates a scheme of
provident fund for eligible employees,
which is a defined benefit plan. Both the
employee and the Company make monthly
contributions to the provident fund plan
equal to a specified percentage of the
covered employee's salary. The Company
contributes a part of the contributions
to the "Eicher Executive Provident Fund
Trust". The rate at which the annual interest
is payable to the beneficiaries by the trust
is being administered by the Government.

The Company has an obligation to make
good the shortfall, if any, between the return
from the investments of the trust and the
notified interest rate.

The cost of providing benefits under above
mentioned defined benefit plan is determined
using the projected unit credit method with
actuarial valuations being carried out at each
balance sheet date, which recognizes each
period of service as giving rise to additional

unit of employee benefit entitlement and
measures each unit separately to build up the
final obligation.

(ii) The employees, who are not covered
under the scheme stated in 3.8 (i) above,
are covered in a defined contribution
scheme wherein their portion of provident
fund is contributed to the government
administered provident fund. The
Company has no obligation, other than
the contribution payable to the provident
fund. The Company recognizes contribution
payable to the provident fund scheme as
expenditure, when an employee renders the
related service.

Gratuity

The Company operates a defined benefit gratuity
plan, which requires contributions to be made to a
separately administered fund.

Payments to defined contribution plans are
recognised as an expense when employees
have rendered service entitling them to
the contributions.

For defined benefit plans, the cost of providing
benefits is determined using the projected
unit credit method, with actuarial valuations
being carried out at the end of each annual
reporting period.

Re-measurements, comprising actuarial gains and
losses and the return on plan assets (excluding net
interest), is reflected immediately in the balance
sheet with a charge or credit recognised in other
comprehensive income in the period in which they
occur. Re-measurements recognised in other
comprehensive income is reflected immediately
in retained earnings and is not reclassified to
profit or loss in subsequent periods. Net interest
is calculated by applying the discount rate at the
beginning of the period to the net defined benefit
liability or asset.

Defined benefit costs are categorised as follows:

• service cost (including current service cost,
past service cost, as well as gains and losses
or curtailments and settlements);

• net interest expense or income;

Net interest is calculated by applying the discount
rate to the net defined benefit liability or asset.

The Company presents the first two components
of defined benefit costs in profit or loss in the line
item 'Employee benefits expense'.

The retirement benefit obligation recognised
in the balance sheet represents the actual
deficit or surplus in the Company's defined
benefit plans. Any surplus resulting from this
calculation is limited to the present value of
any economic benefits available in the form of
refunds from the plan or reductions in future
contributions to the plans.

Short-term and other long-term
employee benefits

A liability is recognised for benefits accruing to
employees in respect of wages and salaries, in the
period the related service is rendered at the un¬
discounted amount of the benefits expected to be
paid in exchange for that service.

Liabilities recognised in respect of short-term
employee benefits are measured at the un¬
discounted amount of the benefits expected to be
paid in exchange for the related service.

Liabilities recognised in respect of other long¬
term employee benefits such as annual leave and
sick leave are measured at the present value of
the estimated future cash outflows expected to
be made by the Company in respect of services
provided by employees up to the reporting
date based on the actuarial valuation using the
projected unit credit method at the reporting
date. Actuarial gains/losses are immediately
taken to the statement of profit and loss and
are not deferred.

3.9 Share-based payment arrangements

Employees (including senior executives) of the
Company receive remuneration in the form of
share-based payments, whereby employees
render services as consideration for equity
instruments (equity-settled transactions).

Equity-settled share-based payments to
employees are measured at the fair value of the
equity instruments at the grant date. Details
regarding the determination of the fair value of

equity-settled share-based transactions are set
out in note no. 49.

That cost is recognised, together with a
corresponding increase in share-based payment
(SBP) reserves in equity, over the period in which
the performance and/or service conditions
are fulfilled in employee benefits expense. The
cumulative expense recognised for equity-
settled transactions at each reporting date until
the vesting date reflects the extent to which the
vesting period has expired and the Company's
best estimate of the number of equity instruments
that will ultimately vest. The statement of profit
and loss expense or credit for a period represents
the movement in cumulative expense recognised
as at the beginning and end of that period and is
recognised in employee benefits expense.

The dilutive effect of outstanding options is
reflected as additional share dilution in the
computation of diluted earnings per share.

3.10 Taxation

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. The
Company's current tax is calculated using tax rates
and laws that have been enacted or substantively
enacted at the reporting period.

Current income tax relating to items recognised
outside profit or loss is recognised outside profit
or loss (either in other comprehensive income
or in equity). Current tax items are recognised in
correlation to the underlying transaction either in
OCI or directly in equity. 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

Deferred tax is provided using the liability method
on temporary differences between the tax

bases of assets and liabilities and their carrying
amounts for financial reporting purposes at the
reporting date.

Deferred tax liabilities are recognised for all
taxable temporary differences, except:

• When the deferred tax liability arises from
the initial recognition of goodwill or an asset
or liability in a transaction that is not a
business combination and, at the time of the
transaction, affects neither the accounting
profit nor taxable profit or loss and does not
give rise to equal taxable and deductible
temporary differences;

• In respect of taxable temporary differences
associated with investments in subsidiaries,
associates and interests in joint ventures,
when the timing of the reversal of the
temporary differences can be controlled and
it is probable that the temporary differences
will not reverse in the foreseeable future.

Deferred tax assets are recognised for all
deductible temporary differences, the carry
forward of unused tax credits and any unused
tax losses. Deferred tax assets are recognised 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
utilised, except:

• When the deferred tax asset relating to
the deductible temporary difference arises
from the initial recognition of an asset

or liability in a transaction that is not a
business combination and, at the time of the
transaction, affects neither the accounting
profit nor taxable profit or loss and does not
give rise to equal taxable and deductible
temporary differences;

• In respect of deductible temporary
differences associated with investments in
subsidiaries, associates and interests in joint
ventures, deferred tax assets are recognised
only to the extent that it is probable that
the temporary differences will reverse in the
foreseeable future and taxable profit will

be available against which the temporary
differences can be utilised.

Deferred tax relating to items recognised outside
profit or loss is recognised outside profit or loss
(either in other comprehensive income or in
equity). Deferred tax items are recognised in
correlation to the underlying transaction either in
other comprehensive income or directly in equity.

The carrying amount of deferred tax assets is
reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to
allow all or part of the asset to be recovered.

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 liabilities.

Current and deferred tax for the year

Current and deferred tax are recognised in
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 and deferred tax are also recognised
in other comprehensive income or directly in
equity respectively.

The Company offsets deferred tax assets and
deferred tax liabilities if and only if it has a legally
enforceable right to set off current tax assets and
current tax liabilities and the deferred tax assets
and deferred tax liabilities relate to income taxes
levied by the same taxation authority on either the
same taxable entity which intends either to settle
current tax liabilities and assets on a net basis,
or to realise the assets and settle the liabilities
simultaneously, in each future period in which
significant amounts of deferred tax liabilities or
assets are expected to be settled or recovered.

Goods and Services Tax (GST) / value added
taxes paid on acquisition of assets or on
incurring expenses

Expenses and assets are recognised net of the
amount of GST/ value added taxes paid, except:

• When the tax incurred on a purchase of
assets or services is not recoverable from
the taxation authority, in which case, the
tax paid is recognised as part of the cost
of acquisition of the asset or as part of the
expense item, as applicable;

• When receivables and payables are stated
with the amount of tax included.

The net amount of tax recoverable from, or
payable to, the taxation authority is included
as part of other current assets/ liabilities in
the balance sheet.

3.11 Property, plant and equipment

Property, plant and equipment (including
furniture, fixtures, vehicles, etc.) held for use in the
production or supply of goods or services, or for
administrative purposes, are stated in the balance
sheet at cost less accumulated depreciation
and accumulated impairment losses. Cost of
acquisition is inclusive of freight, duties, taxes
and other incidental expenses. When significant
parts of plant and equipment are required to be
replaced at intervals, the Company depreciates
them separately based on their specific useful
lives. Freehold land is not depreciated.

Capital work in progress is stated at cost, net of
accumulated impairment loss, if any. Cost includes
items directly attributable to the construction
or acquisition of the item of property, plant and
equipment, and, for qualifying assets, borrowing
costs will be capitalised in accordance with the
Company's accounting policy. Such properties
are classified to the appropriate categories of
property, plant and equipment when completed
and ready for intended use. Depreciation of these
assets, on the same basis as other property
assets, commences when the assets are ready for
their intended use.

Depreciation is recognised so as to write off the
cost of assets (other than freehold land and
properties under construction) less their residual
values over their useful lives, using the straight¬
line method. The estimated useful lives, residual
values and depreciation method are reviewed at
the end of each reporting period, with the effect

3.12 Intangible assets

Intangible assets acquired separately

Intangible assets with finite useful lives that
are acquired separately are carried at cost less
accumulated amortisation and accumulated
impairment losses. Amortisation is recognised on
a straight-line basis over their useful economic
life and assessed for impairment whenever
there is an indication that the intangible asset
may be impaired. 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 and
intangible assets not yet available for use are
not amortised, but are tested for impairment
annually, either individually or at the cash¬
generating unit level.

Internally-generated intangible assets -
research and development expenditure

Expenditure on research activities is recognised as
an expense in the period in which it is incurred.

An internally-generated intangible asset arising
from development (or from the development
phase of an internal project) is recognised
if, and only if, all of the following have
been demonstrated:

• the technical feasibility of completing the
intangible asset so that it will be available
for use or sale

• the intention to complete the intangible asset
and use or sell it;

• the ability to use or sell the intangible asset;

• how the intangible asset will generate
probable future economic benefits;

• the availability of adequate technical,
financial and other resources to complete
the development and to use or sell the
intangible asset; and

• the ability to measure reliably the
expenditure attributable to the intangible
asset during its development.

The amount initially recognised for internally-
generated intangible assets is the sum of the

expenditure incurred from the date when the
intangible asset first meets the recognition
criteria listed above. Where no internally-
generated intangible asset can be recognised,
development expenditure is recognised in the
statement of profit and loss in the period in which
it is incurred.

Subsequent to initial recognition, internally-
generated intangible assets are reported at cost
less accumulated amortisation and accumulated
impairment losses, on the same basis as intangible
assets that are acquired separately.

Derecognition of intangible assets

An intangible asset is de-recognised on
disposal, or when no future economic benefits
are expected from use or disposal. Gains
or losses arising from de-recognition of an
intangible asset, measured as the difference
between the net disposal proceeds and
the carrying amount of the asset, and are
recognised in the statement of profit or loss
when the asset is de-recognised.

Useful lives of intangible assets

Intangible assets comprising of product design,
prototypes, etc., either acquired or internally
developed are amortised over a period of 3 to 10
years, the estimated minimum useful life of the
related products. Cost of software is amortised
over a period of 3 years or less depending on the
estimated useful life of asset. The useful lives for
intangible assets are given below:

3.13 Impairment of non-financial assets

At the end of each reporting period, the Company
assesses, whether there is any indication that
an asset may be impaired. If any such indication
exists or annual impairment test for an asset is
required, the recoverable amount of the asset
is estimated in order to determine the extent of
the impairment loss (if any). Recoverable amount
is the higher of fair value less costs of disposal
and value in use.

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.

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. In determining
fair value less costs of disposal, recent market
transactions are taken into account. If no such
transactions can be identified, an appropriate
valuation model is used.

The Company bases its impairment calculation on
detailed budgets and forecast calculations, which
are prepared separately for each of the Company's
cash generating unit (CGU).

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. When
an impairment loss subsequently reverses,
the carrying amount of the asset (or a cash¬
generating unit) is increased to the revised
estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the
carrying amount that would have been determined
had no impairment loss been recognised for the
asset (or cash-generating unit) in prior years.

A reversal of an impairment loss is recognised
immediately in profit or loss.

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. 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.

3.14 Inventories

Inventories comprising Raw materials, work-in¬
progress, stores and spares, loose tools, traded
goods and finished goods are stated at the lower
of cost and net realisable value. Cost includes
cost of purchase and other costs incurred in
bringing the inventories to its present location and
condition. Cost of inventories is determined on a
moving average.

Finished goods and work-in-progress includes
cost of direct materials, labour and an appropriate
proportion of manufacturing overheads at normal
capacity and where applicable, duty. Net realisable
value represents the estimated selling price for
inventories less all estimated costs of completion
and costs necessary to make the sale.