2.5 Material accounting policies

(a) Operating cycle and classification of current
and non-current:

Based on the nature of products and the
time between the acquisition of assets for
processing and their realisation in cash and
cash equivalent, the Company considers the
operating cycle for assets and liabilities as
12 months.

All the assets and liabilities are classified
as current and non-current as per the
Company's normal operating cycle, and
other criteria set out in Schedule III of the
Companies Act, 2013.

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 treated as 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.

Other Assets and Liabilities except as stated
above are classified as non-current.

(b) Foreign currency transactions

The functional currency of the Company is
the Indian rupee. These financial statements
are presented in Indian rupees.

Transactions in foreign currencies are
translated into the functional currency of the
Company at the exchange rates at the dates
of the transactions or an average rate if the
average rate approximates the actual rate at
the date of the transaction.

Monetary assets and liabilities denominated
in foreign currencies are translated into the

functional currency at the exchange rate at
the reporting date. Non-monetary assets
and liabilities that are measured at fair
value in a foreign currency are translated
into the functional currency at the exchange
rate when the fair value was determined.
Non-monetary assets and liabilities that
are measured based on historical cost in
a foreign currency are translated at the
exchange rate at the date of the transaction.
Exchange differences are recognised in
statement of profit and loss.

(c) Financial instruments

Recognition and initial measurement

Trade receivables are initially recognised
when they are originated. All other financial
assets and financial liabilities are initially
recognised when the Company becomes
a party to the contractual provisions of the
instrument.

A financial asset or financial liability is
initially measured at fair value plus, for an
item not at fair value through profit and loss
('FVTPL'), transaction costs that are directly
attributable to its acquisition or issue.

Financial assets - classification and
subsequent measurement

On initial recognition, a financial asset is
classified as measured at

• Amortised cost;

• FVOCI - Equity investment; or

• FVTPL

Financial assets are not reclassified
subsequent to their initial recognition,
except if and in the period the Company
changes its business model for managing
financial assets.

A financial asset is measured at amortised
cost if it meets both of the following
conditions and is not designated as at
FVTPL:

• the asset is held within a business
model whose objective is to hold assets
to collect contractual cash flows; and

• the contractual terms of the financial
asset give rise on specified dates to
cash flows that are solely payments of
principal and interest on the principal
amount outstanding.

A debt investment is measured at FVOCI if it
meets both of the following conditions and
is not designated as at FVTPL:

• the asset is held within a business
model whose objective is achieved by
both collecting contractual cash flows
and selling financial assets; and

• the contractual terms of the financial
asset give rise on specified dates to
cash flows that are solely payments of
principal and interest on the principal
amount outstanding.

FVTPL is a residual category for debt
instruments. Any debt instrument, which
does not meet the criteria for categorisation
as at amortised cost or as FVTOCI, is
classified as at FVTPL.

On initial recognition of an equity investment
that is not held for trading, the Company
may irrevocably elect to present subsequent
changes in the investment's fair value
in OCI (designated as FVOCI - equity
investment). This election is made on an
investment-by-investment basis. At present
there are no such investments.

All financial assets not classified as
measured at amortised cost or FVOCI as
described above are measured at FVTPL.
This includes all derivative financial assets.
On initial recognition, the Company may
irrevocably designate a financial asset that
otherwise meets the requirements to be
measured at amortised cost or at FVOCI as at
FVTPL if doing so eliminates or significantly
reduces an accounting mismatch that would
otherwise arise.

Financial assets: Business model
assessment

The Company makes an assessment of the
objective of the business model in which

a financial asset is held at a portfolio level
because this best reflects the way the
business is managed and information is
provided to management. The information
considered includes:

• the stated policies and objectives for
the portfolio and the operation of those
policies in practice. These include
whether management's strategy
focuses on earning contractual interest
income, maintaining a particular
interest rate profile, matching the
duration of the financial assets to the
duration of any related liabilities or
expected cash outflows or realising
cash flows through the sale of the
assets;

• how the performance of the portfolio
is evaluated and reported to the
Company's management;

• the risks that affect the performance of
the business model (and the financial
assets held within that business model)
and how those risks are managed;

• how managers of the business
are compensated - e.g. whether
compensation is based on the fair
value of the assets managed or the
contractual cash flows collected; and

• the frequency, volume and timing
of sales of financial assets in prior
periods, the reasons for such sales
and expectations about future sales
activity.

Transfers of financial assets to third parties
in transactions that do not qualify for
derecognition are not considered sales for
this purpose, consistent with the Company's
continuing recognition of the assets.

Financial assets that are held for trading
or are managed and whose performance is
evaluated on a fair value basis are measured
at FVTPL.

Financial assets: Assessment whether
contractual cash flows are solely payments
of principal and Interest.

For the purposes of this assessment,
'principal' is defined as the fair value of
the financial asset on initial recognition.
'Interest' is defined as consideration for
the time value of money and for the credit
risk associated with the principal amount
outstanding during a particular period of
time and for other basic lending risks and
costs (e.g. liquidity risk and administrative
costs), as well as a profit margin.

In assessing whether the contractual cash
flows are solely payments of principal
and interest, the Company considers the
contractual terms of the instrument. This
includes assessing whether the financial
asset contains a contractual term that could
change the timing or amount of contractual
cash flows such that it would not meet this
condition. In making this assessment, the
Company considers:

• contingent events that would change
the amount or timing of cash flows;

• terms that may adjust the contractual
coupon rate, including variable interest
rate features;

• prepayment and extension features;
and

• terms that limit the Company's claim to
cash flows from specified assets (e.g.
non-recourse features).

A prepayment feature is consistent with
the solely payments of principal and
interest criterion if the prepayment amount
substantially represents unpaid amounts
of principal and interest on the principal
amount outstanding, which may include
reasonable additional compensation
for early termination of the contract.
Additionally, for a financial asset acquired
at a significant discount or premium to its
contractual amount, a feature that permits
or requires prepayment at an amount that
substantially represents the contractual
par amount plus accrued (but unpaid)
contractual interest (which may also include
reasonable additional compensation for

to foreign exchange risks. Such derivative
financial instruments are initially recognised
at fair value on the date on which a derivative
contract is entered into and are subsequently
re-measured at fair value. Derivatives are
carried as financial assets when the fair
value is positive and as financial liabilities
when the fair value is negative.

Any profit or loss arising on cancellation or
renewal of such a forward exchange contract
is recognised as income or as expense in the
period in which such cancellation or renewal
is made.

(d) Property, plant and equipment

Recognition and measurement

Items of property, plant and equipment are
measured at cost, which includes capitalised
borrowing costs, less accumulated
depreciation and accumulated impairment
losses, if any.

Cost of an item 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
estimated costs of dismantling and removing
the item and restoring the site on which it is
located. The cost of a self-constructed item
of property, plant and equipment comprises
the cost of materials and direct labor, any
other costs directly attributable to bringing
the item to working condition for its intended
use, and estimated costs of dismantling and
removing the item and restoring the site on
which it is located.

If significant parts of an item of property,
plant and equipment have different useful
lives, then they are accounted for as separate
items (major components) of property, plant
and equipment.

Any gain or loss on disposal of an item of
property, plant and equipment is recognised
in statement of profit and loss.

Subsequent measurement

Subsequent expenditure is capitalised only
if it is probable that the future economic
benefits associated with the expenditure will
flow to the Company.

Depreciation

The estimate of the useful life of the assets
has been assessed based on technical advice
which considers the nature of the asset, the
usage of the asset, expected physical wear
and tear, the operating conditions of the
asset, anticipated technological changes,
manufacturers warranties and maintenance
support, etc. Details of useful life considered
for depreciation along with method of
depreciation are provided below:

The Management believes that these
estimated useful lives reflect fair
approximation of the period over which the
assets are likely to be used.

The residual values, useful lives and
methods of depreciation of property, plant
and equipment are reviewed at each financial
year end and adjusted prospectively, if
appropriate.

Capital Work in Progress (CWIP)

Cost of assets not ready for intended use, as
on the balance sheet date, is shown as CWIP.
CWIP is stated at cost, net of accumulated
impairment loss, if any.

Advances given towards acquisition of
assets (including CWIP) and outstanding at
each balance sheet date are disclosed as
"Other Non-Current Assets".

Derecognition

The carrying amount of an item of property,
plant and equipment is derecognised on
disposal or when no future economic
benefits are expected from its use or
disposal. The consequential gain or loss
is measured as the difference between
the net disposal proceeds and the carrying
amount of the item and is recognised in the
statement of profit and loss.

(e) Intangible assets

Internally generated: Research and
development activities and Enterprise
resource planning software

Expenditure on research activities is
recognised in statement of profit and loss
as incurred.

Development expenditure is capitalised as
part of the cost of the resulting intangible
asset only if the expenditure can be
measured reliably, the product or process
is technically and commercially feasible,
future economic benefits are probable, and
the Company intends to and has sufficient
resources to complete development and
to use or sell the asset. Otherwise, it is
recognised in the statement of profit and
loss as incurred.

Subsequent to initial recognition, the asset
is measured at cost less accumulated
amortisation and any accumulated
impairment losses.

Other intangible assets

Other intangible assets that are acquired
by the Company and that have finite useful
lives are measured at cost less accumulated
amortisation and accumulated impairment
losses. The cost of intangible assets
acquired in a business combination is their
fair value at the date of acquisition.

Subsequent expenditure

Subsequent expenditure is capitalised only
when it increases the future economic
benefits embodied in the specific asset to
which it relates.

Amortisation

Amortisation is calculated to amortise the
cost of intangible assets over their estimated
useful lives (6 years) using the straight-line
method and is included in depreciation and
amortisation in Statement of profit and loss
is provided below:

Amortisation method, useful lives and
residual values are reviewed at the end
of each reporting date and adjusted if
appropriate.

(f) Leases
As a lessee

The Company recognises 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 asset is subsequently
depreciated using the straight-line method
from the lease commencement date to
the end of the lease term, unless the lease
transfers ownership of the underlying asset
to the Company by the end of the lease term
or the cost of the right-of-use asset reflects
that the Company will exercise a purchase
option. In that case the right-of-use asset
will be depreciated over the useful life of
the underlying asset, which is determined
on the same basis as those of property
and equipment. In addition, the right-of-use
asset is periodically reduced by impairment
losses, if any, and adjusted for certain
remeasurements of the lease liability.

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.

The Company determines its incremental
borrowing rate by obtaining interest rates
from various external financing sources
and makes certain adjustments to reflect
the terms of the lease and type of the asset
leased.

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 amortised
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, if the Company changes
its assessment of whether it will exercise a
Purchase, extension or termination option or
if there is a revised in-substance fixed lease
payment.

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 profit or loss if the
carrying amount of the right-of-use asset
has been reduced to zero.

Short-term leases and leases of low-value
assets

The Company has elected not to recognise
right-of-use assets and lease liabilities for
leases of low-value assets and short-term
leases. The Company recognises the lease
payments associated with these leases as
an expense on a straight-line basis over the
lease term.

As a lessor

Lease income from operating leases, where
the Company is a lessor, is recognised on a
straight-line basis over the lease term unless
the receipts are structured to increase
in line with expected general inflation to
compensate for the expected inflation.

(g) Investment properties

Investment properties are properties held to
earn rentals and/or for capital appreciation
(including property under construction for
such purposes). Investment properties
are measured initially at cost, including
transaction costs. Subsequent to initial
recognition, investment properties are
measured in accordance with Ind AS 16
requirements for cost model. Investment
property includes freehold/leasehold land
and building.

Depreciation

Based on technical evaluation, the
Management believes a period of 25-60
years as representing the best estimate of
the period over which investment properties
(which are quite similar) are expected to be
used. Accordingly, the Company depreciates
investment properties over this period on
a straight-line basis. This is different from
the indicative useful life of relevant type
of assets mentioned in Schedule II to the
Companies Act 2013.

Any gain or loss on disposal of an investment
property is recognised in statement of
profit and loss. An investment property
is derecognised upon disposal or when
the investment property is permanently
withdrawn from use and no future economic
benefits are expected from the disposal.

Any gain or loss arising on derecognition of
the property is calculated as the difference
between the net disposal proceeds and the
carrying amount of the asset and included in
the statement of profit or loss in the period
in which the property is derecognised.

(h) Inventories

Inventories are measured at the lower of
cost and net realisable value. The cost of
inventories is based on Weighted Average
Cost basis, and includes expenditure incurred
in acquiring the inventories, production or
conversion costs and other costs incurred in
bringing them to their present location and
condition. Costs incurred in bringing each
product to its present location and condition
are accounted for as follows:

• Raw materials: cost includes cost of
purchase and other costs incurred
in bringing the inventories to their
present location and condition. Cost is
determined on Weighted Average Cost
basis.

• Finished goods and work in progress:

cost includes cost of direct materials
and labour and a proportion of
manufacturing overheads based on
the normal operating capacity but
excluding borrowing costs. Cost is
determined on Weighted Average Cost
basis.

• Stores and spares (consisting of
engineering spares, which are used in
operating machines or consumed as
indirect materials in the manufacturing
process): cost includes cost of
purchase and other costs incurred
in bringing the inventories to their
present location and condition. Cost is

determined on Weighted Average Cost
basis.

• Traded goods: cost includes cost of
purchase and other costs incurred
in bringing the inventories to their
present location and condition. Cost is
determined on weighted average basis.

Net realisable value is the estimated selling
price in the ordinary course of business,
less the estimated costs of completion and
selling expenses. The net realisable value
of work-in-progress is determined with
reference to the selling prices of related
finished products.

The comparison of cost and net realisable
value is made on an item-by-item basis.

The factors that the Company considers in
determining the allowance for slow moving,
obsolete and other non-saleable inventory
include estimated shelf life, planned product
discontinuances, price changes, ageing of
inventory and introduction of competitive
new products, to the extent each of these
factors impact the Company's business and
markets.

(i) Impairment

Impairment of financial assets

The Company recognises loss allowances
for expected credit losses on financial
assets measured at amortised cost.

At each reporting date, the Company
assesses whether financial assets carried at
amortised cost credit-impaired. A financial
asset is 'credit-impaired' when one or more
events that have a detrimental impact on the
estimated future cash flows of the financial
asset have occurred.

Evidence that a financial asset is
credit-impaired includes the following
observable data:

• significant financial difficulty of the
borrower or issuer;

• a breach of contract such as a default
or being significantly past due;

• the restructuring of a loan or advance
by the Company on terms that
the Company would not consider
otherwise; or

• it is probable that the borrower will
enter bankruptcy or other financial
reorganisation.

Loss allowances for trade receivables
are always measured at an amount equal
to lifetime expected credit losses. The
Company follows 'simplified approach' for
recognition of impairment loss allowance
on trade receivables or contract revenue
receivables. Under the simplified approach,
the Company is not required to track
changes in credit risk. Rather, it recognises
impairment loss allowance based on lifetime
Expected credit losses ('ECL") together with
appropriate Management's estimate of
credit loss at each reporting date, from its
initial recognition.

The Company uses a provision matrix to
determine impairment loss allowance on
the group of trade receivables. The provision
matrix is based on its historically observed
default rates over the expected life of the
trade receivable and is adjusted for forward
looking estimates. At every reporting date,
the historical observed default rates are
updated and changes in the forward-looking
estimates are analysed.

Measurement of expected credit losses

Expected credit losses are a
probability-weighted estimate of credit
losses. Credit losses are measured as the
present value of all cash shortfall (i.e. the
difference between the cash flows due to the
Company in accordance with the contract
and the cash flows that the Company
expects to receive).

Presentation of allowance for expected
credit losses in the balance sheet

Loss allowances for financial assets
measured at amortised cost are deducted
from the gross carrying amount of the
assets.

Write off

The gross carrying amount of a financial
asset is written off (either partially or in
full) to the extent that there is no realistic
prospect of recovery. This is generally the
case when the Company determines that
the debtor does not have assets or sources
of income that could generate sufficient
cash flows to repay the amounts subject
to the write-off. However, financial assets
that are written off could still be subject to
enforcement activities in order to comply
with the Company's procedures for recovery
of amounts due.

Impairment of non-financial assets

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. If any such indication exists,
then the asset's recoverable amount is
estimated.

For impairment testing, assets that do not
generate independent cash inflows are
grouped together into cash-generating units
(CGUs). Each CGU represents the smallest
group of assets that generates cash inflows
that are largely independent of the cash
inflows of other assets or CGUs.

The recoverable amount of a CGU (or an
individual asset) is the higher 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 pre-tax discount rate that reflects
current market assessments of the time
value of money and the risks specific to the
CGU (or the asset).

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. Impairment
loss recognised in respect of a CGU is
allocated to reduce the carrying amounts of
the assets of the CGU (or group of CGUs) on
a pro rata basis.

Assets (other than goodwill) for which
impairment loss has been recognised in
prior periods, the Company reviews at
each reporting date whether there is any
indication that the loss has decreased or
no longer exists. An impairment loss is
reversed 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.

(j) Employee benefits

Short term employee benefits

All employee benefits payable within
twelve months of rendering the service are
classified as short-term employee benefits.
Benefits such as salaries, wages etc. and the
expected cost of ex-gratia are recognised in
the period in which the employee renders the
related service. A liability is recognised for
the amount expected to be paid when there
is a present legal or constructive obligation
to pay this amount as a result of past service
provided by the employee and the obligation
can be estimated reliably.

Defined contribution plans

A defined contribution plan is a post¬
employment benefit plan under which
the Company makes specified monthly
contributions towards government
administered provident fund scheme.
Obligations for contributions to defined
contribution plans are recognised as an
employee benefit expense in statement of
profit and loss in the periods during which the
related services are rendered by employees.

Prepaid contributions are recognised as an
asset to the extent that a cash refund or a
reduction in future payments is available.

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.

The calculation of defined benefit obligation
is performed annually by a qualified actuary
using the projected unit credit method.
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
contributions to the plan ('the asset ceiling').
In order to calculate the present value of
economic benefits, consideration is given to
any minimum funding requirements.

Remeasurements of the net defined benefit
liability, which comprise actuarial gains and
losses, the return on plan assets (excluding
interest) and the effect of the asset ceiling
(if any, excluding interest), are recognised
in OCI. 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 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 the statement of profit and
loss. The Company recognises gains and
losses on the settlement of a defined benefit
plan when the settlement occurs.

Other long-term employee benefits

The Company's net obligation in respect
of long-term employee benefits other than
post-employment benefits is the amount of
future benefit that employees have earned
in return for their service in the current and
prior periods; that benefit is discounted
to determine its present value, and the fair
value of any related assets is deducted.
The obligation is measured on the basis of
an annual independent actuarial valuation
using the projected unit credit method.
Remeasurements gains or losses are
recognised in the statement of profit and
loss in the period in which they arise.

Termination benefits

Termination benefits are expensed through
statement of profit and loss at the earlier
of when the Company can no longer
withdraw the offer of those benefits and
when the Company recognises costs for a
restructuring.