1C. Material accounting policies
a) Foreign Currency Translation
Transaction in foreign currencies are translated into the respective
functional currencies of the Company at the exchange rates at the
dates of 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 based on historical cost in a foreign currency are
translated at the exchange rate at the date of transaction.
Exchange difference are recognised in statement of profit and loss,
except exchange differences arising from the translation of long
term foreign currency monetary items pertaining to period prior to
transition to Ind AS and which are not related to purchase of
property, plant and equipment and intangible assets which are
recognised directly in other equity.
b) Financial instruments
i. 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.
Financial assets and liabilities are initially measured at fair value,
except for trade receivables which are initially measured at
transaction price. 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
measured on initial recognition of financial asset or financial
liability. Trade receivables that do not contain a significant
financing component are measured at transaction price.
ii. Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified as measured at
- amortised cost; or
- Fair value [either through profit and loss (FVTPL) or through other
comprehensive income (FVOCI)]
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.
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.
All financial assets not classified as measured at amortised cost as
described above are measured at FVTPL. On initial recognition, the
Company may irrevocably designate a financial asset that
otherwise meets the requirements to be measured at amortised
cost 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 policy 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 asset
to the duration of any related liabilities or expected cash outflows
or realising cash flows through the sale of asset;
- How the performance of portfolio is evaluated and reported to the
Company's management;
- The risk 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 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 purpose of this assessment, 'principal' is defined as the fair
value of financial asset on initial recognition. 'Interest' is defined as
consideration for time value of money and for credit risk associated
with the principal amount outstanding during a particular period of
time and other basic leading risks and costs (e.g. liquidity risk and
administrative costs), as well as profit margin.
In assessing whether the contractual cash flows are solely
payments of principal and interest, the Company considers
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 and timing of
cash flows;
- term that would adjust the contractual rate, including variable
interest rate features;
- prepayment and extension features; and
- term that limits the Company's claim to cash flows for 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 amount of principal and interest on
principal amount outstanding, which may include reasonable
additional compensation for early termination of contract.
Additionally, for a financial asset acquired on a significant premium
or discount to its contractual par amount, a feature that permits or
require 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 early termination) is treated as consistent with
this criterion if the fair value of the prepayment feature is significant
at initial recognition.
Financial liabilities: Classification, subsequent measurement and
gains and losses
Financial liabilities are classified as measured at amortised cost or
FVTPL. A financial liability is classified as at FVTPL if it is classified as
held for trading, or it is a derivative or it is designated as such on
initial recognition. Financial liabilities at FVTPL are measured at fair
value and net gains and losses, including any interest expense, are
recognised in profit or loss. Other financial liabilities are
subsequently measured at amortised cost using the effective
interest method. Interest expense and foreign exchange gains and
losses are recognised in profit or loss. Any gain or loss on
derecognition is also recognised in profit or loss.
iii. Derecognition
Financial assets
The Company derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire, or it transfers
the rights to receive the contractual cash flows in a transaction in
which substantially all of the risks and rewards of ownership of the
financial asset are transferred or in which the Company neither
transfers nor retains substantially all of the risks and rewards of
ownership and does not retain control of the financial asset.
If the Company enters into transactions whereby it transfers assets
recognised on its balance sheet, but retains either all or
substantially all of the risks and rewards of the transferred assets,
the transferred assets are not derecognised.
Financial liabilities
The Company derecognises a financial liability when its contractual
obligations are discharged or cancelled, or expire.
The Company also derecognises a financial liability when its terms
are modified and the cash flows under the modified terms are
substantially different. In this case, a new financial liability based on
the modified terms is recognised at fair value. The difference
between the carrying amount of the financial liability extinguished
and the new financial liability with modified terms is recognised in
profit or loss.
iv. Offsetting
Financial assets and financial liabilities are offset and the net
amount presented in the balance sheet when, and only when, the
Company currently has a legally enforceable right to set off the
amounts and it intends either to settle them on a net basis or to
realise the asset and settle the liability simultaneously.
c) Property, plant and equipment
i. 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 estimate 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 separated
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 the statement of profit and loss.
ii. Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the
future economic benefit associated with the expenditure will flow
to the Company.
iii. Depreciation
Depreciation is calculated on cost of items of property, plant and
equipment less their estimated residual values over their estimated
useful lives using the straight line method, and is generally
recognised in the statement of profit and loss. Freehold land is not
depreciated.
Depreciation is provided on pro-rata basis using the straight-line
method over the estimated useful lives of the assets prescribed
under Schedule II to the Companies Act 2013 except for vehicles
and furnitures and fixtures at leasehold premises. The estimated
useful lives of items of property, plant and equipment for the
current and comparative periods are as follows:
Depreciation method, useful lives and residual values are reviewed
at each financial year-end and adjusted if appropriate. Based on
technical evaluation and consequent advice, the management
believes that its estimates of useful lives represents the period over
which the management expects to use these assets.
Depreciation on additions (disposals) during the year is provided on
a pro-rata basis i.e. from (upto) the date on which asset is ready for
use (disposed of).
d) Intangible assets
i. Initial recognition:
Intangible assets are initially measured at cost. Such intangible
assets are subsequently measured at cost less accumulated
amortisation and any accumulated impairment loses, if any.
ii. Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the
future economic benefit associated with the expenditure will flow
to Company.
iii. Amortisation
Amortisation is calculated to write off the cost of intangible assets
less their estimated residual value over their estimated useful lives
using straight line method, as is included in depreciation and
amortisation in statement of profit and loss.
The estimated useful lives are as follows:
Amortisation method, useful lives and residual values are reviewed
at the end of each financial year and adjusted if appropriate.
iv. Intangible Assets under Development
Intangible assets under development are initially recognized at cost.
Such intangible assets are subsequently capitalized only if it is
probable that the future economic benefit associated with the
expenditure will flow to the Company.
v. Impairment
The Company irrespective of whether there is any indication of
impairment, tests an intangible asset not yet available for use for
impairment annually by comparing its carrying amount with its
recoverable amount. The recoverable amount is the higher of its
value in use and its fair value less costs of disposal. 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 asset. An impairment loss is recognised if the carrying
amount of the intangible asset not yet available for use exceeds its
estimated recoverable amount. Impairment losses are recognised
in the statement of profit and loss.
e) Inventories
Inventories are measured at the lower of cost and net realisable
value. The cost on inventories is based on weighted average
formula, and includes expenditure incurred in acquiring the
inventories, production or conversion cost and other cost incurred in
bringing them to their present location and condition. In case of
manufactured inventory and work-in-progress, cost includes an
appropriate share of fixed production overheads based on normal
operating capacity.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and
selling expense.
The net realisable value of work-in- progress is determined with
reference to the selling price of related finished products.
Raw materials, components and other supplies held for use in
production of finished products are not written down below cost
except in cases where material price have declined and it is
estimated that the cost of finished products will exceed their net
realizable value.
The comparison of cost and net realizable value is made on an
item-by-item basis.
The Company considers various factors like shelf life, ageing of
inventory, product discontinuation, price changes and any other
factor which impact the Company's business in determining the
allowance for obsolete, non-saleable and slow moving inventories.
The Company considers the above factors and adjusts the inventory
provision to reflect its actual experience on a periodic basis.
f) Impairment
i. Impairment of financial instruments
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 are credit - impaired. A financial
asset is 'credit impaired' when one or more events that have a
detrimental impact on estimated future cash flows of financial
assets have occurred.
Evidence that a financial asset is credit impaired includes the
following observed data:
- significant financial difficulty of the borrower or issuer;
- a breach of contract such as a default or being overdue for a
period of more than 12 months from the credit term offered to
the customer;
- the restructuring of loan or advance by the Company on the
terms that the Company would not consider otherwise;
- it is probable that borrower will enter bankruptcy or the
financial reorganization;
- the disappearance of active market for a security because of
financial difficulties.
In accordance with Ind-AS 109, the Company applies expected
credit loss ("ECL") model for measurement and recognition of
impairment loss. The Company follows 'simplified approach' for
recognition of impairment loss allowance on trade receivables. The
application of simplified approach does not require the Company
to track changes in credit risk. Rather, it recognises impairment loss
allowance based on lifetime ECLs at each reporting date, right from
its initial recognition.
For recognition of impairment loss on other financial assets the
Company recognises 12 month expected credit losses for all
originated or acquired financial assets if at the reporting date, the
credit risk has not increased significantly since its original
recognition. However, if credit risk has increased significantly,
lifetime ECL is used.
ECL impairment loss allowance (or reversal) is recognized in the
statement of profit and loss.
When determining whether the credit risk of financial asset has
increased significantly since initial recognition and when estimating
expected credit losses, the Company considers reasonable and
supportable information that is relevant and available without
undue cost of effort. This includes both quantitate and qualitative
information and analysis based on Company's historical experience
and informed credit assessment and including forward - looking
information.
The Company assumes that the credit risk on financial assets has
increased significantly if it is more than 90 days past due.
The Company considers financial asset to be in default when:
a. The borrower is unlikely to pay its credit obligation to the
Company in full, without recourse by the Company to action such as
realising security (if any is held); or
b. The financial asset is 360 days or more past due.
Measurement of expected credit loss
Expected credit loss are probability weighted estimate of credit
losses. Credit losses are measured as the present value of all cash
shortfalls (i.e. the difference between the cash flows due to the
Company in accordance with the contract and the cash flow that
the Company expects to receive).
Presentation of allowance of expected credit losses in the balance
sheet
Loss allowance for financial assets measured at amortised cost are
deducted from the gross carrying amount of the assets.
Write - off
The Gross carrying amount of financial asset is written off (either
partially of full) to the extent that there is no realistic prospect of
recovery. This is generally the case when Company determines that
the debtor does not have asset or source of income that could
generate sufficient cash flows to repay the amount subject to
write-off. However, financial assets that are written-off could still be
subject to enforcement activities in order to comply with Company's
procedures for recovery of amounts due.
ii. Impairment of non-financial asset
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 cost of disposal. 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).
The Company's corporate assets (e.g. central office building for
providing support to various CGUs) do not generate independent
cash inflows. To determine impairment of corporate asset,
recoverable amount is determined for the CGUs to which the
corporate asset belongs.
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 first to
reduce the carrying amount of any goodwill allocated to the CGU,
and then to reduce the carrying amounts of the other assets of the
CGU (or group of CGUs) on a pro rata basis.
An impairment loss in respect of assets 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. An
impairment loss on goodwill is not subsequently reversed.
g) Employee benefits
i. Short term employee benefits
Short term employee benefit obligations are measured on an
undiscounted basis and are expensed as the related service is
provided. A liability is recognised for the amount expected to be
paid, if the Company has a present legal or constructive obligation
to pay this amount as a result of past service provided by the
employee, and the amount of obligation can be estimated reliably.
ii. Share-based payment transactions
Share-based payment are provided to employees of the Group via
the Company's Employees Stock Option Plan ("Emcure ESOS
2013").
The company accounts for the share-based payment transactions
as equity settled.
The grant date fair value of equity settled share-based payment
awards granted to employees of the Company is recognised as an
employee expense, with a corresponding increase in equity, over
the period that the employees unconditionally become entitled to
the awards. The amount recognised as expense is based on the
estimate of the number of awards for which the related service and
non-market vesting conditions are expected to be met, such that
the amount ultimately recognised as an expense is based on the
number of awards that do meet the related service and non-market
vesting conditions at the vesting date.
The Company also grants the options to the employees of it's
subsidiaries for which subsidiary does not have an obligation to
settle the share based payment transaction. Total expense for such
options issued to employees of subsidiary is recognised as
investment in the nature of employee stock options issued to
employees of subsidiary and corresponding increase in share
options outstanding account.
iii. Defined contribution plan
A defined contribution plan is a post-employment benefit plan
under which an entity pays fixed contributions into a separate entity
and will have no legal or constructive obligation to pay further
amounts. 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 profit or 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.
iv. Defined benefit plan
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 result is a potential asset for the Company, the
recognised asset is limited to the present value of economic benefit
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.
Remeasurement 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 statement of profit and loss.
When the benefits of the plan are changed or when 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 profit or loss. The
Company recognises gain and losses on the settlement of a defined
benefit plan when the settlement occurs.
v. Other long term employee benefit
The Company's liability in respect of other long-term employee
benefits (compensated absences) 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.
Remeasurement gains or losses are recognised in profit or loss in the
period in which they arise.
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