3. Summary of Significant accounting policies
(a) Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires Management to make estimates and assumptions that affect the
reported balances of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the results of operations during the reporting
period. Although these estimates are based upon management’s best knowledge of
current events and actions, actual results could differ from these estimates. Any revision
to accounting estimates is recognised in current and future periods.
(b) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and
impairment losses, if any. Cost comprises purchase price and any direcdy attributable
cost for bringing the asset to its intended use. Any trade discounts and rebates are
deducted in arriving at the purchase price. Expenditure an account of restoration/
modification/ alteration in plant and machinery, which increases the future benefit from
the existing asset beyond its previously assessed standard of performance/ estimated
useful life is capitalised. Insurance spares/ stand by equipment’s is capitalised as part of
respective principal assets.
(c) Intangible assets
Intangible assets are stated at cost less amortisation less impairment, if any. Cost
comprises the purchase price and other directly attributable costs
(d) Depreciation and Amortization
Depreciation on fixed assets is provided on the written down value method, computed
on the basis of useful life prescribed in Schedule II to the Companies Act, 2013, on a
pro-rata basis from the date the asset is ready to put to use subject to transitional
provisions of Schedule II.
Useful life as per Schedule II
Plant & Machinery 15 Years
Vehicles 8 Years
Computers 3 Years
Factory Building 60 Years
Furniture & Fixtures 10 Years
Office Equipment 5 Years
(e) Impairment of property, plant and equipment and intangible assets
The carrying amounts of assets are reviewed at each balance sheet date if there is any
indication of impairment based on internal/extemal factors. An impairment loss is
recognized wherever the carrying amount of an asset exceeds its recoverable amount.
The recoverable amount is the greater of the asset's net selling price and value in use. In
assessing value in use, the estimated future cash flows are disconnected to their present
value using a pre-tax discount rate that reflects current market assessments of the time
value of money and risks specified to the asset.
After impairment, depreciation is provided on the revised carrying amount of the asset
over its remaining useful life.
(f) Leases
Leases where the lesser effectively retain substantially all the risks and benefits of
ownership of the leased term are classified as operating leases. Operating lease payments
(h) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will
flow to the Company and the revenue can be reliably measured. 'The following specific
recognition criteria must also be met before revenue is recognized:
(i) Sale of goods: Revenue from the sale of goods is recognized when all the significant
risks and rewards of ownership of the goods have been passed to the buyer, usually on
delivery of the goods. The Company collects GST on behalf of the government and,
therefore, these are not economic benefits flowing to the Company. Hence, they are
excluded from revenue.
(ii) Interest Income: Interest income is recognized on a time proportion basis taking into
account the amount outstanding and the applicable interest rate. Interest income is
included under the head "other income" in the statement of profit and loss.
(iii) Export benefits/incentive: Export entitiements under duty drawback scheme is
recognized in the statement of profit and loss when the right to receive credit as per the
terms of the scheme is established in respect of the exports made.
(i) Foreign currency transactions
(i) Initial recognition
Foreign currency transactions are recorded in the reporting currency, by applying to the
foreign currency amount the exchange rate between the reporting currency and the
foreign currency at the date of the transaction.
(ii) Conversion
Foreign currency monetary items are reposted using the closing rate. Non-monetary
items which are carried in terms of historical cost denominated in a foreign currency are
reported using the exchange rate at the data of the transaction; and non-monetary items
which are carried at fair value or other similar valuation denominated in a foreign
currency are reported using the exchange rates that existed when the values were
determined.
(iii) Exchange differences
Exchange differences arising on the setdement of monetary items or on reporting
Company's monetary items at rites different from those at which they were initially
recorded during the year or reported is previous financial statements, are recognised as
income or as expenses in the year in which they arise.
(j) Retirement and other employee benefits
(i) The company contributes provident hand into employee provident fund scheme
managed by regional provident fund commissioner, the contributions are charged to the
Statement Profit and Loss. There are no other obligations other than the contribution
payable.
(ii) Gratuity liability is defined benefit obligations and is provided for on the basis of an
actuarial valuation on projected unit credit method made at the end of each financial
year. The Company presents its leave and gratuity liability as current and non-current
based on reports of actuarial valuation.
(iii) Accumulated leave, which is expected to be utilised within the next 12 months, is
treated as short-term employee benefit. The Company measures the expected cost of
such absences us the additional amount that it expects to pay as a result of the unused
entitlement that has accumulated at the reporting date. The Company treats accumulated
leave expected to be carried forward beyond twelve months, as long-term employee
benefit for measurement purposes. Such long-term compensated absences are provided
for based on the actuarial valuation using the projected unit credit method at the year
end.
(iv) Actuarial gains/losses are immediately taken to Statement of Profit and Loss and are
not deferred.
(k) Taxation
Tax expense comprises of current and deferred tax. Current income tax is measured at
the amount expected to be paid to the tax authorities in accordance with the Income tax
Act, 1961 enacted in India. Deferred income taxes reflect the impact of the current year
timing differences between taxable income and accounting income for the year and
reversal of timing differences of earlier years.
Deferred tax is measured based on the tax rates and the tax laws enacted or substantively
enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are
offset, if a legally enforceable right exists to set off current tax assets against current tax
liabilities and the deferred tax assets and deferred tax liabilities relate is the taxes on
income levied by same governing taxation laws. Deferred Tax assets are recognised only
to the extent that there is reasonable certainty that sufficient future taxable income will
be available against which such deferred tax assets can be realized. In situations where
the Company has unabsorbed depreciation or carry forward tax losses, deferred tax
assets are recognised only if there is virtual certainty supported by convincing evidence
that they can be realized against future taxable profits.
At each balance sheet date, the Company reassesses unrecognized deferred tax assets. It
recognizes unrecognized deferred tax assets to the extent that it has become reasonably
certain or virtually certain, as the case may be that sufficient future taxable income will be
available against which such deferred tax assets can be realized.
The carrying amount of deferred tax assets are reviewed at each balance sheet date. The
Company writes down the carrying amount of a deferred tax assets to the extent it is no
longer reasonably certain or virtually certain, as the case may be, that sufficient future
taxable income will be available against which deferred tax asset can be realised. Any
such written down is reversed to the extent that it becomes reasonably certain, as the
case may be, that sufficient future taxable income will not be available.
(l) Earning per share
Basic earnings per share are calculated by dividing the net profit or loss for the period
attributable to equity shareholders by the weighted average number of equities shares
outstanding during the period. For the purpose of calculating diluted earnings per share,
the net profit or loss for the period attributable to equity shareholders and the weighted
average number of shares outstanding during the period are adjusted for the effects of all
dilutive potential equity shares.
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