2.3 Summary of Material Accounting Policies
a. CURRENT VS. NON-CURRENT CLASSIFICATION:
The Company segregates assets and liabilities
into current and non-current categories for
presentation in the balance sheet after considering
its normal operating cycle and other criteria set out
in Ind AS 1, "Presentation of Financial Statements”.
For this purpose, current assets and liabilities
include the current portion of non-current assets
and liabilities respectively. Deferred tax assets and
liabilities are always classified as non-current.
The operating cycle is the time between the
acquisition of assets for processing and their
realization in cash and cash equivalents. The
Company has identified period up to twelve
months as its operating cycle.
b. REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from contracts with customers is
recognised when control of the goods 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. 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.
The disclosures of significant accounting
judgements, estimates and assumptions relating
to revenue from contracts with customers are
provided below.
1) Sale of Goods
Revenue from Sale of Goods is recognised at
the point in time when control of the goods
is transferred to the customer, generally on
dispatch/ delivery of the goods or terms as
agreed with the customer. The normal credit
term is 30 to 90 days from the date of dispatch.
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. 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.
(i) 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 goods provide customers with cash
discount in accordance with the company
policy. The cash discount component
gives rise to variable consideration.
Volume Rebates
The Company applies the most likely
amount method or the expected
value method to estimate the variable
consideration in the contract. The selected
method that best predicts the amount of
variable consideration is primarily driven
by the number of volume thresholds
contained in the contract. The most
likely amount is used for those contracts
with a single volume threshold, while the
expected value method is used for those
with more than one volume threshold. The
Company then applies the requirements
on constraining estimates in order
to determine the amount of variable
consideration that can be included in
the transaction price and recognized
as revenue.
(ii) 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 (h)
(Financial Instruments - initial recognition
and subsequent measurement.)
(iii) Contract Liabilities (advance from
customers)
A contract liability is recognized when a
customer pays consideration before the
Company transfers goods to the Customer
or when the payment is due (whichever is
earlier). Contract liabilities are recognised
as revenue when the Company performs
under the contract.
2) Interest Income
For all financial instruments measured at
amortized cost, interest income is recorded
using the effective interest rate (EIR). The EIR
is the rate that exactly discounts the estimated
future cash receipts over the expected life of
the financial instrument or a shorter period,
where appropriate, to the net carrying amount
of the financial asset. When calculating the
effective interest rate, the Company estimates
the expected cash flows by considering all the
contractual terms of the financial instrument
(for example, prepayment,extension, call and
similar options) but does not consider the
expected credit losses. Interest income is
included in Other Income in the Statement of
Profit or Loss.
3) Export Incentives
Export Incentives are recognized as income
when right to receive credit as per the terms
of the scheme is established in respect of the
exports made and when there is no significant
uncertainty regarding the ultimate collection
of the relevant export proceeds.
c. FOREIGN CURRENCIES
The Company’s standalone financial statements
are presented in INR, which is also the Company’s
functional currency.
Transactions and Balances
Transactions in foreign currencies are initially
recorded by the Company at the functional
currency spot rates at the date the transaction first
qualifies for recognition. However, for practical
reasons, the Company uses an average rate if the
average approximates the actual rate at the date
of the transaction.
Monetary assets and liabilities denominated
in foreign currencies are translated at the
functional currency spot rates of exchange at the
reporting date.
Exchange differences arising on settlement or
translation of monetary items are recognized in
Statement of Profit or Loss.
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 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 Statement of Profit or Loss are also recognised
in OCI or Statement of Profit or Loss, respectively).
In determining the spot exchange rate to use on
initial recognition of the related asset, expense
or income (or part of it) on the derecognition of
a non-monetary asset or non-monetary liability
relating to advance consideration, the date of the
transaction is the date on which the Company
initially recognises the non-monetary asset or
non-monetary liability arising from the advance
consideration. If there are multiple payments or
receipts in advance, the Company determines the
transaction date for each payment or receipt of
advance consideration.
d. FAIR VALUE MEASUREMEMT
The Company measures financial instruments,
such as investments (other than equity
investments in Associates) and derivatives at fair
values 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 participants 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 under, 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.
The Company’s management determines the
policies and procedures for both recurring
fair value measurement, such as unquoted
financial assets measured at fair value, and for
non-recurring measurement, such as assets
held for distribution in discontinued operations.
The management comprises of the Managing
Director, Chief Executive Officer (CEO) and Chief
Finance Officer (CFO).
External valuers are involved for valuation of
significant assets. Involvement of external
valuers is decided upon annually by the Board of
Directors after discussion with and approval by the
management. Selection criteria include market
knowledge, reputation, independence and
whether professional standards are maintained.
Valuers are normally rotated every three years.
The management decides, after discussions with
the Company’s external valuers, which valuation
techniques and inputs to use for each case.
At each reporting date, the management 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 management
verifies the major inputs applied in the latest
valuation by agreeing the information in the
valuation computation to contracts and other
relevant documents.
The management, in conjunction with the
Company’s external valuers, 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.
This note summarises accounting policy for fair
value. Other fair value related disclosures are given
in the relevant notes. Refer note 44.
? Disclosures for valuation methods, significant
estimates and assumptions.
? Quantitative disclosures of fair value
measurement hierarchy.
? Investment in Equity Shares.
? Financial Instruments (including those carried
at amortised cost).
e. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment (PPE) and
Capital Work in Progress is stated at cost, net of
accumulated depreciation and accumulated
impairment losses, if any. Such cost includes the
cost of replacing part of the plant and equipment
and borrowing costs for long-term construction
projects if the recognition criteria are met.
Likewise, when a major inspection is performed,
its cost is recognised in the carrying amount
of the plant and equipment as a replacement if
the recognition criteria are satisfied. All other
repair and maintenance costs are recognized in
Statement of profit and loss as incurred.
Capital Work-in-Progress comprises cost of fixed
assets that are not yet installed and ready for their
intended use at the Balance Sheet date.
Items of stores and spares that meet the definition
of Property, Plant and Equipment are capitalised
at cost and depreciated over their useful life.
Otherwise, such items are classified as Inventories.
An item of Property, Plant and Equipment and any
significant part initially recognized is derecognized
upon disposal or when no future economic
benefits are expected from its use or disposal. Any
gain or loss arising on de-recognition of the asset
(calculated as the difference between the net
disposal proceeds and the carrying amount of the
asset) is included in the income statement when
the asset is derecognized.
Depreciation is calculated on a straight-line basis
over the estimated useful lives of the assets as
prescribed under Part C of Schedule II of the
Companies Act 2013 except for assets where
management believes and based on independent
technical evaluation, assets estimated useful lives
are realistic and reflect fair approximation of the
period over which the assets are likely to be used.
Leasehold land is amortized over the lease period
on a straight line basis.
The residual values are not more than 5% of the
original cost of the item of Property, Plant and
Equipment. 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.
The Depreciation rates charges over following
estimated lives:
f. INTANGIBLE ASSETS
Intangible Assets acquired separately are
measured on initial recognition at cost. Following
initial recognition, intangible assets are carried
at cost less any accumulated amortization and
accumulated impairment losses, if any. Cost
include acquisition and other incidental cost
related to acquiring the intangible asset. Research
costs are expensed as incurred. Intangible
development costs are capitalised as and when
technical and commercial feasibility of the asset is
demonstrated and approved by authorities, future
economic benefits are probable.
The useful lives of Intangible Assets are assessed
as either finite or indefinite.
Intangible Assets with finite lives are amortised
over the useful economic life and assessed for
impairment whenever there is an indication
that the intangible asset may be impaired. The
amortisation period and the amortisation method
for an intangible asset with a finite useful life are
reviewed at least at the end of each reporting
period. Changes in the expected useful life or
the expected pattern of consumption of future
economic benefits embodied in the asset are
considered to modify the amortisation period
or method, as appropriate, and are treated
as changes in accounting estimates. The
amortisation expense on intangible assets with
finite lives is recognised in the Statement of Profit
and loss unless such expenditure forms part of
carrying value of another asset.
Gains or losses arising from de-recognition of an
intangible asset are measured as the difference
between the net disposal proceeds and the
carrying amount of the asset and are recognised
in the Statement of Profit and Loss when the asset
is derecognised.
g. IMPAIRMENT OF NON- FINANCIAL ASSETS
The Company assesses, at each reporting date,
whether there is an indication that an asset may
be impaired. If any indication exists, or when
annual impairment testing for an asset is required,
the Company estimates the asset’s recoverable
amount. An asset’s recoverable amount is the
higher of an asset’s or Cash-Generating Unit’s
(CGU) fair value less costs of disposal and its
value in use. Recoverable amount is determined
for an individual asset, unless the asset does
not generate cash inflows that are largely
independent of those from other assets or groups
of assets. When the carrying amount of an asset
or CGU exceeds its recoverable amount, the asset
is considered impaired and is written down to its
recoverable amount.
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. These calculations are
corroborated by valuation multiples, quoted share
prices for publicly traded companies or other
available fair value indicators.
The Company basis its impairment calculation on
detailed budgets and forecast calculations, which
are prepared separately for each of the Company’s
CGUs to which the individual assets are allocated.
These budgets and forecast calculations generally
cover a period of five years. For longer periods, a
long-term growth rate is calculated and applied
to project future cash flows after the fifth year. To
estimate cash flow projections beyond periods
covered by the most recent budgets/forecasts, the
Company extrapolates cash flow projections in the
budget using a steady or declining growth rate for
subsequent years, unless an increasing rate can
be justified. In any case, this growth rate does not
exceed the long-term average growth rate for the
products, industries, or country or countries in
which the Company operates, or for the market in
which the asset is used.
Impairment losses of continuing operations,
including impairment on inventories, are
recognised in the statement of Profit and Loss,
except for properties previously revalued with the
revaluation surplus taken to Other Comprehensive
Income (OCI). For such properties, the impairment
is recognised in OCI up to the amount of any
previous revaluation surplus.
h. FINANCIAL INSTRUMENT
A Financial Instrument is any contract that gives
rise to a Financial Asset of one Entity and a Financial
Liability or Equity instrument of another Entity.
(A) Financial Asset
Initial Recognition and Measurement
Financial assets are classified, at initial
recognition, as subsequently measured at
amortised cost, fair value through other
comprehensive income (FVTOCI), and Fair
Value Through Profit or Loss(FVTPL).
All financial assets are recognised initially at
fair value plus, in the case of financial assets
not recorded at fair value through profit or loss,
transaction costs that are attributable to the
acquisition of the financial asset. Purchases or
sales of financial assets that require delivery
of assets within a time frame established
by regulation or convention in the market
place (regular way trades) are recognised on
the trade date, i.e., the date that the Group
commits to purchase or sell the asset. Trade
receivables that do not contain a significant
financing component are measured at the
transaction price determined under Ind AS 115.
Subsequent Classification and measurement
For purposes of subsequent measurement,
financial assets are classified in four categories:
a) Debt instruments at amortised cost
b) Debt instruments at fair value through
other comprehensive income (FVTOCI)
c) Debt instruments, derivatives and equity
instruments at fair value through profit or
loss (FVTPL)
d) Equity instruments measured at fair value
through other comprehensive income
(FVTOCI)
Debt Instruments at Amortised Cost
A ‘debt instrument’ is measured at its
amortised cost if both the following conditions
are met:
a) The asset is held within a business model
whose objective is to hold assets for
collecting contractual cash flows, and
b) Contractual terms of the asset give rise on
specified dates to cash flows that are solely
payments of principal and interest (SPPI)
on the principal amount outstanding.
After initial measurement, such financial assets
are subsequently measured at amortised
cost using the Effective Interest Rate (EIR)
method. Amortised cost is calculated by
taking into account any discount or premium
on acquisition and fees or costs that are an
integral part of the EIR. The EIR amortisation
is included in other income in the Statement
of Profit and Loss such as interest income on
Bank deposits and other interest income. The
losses arising from impairment are recognised
in the Statement of Profit and Loss.
Debt instrument at Fair Value through Other
Comprehensive Income (FVTOCI)
A ‘debt instrument’ is classified at FVTOCI if
both of the following criteria are met:
a) The objective of the business model is
achieved both by collecting contractual
cash flows and selling the financial
assets, and
b) The asset’s contractual cash flows
represent SPPI.
Debt instruments included within the FVTOCI
category are measured initially as well as at
each reporting date at fair value. Fair value
movements are recognized in the other
comprehensive income (OCI). However,
the Company recognizes interest income,
impairment losses & reversals and foreign
exchange gain or loss in the Profit and Loss.
On derecognition of the asset, cumulative
gain or loss previously recognised in OCI is
reclassified from the Equity to Profit and Loss.
Interest earned whilst holding FVTOCI debt
instrument is reported as interest income
using the EIR method.
Debt Instrument at Fair Value through Profit
& Loss (FVTPL)
FVTPL is a residual category for debt
instruments. Any debt instrument, which
does not meet the criteria for categorization
as at amortized cost or as FVTOCI, is classified
as FVTPL.
In addition, the Company may elect to
designate a debt instrument, which otherwise
meets amortized cost or FVTOCI criteria, as
at FVTPL. However, such election is allowed
only if doing so reduces or eliminates a
measurement or recognition inconsistency
(referred to as ‘accounting mismatch’).
The Company has designated certain debt
instrument as at FVTPL.
Debt instruments included within the FVTPL
category are measured at fair value with all
changes recognized in the Statement of Profit
and Loss.
Equity Investments
Investment in Associates is out of scope of Ind
AS 109 and hence, the Company has accounted
for its investment in Associates at cost.
All other Equity investments in scope of Ind
AS 109 are measured at fair value. Equity
instruments which are held for trading are
classified as at FVTOCI. For all other Equity
instruments, the Company may make an
irrevocable election to present in Other
Comprehensive Income subsequent changes
in the fair value. The Company makes such
election on an instrument-by instrument
basis. The classification is made on initial
recognition and is irrevocable.
If the Company decides to classify an Equity
instrument as at FVTOCI, then all fair value
changes on the instrument, excluding
dividends, are recognized in the OCI. There
is no recycling of the amounts from OCI
to Statement of Profit and Loss, even on
sale of investment. However, the Company
may transfer the cumulative gain or loss
within Equity.
Equity instruments included within the FVTPL
category are measured at fair value with all
changes recognized in the Statement of Profit
and Loss.
De-recognition
A financial asset (or, where applicable, a part of
a financial asset or part of a Company of similar
financial assets) is primarily derecognised
(i.e. removed from the Company’s Balance
Sheet) when
a) The rights to receive cash flows from the
asset have expired, or
b) The Company has transferred its rights to
receive cash flows from the asset or has
assumed an obligation to pay the received
cash flows in full without material delay
to a third party under a ‘pass-through’
arrangement; and either
i) the Company has transferred
substantially all the risks and rewards
of the asset, or
ii) the Company has neither transferred
nor retained substantially all the risks
and rewards of the asset, but has
transferred control of the asset.
When the Company has transferred its rights to
receive cash flows from an asset or has entered
into a pass-through arrangement, it evaluates
if and to what extent it has retained the risks
and rewards of ownership. When it has neither
transferred nor retained substantially all of the
risks and rewards of the asset, nor transferred
control of the asset, the company continues to
recognise the transferred asset to the extent
of the Company’s continuing involvement.
In that case, the company also recognises an
associated liability. The transferred asset and
the associated liability are measured on a
basis that reflects the rights and obligations
that the Company has retained.
Continuing involvement that takes the form
of a guarantee over the transferred asset is
measured at the lower of the original carrying
amount of the asset and the maximum
amount of consideration that the Company
could be required to repay.
Impairment of Financial Assets
In accordance with Ind AS 109, the Company
applies Expected Credit Loss (ECL) model for
measurement and recognition of impairment
loss on the following financial assets and
credit risk exposure:
a) Financial assets that are debt instruments,
and are measured at amortised cost e.g.,
loans, debt securities, deposits, trade
receivables and bank balance
b) Trade receivables or any contractual right
to receive cash or another financial asset
that result from transactions that are
within the scope of Ind AS 18 (referred to
as ‘Contractual Revenue Receivables’ in
these Financial Statements)
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 recognizes impairment
loss allowance based on lifetime ECLs at each
reporting date, right from its initial recognition.
(B) Financial Liabilities
Initial Recognition and Measurement
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss, Loans and Borrowings,
Payables, as appropriate.
All financial liabilities are recognised initially
at fair value and, in the case of Loans and
Borrowings and Payables, net of directly
attributable transaction costs.
The Company’s financial liabilities
include Trade and Other Payables, Loans
and Borrowings.
Subsequent measurement of Financial
Liabilities
The measurement of financial liabilities
depends on their classification, as described
below:
Financial Liabilities at Fair Value through
Profit or Loss (FVTPL)
Financial liabilities at fair value through profit
or loss include financial liabilities held for
trading and financial liabilities designated
upon initial recognition as at fair value through
profit or loss. Financial liabilities are classified
as held for trading if they are incurred for the
purpose of repurchasing in the near term. This
category also includes derivative financial
instruments entered into by the Company that
are not designated as hedging instruments in
hedge relationships as defined by Ind AS 109.
Gains or losses on liabilities held for trading
are recognised in the Statement of Profit
and Loss.
Financial liabilities at amortised cost - Loan
and Borrowings
After initial recognition, interest-bearing loans
and borrowings are subsequently measured
at amortised cost using the Effective Interest
Rate (EIR) method. Gains and losses are
recognised in profit or loss when the liabilities
are derecognised as well as through the
EIR amortisation process. Amortised cost is
calculated by taking into account any discount
or premium on acquisition and fees or costs
that are an integral part of the EIR. The EIR
amortisation is included as finance costs in
the Statement of Profit and Loss.
Trade and Other Payables
These amounts represent liability for good
and services provided to the Company
prior to the end of financial year which are
unpaid. The amounts are unsecured and are
usually paid within 60 days of recognition.
Trade and Other Payables are presented as
current liabilities unless payment is not due
within 12 months after the reporting period.
They are recognised initially at fair value and
subsequently measured at amortised cost
using the effective interest method.
Derivatives and Hedging Activities
The Company uses derivative financial
instruments, such as forward currency
contracts andcurrency swaps to hedge
its foreign currency risks and interest rate
risks respectively. Such derivative financial
instruments are initially recognised at fair
value on the date on which a derivative
contract is entered into and aresubsequently
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.
De-recognition
A financial liability is derecognised when the
obligation under the liability is discharged
or cancelled or expires. When an existing
financial liability is replaced by another from
the same lender on substantially different
terms, or the terms of an existing liability are
substantially modified, such an exchange or
modification is treated as the derecognition
of the original liability and the recognition of
a new liability. The difference in the respective
carrying amounts is recognised in the
Statement of Profit and Loss.
Off-setting Financial Instrument
Financial assets and liabilities are offset and the
net amount is reported in the Balance Sheet
where there is a legally enforceable right to
offset the recognised amounts and there is an
intention to settle on a net basis or realise the
asset and settle the liability simultaneously.
i. INVENTORIES
Inventories are valued at the lower of cost and net
realisable value.
Stores and Spares, Packing Materials and Raw
Materials are valued at lower of cost or net realisable
value and for this purpose cost is determined on
moving weighted average basis. Cost includes
cost of purchase and other costs incurred in
bringing the inventories to their present location
and condition. However, the aforesaid items are
not valued below cost if the finished products in
which they are to be incorporated are expected to
be sold at or above cost.
Finished goods: 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 moving weighted
average basis.
Work in progress are valued at lower of cost or
net realisable value and for this purpose, cost
is determined on standard cost basis which
approximates the actual cost. Variances, exclusive
of abnormally low volume and operating
performance, are adjusted to inventory.
Net realisable value is the estimated selling price
in the ordinary course of business, less estimated
costs of completionand the estimated costs
necessary to make the sale.
j. BORROWING COSTS
Borrowing costs directly attributable to the
acquisition, construction or production of an
asset that necessarily takes a substantial period
of time to get ready for its intended use or sale
are capitalised as part of the cost of the asset.
All other borrowing costs are expensed in the
period in which they occur. Borrowing costs
consist of interest and other costs that an entity
incurs in connection with the borrowing of funds.
Borrowing cost also includes exchange differences
to the extent regarded as an adjustment to the
borrowing costs.
k. RETIREMENT AND OTHER EMPLOYEE BENEFITS
Provident Fund is a defined contribution scheme
established under a State Plan. The contributions
to the scheme are charged to the Statement
of Profit and Loss in the year when employee
rendered related services.
The Company has a defined benefit Gratuity
Plan. Every employee who has completed five
years or more of service gets a gratuity on post¬
employment at 15 days salary (last drawn salary)
for each completed year of service as per the
rules of the Company. The aforesaid liability is
provided for on the basis of an actuarial valuation
on projected unit credit method made at the end
of the financial year. The Scheme is funded with
an Insurance Company in the form of a qualifying
insurance policy.
The Company has other employee benefits in the
nature of leave encashment. The liability in respect
of leave encashment is provided for on the basis
of an actuarial valuation on projected unit credit
method made at the end of the financial year.
Re-measurements, comprising of actuarial gains
and losses, the effect of asset ceiling, excluding
amounts included in the net interest on the
net defined benefit liability and the return on
plan assets (excluding amounts included in net
interest on the net defined benefit liability), are
recognised immediately in the balance sheet
with a corresponding debit or credit to retained
earnings through OCI in the period in which they
occur. Re-measurements are not reclassified to
profit or loss in subsequent periods.
Net interest is calculated by applying the discount
rate to the net defined benefit liability or asset.
The Company recognises the following changes in
the net defined benefit obligation as an expense
in the Statement of Profit and Loss:
? Service costs comprising of current service
costs, past-service costs, gains and losses on
curtailments and non-routine settlements; and
? Net interest expense or income
Liabilities for wages, salaries, including non¬
monetary benefits that are expected to be settled
wholly within 12 months after the end of the
period in which the employees render the related
services are recognised in respect of employees’
services up to the end of the reporting period and
are measured at the amounts expected to be paid
when the liabilities are to be settled. The liabilities
are presented as current employee benefit
obligations in the Balance Sheet.
I. Other long-term employee benefits
Compensated absences are provided for on
the basis of an actuarial valuation, using the
projected unit credit method, as at the date
of the balance sheet. Actuarial gains / losses,
if any, are immediately recognised in the
statement of profit and loss. Compensated
absences, which are expected to be settled
wholly within 12 months after the end of the
period in which the employees render the
related service, are treated as short term
employee benefits. The Company measures
the expected cost of such absences as the
additional amount that it expects to pay as
a result of the unused entitlement that has
accumulated at the reporting date.
Accumulated compensated absences which
are not expected to be settled wholly within
12 months after the end of the period in which
the employees render the related service are
treated as other long term employee benefits
for measurement purposes.
II. Presentation and disclosure
For the purpose of presentation of defined
benefit plans, the allocation between the
short term and long-term provisions have
been made as determined by an actuary.
Obligations under other long-term benefits
are classified as short-term provision, if the
Company does not have an unconditional
right to defer the settlement of the obligation
beyond 12 months from the reporting date. The
Company presents the entire compensated
absences as short-term provisions since
employee has an unconditional right to avail
the leave at any time during the year.
l. TAXES
Tax expenses comprises current tax expense and
deferred tax expense
Current Income Taxes
Current income tax assets and liabilities are
measured at the amount expected to be recovered
from or paid to the taxation authorities in
accordance with the Income-tax Act, 1961. The tax
rates and tax laws used to compute the amount
are those that are enacted or substantively
enacted, at the reporting date in the countries
where the Company operates and generates
taxable income..
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
considers whether it is probable that a taxation
authority will accept an uncertain tax treatment.
The Company reflects the effect of uncertainty
for each uncertain tax treatment by using either
most likely method or expected value method,
depending on which method predicts better
resolution of the treatment..
Deferred Taxes
Deferred tax is provided using the balance sheet
approach on temporary differences between the
tax base 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:
- In respect of taxable temporary differences
associated with investments in Associates,
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, associates,
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 utilized.
The carrying amount of Deferred Tax Asset is
reviewed at each reporting date and reduced
to the extent that it is no longer probable that
sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are re-assessed
at each reporting date and are recognised to the
extent that it has become probable that future
taxable profits will allow the deferred tax asset to
be recovered.
Deferred Tax Assets and Liabilities are measured
at the tax rates that are expected to apply in the
year when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted at the
reporting date.
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
OCI or directly in Equity.
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.
Minimum Alternate Tax (MAT)
Minimum alternate tax (MAT) paid in a year is
charged to the statement of profit and loss as
current tax for the year. The deferred tax asset
is recognised for MAT credit only to the extent
that it is probable that the Company will be able
to set off against the normal income tax during
the specified period, i.e., the period for which
MAT credit is allowed to be carried forward. In the
year in which the Company recognize MAT credit
as an asset, it is created by way of credit to the
statement of profit and loss and shown as part of
deferred tax asset. The company review the "MAT
credit entitlement” asset at each reporting date
and writes down the asset to the extent that it
is no longer probable that it will pay normal tax
during the specified period.
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