4. Summary of material accounting policies
The financial statements have been prepared using the material accounting policies and measurement basis summarised
below. These were used throughout all periods presented in the financial statements.
4.1 Current versus non-current classification
All assets and liabilities are classified into current and non-current.
Assets
An asset is classified as current when it satisfies any of the following criteria:
• it is expected to be realised in, or is intended for sale or consumption in, the Company's normal operating cycle;
• it is held primarily for the purpose of being traded;
• it is expected to be realised within 12 months after the reporting date; or
• it is cash or cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12
months after the reporting period.
Current assets include the current portion of non-current financial assets. All other assets are classified as non-current
Liabilities
A liability is classified as current when it satisfies any of the following criteria:
• it is expected to be settled in the Company's normal operating cycle;
• stit is held primarily for the purpose of being traded;
• it is due to be settled within 12 months after the reporting period; or
• The Company does not have an unconditional right to defer settlement of the liability for at least 12 months after
the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the
issue of equity instruments do not affect its classification.
Current liabilities include the current portion of non current financial liabilities. All other liabilities are classified as
non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
Operating cycle
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash or cash
equivalents. Based on the nature of operations and the time between the acquisition of assets for processing and their
realisation in cash and cash equivalents, the company has ascertained its operating cycle being a period of 12 months
for the purpose of classification of assets and liabilities as current and non- current.
4.2 Property, plant and equipment (PPE) and capital work in progress
Recognition and initial measurement
Property plant and equipment, capital work in progress are stated at their cost of acquisition. The cost comprises
purchase price and directly attributable cost of bringing the asset to its working condition for the intended use and
initial estimate of decommissioning, restoring and similar liabilities. Any trade discount and rebates are deducted in
arriving at the purchase price.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the Company and the cost of
the item can be measured reliably. All other repair and maintenance costs are recognised in statement of profit and
loss as incurred.
Items of stores and spares that meet the definition of property, plant and equipment are capitalized at cost and
depreciated over their useful life. Otherwise, such items are classified as inventories
Subsequent measurement (depreciation and useful lives)
Depreciation on property, plant and equipment is calculated on a straight-line basis using the rates arrived at, based
on the useful life estimated by the management. The identified components are depreciated separately over their
respective useful life; the remaining components are depreciated over the life of the principal asset. The Company has
used the following useful lives to provide depreciation on its property, plant and equipment.
Depreciation on the amount of additions made to fixed assets due to upgradations / improvements is provided over
the remaining useful life of the asset to which it relates. Depreciation on fixed assets added/disposed off during the
year is provided on a pro-rata basis to the date, the asset is retired from active use.
The residual values, useful lives and method of depreciation are reviewed at the end of each financial year.
*For these class of assets, based on detailed technical assessment, the management believes that the useful life as
given above best represents the period over which management expects to use these assets. Hence, the useful life for
these assets is different from the useful life as prescribed under Part C of Schedule II of the Companies Act, 2013.
An item of property, plant and equipment and any significant component initially recognised is derecognised 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/significant component (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset/significant component) is recognised in statement of profit and loss, when the
asset is derecognised.
4.3 Intangible assets
Recognition and initial measurement
Intangible assets (softwares and patents) are stated at their cost of acquisition. The cost comprises purchase price,
borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to its working
condition for the intended use. Any trade discount and rebates are deducted in arriving at the purchase price.
Subsequent measurement (amortisation)
Software's are amortized on a straight-line basis over its useful life, which is considered to be of a period of three
years.
The residual values, useful lives and method of depreciation are reviewed at the end of each financial year.
The amortisation expense on intangible assets with finite life is recognised in the statement of profit and loss under
the head Depreciation and amortisation expense.
De-recognition
An intangible asset is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future
economic benefits are expected from its use or disposal.
4.4 Inventories
Inventories are valued as follows:
Raw materials, components and stores and spares
Raw materials, components, stores and spares are valued at lower of cost and net realizable value. However,
materials and other items held for use in the production of inventories are not written down below cost if the finished
products in which they will be incorporated are expected to be sold at or above cost. Cost of raw materials,
components and stores and spares is determined on a moving weighted average basis. Stores and spares which do
not meet the definition of property, plant and equipment are accounted as inventories.
Work-in-progress and finished goods
Work-in-progress and finished goods is measured at lower of cost and net realizable value. Cost includes direct
materials and labour and a proportion of manufacturing overheads based on normal operating capacity. Cost is
determined on moving weighted average basis.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of
completion and estimated costs necessary to make the sale.
Provision for obsolescence and slow moving inventory is made based on management's best estimates of net
realisable value of such inventories.
4.5 Revenue recognition
4.5.1: Revenue from contracts with customers
Revenue arises mainly from the sale of manufactured goods. To determine whether to recognise revenue, the
Company follows a 5-step process:
1) Identifying the contract with a customer
2) Identifying the performance obligations
3) Determining the transaction price
4) Allocating the transaction price to the performance obligations
5) Recognising revenue when/as performance obligation(s) are satisfied.
Revenue is measured at transaction price (net of variable consideration), which is the consideration, net of any trade
discounts, volume rebates and any taxes or duties collected on behalf of the government which are levied on sales
such as goods and services tax (GST). In case of multi-element revenue arrangements, which involve delivery or
performance of multiple products, services, evaluation will be done of all deliverables in an arrangement to determine
whether they represent separate units of accounting at the inception of arrangement. Total arrangement
consideration related to the bundled contract is allocated among the different elements based on their relative fair
values (i.e., ratio of the fair value of each element to the aggregated fair value of the bundled deliverables). In case the
relative fair value of different components cannot be determined on a reasonable basis, the total consideration is
allocated to the different components based on residual value method. The Company applies the revenue recognition
criteria to each separately identifiable component of the revenue transaction as set out below.
Advance from customers (“contract liability”) is recognised when the Company has received consideration from the
customer before it delivers the goods.
Sale of goods
Revenue from sale of goods is recognized when control over ownership of the goods have been passed to the buyer.
The performance obligations in our contracts are fulfilled at the time of dispatch, delivery or upon formal customer
acceptance depending on customer terms. 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.
Export benefits
Export benefits constituting duty draw back, merchandise export from India scheme and advance license scheme are
accounted for on accrual basis when there is reasonable assurance that the Company will comply with the conditions
attached to them and the export benefits will be received. Export benefits under duty draw back and merchandise
export from India scheme are considered as other operating income.
4.5.2:Other income
Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant
will be received and the Company will comply with all attached conditions. Government grants relating to the
purchase of property, plant and equipment are recognised as deferred income and are credited to statement of profit
and loss based on the conditions for which the grant was obtained and presented within other income.
Interest
Interest income is recorded on accrual basis using the effective interest rate (EIR) method.
Insurance claims income
Claims receivable on account of insurance are accounted for to the extent the Company is reasonably certain of their
ultimate collection.
4.6 Leases
The Company as a lessee
The Company's leased assets primarily consists of lease for land and building, including warehouses and related
facilities. The Company assesses whether a contract contains a lease, at inception of a contract. A contract is, or
contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset,
the Company assesses whether: (i) the contract involves the use of an identified asset (ii) the Company has
substantially all of the economic benefits from use of the asset through the period of the lease and (iii) the Company
has the right to direct the use of the asset.
At the date of commencement of the lease, the Company recognises a right-of-use asset (“ROU”) and a corresponding
lease liability for all lease arrangements in which it is a lessee, except for leases with a term of twelve months or less
(short-term leases) and low value leases. For these short-term and low value leases, the Company recognizes the
lease payments as an operating expense on a straight-line basis over the term of the lease.
Certain lease arrangements include the options to extend or terminate the lease before the end of the lease term.
ROU assets and lease liabilities includes these options when it is reasonably certain that they will be exercised.
The right-of-use assets are initially recognized at cost, which comprises the initial amount of the lease liability
adjusted for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs
Less any Lease incentives. They are subsequently measured at cost less accumulated depreciation and impairment
losses.
Right-of-use assets are depreciated from the commencement date on a straight-line basis over the shorter of the
lease term and useful life of the underlying asset.
The lease liability is initially measured at amortized cost at the present value of the future lease payments. The lease
payments are discounted using the interest rate implicit in the lease or, if not readily determinable, using the
incremental borrowing rates in the country of domicile of these leases. Lease payments included in the measurement
of the lease liability are made up of fixed payments (including in substance fixed payments) and variable payments
based on an index or rate. Subsequent to initial measurement, the liability will be reduced for payments made and
increased for interest. Lease liabilities are remeasured with a corresponding adjustment to the related right of use
asset if the Company changes its assessment if whether it will exercise an extension or a termination option.
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are
classified as operating leases. Operating lease payments are recognized as an expense in the statement of profit and
loss on a straight-line basis except where scheduled increase in rent compensate the lessor for expected inflationary
costs.
4.7 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) net
selling price and its value in use. The 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. Where 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 post-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset. While the Standard requires the estimation of the discount rate on a pre-tax basis, in
theory the discounting post-tax cash flows on post-tax discount rate and discounting pre-tax cash flows on pre-tax
discount rates should yield the same results. In determining net selling price, recent market transactions are taken into
account, if available. If no such transactions can be identified, an appropriate valuation model is used.
The Company bases its impairment calculation on detailed budgets and forecast calculations which are prepared
separately for each of the Company's cash-generating units to which the individual assets are allocated. These
budgets and forecast calculations are generally covering 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. Impairment losses are recognized in the
statement of profit and loss.
An assessment is made at each reporting date as to whether there is any indication that previously recognized
impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates the
asset's or cash-generating unit's recoverable amount. A previously recognized impairment loss is reversed only if
there has been a change in the assumptions used to determine the asset's recoverabLe amount since the Last
impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its
recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no
impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit and
Loss.
4.8 Foreign currency
Functional and presentation currency
The financial statements are presented in Indian Rupee (‘^') which is also the functional and presentation currency of
the Company.
Initial recognition
Foreign currency transactions are recorded in the functional currency, by applying to the exchange rate between the
functional currency and the foreign currency at the date of the transaction.
Conversion
Foreign currency monetary items are converted to functional currency using the closing rate. Non-monetary items
denominated in a foreign currency which are carried at historical cost are reported using the exchange rate at the date
of the transaction.
Exchange difference
Exchange differences arising on monetary items on settlement, or restatement as at reporting date, at rates different
from those at which they were initially recorded, are recognized in the statement of profit and loss in the year in which
they arise.
4.9 Financial instruments
Initial recognition and measurement
Trade receivables are initially recognised when they are originated. All other financial assets and financial liabilities
are recognised when the Company becomes a party to the contractual provisions of the financial instrument. Financial
assets (except for trade receivables) and financial liabilities are measured initially at fair value adjusted for transaction
costs, except for those carried at fair value through profit or loss which are measured initially at fair value. Trade
receivables are initially measured at the transaction price. Subsequent measurement of financial assets and financial
liabilities is described below.
Non-derivative financial assets
i. Financial assets carried at amortised cost - A ‘financial asset' is measured at the amortised cost if both the
following conditions are met:
• The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows,
and
• 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.
ii. Investments in equity instruments of subsidiary- Investments in equity instruments of subsidiary are accounted
for at cost in accordance with Ind AS 27 Separate Financial Statements. Where an indication of impairment exists,
the carrying amount of the investment is assessed and written down immediately to its recoverable amount. On
disposal of investments in subsidiaries, the difference between net disposal proceeds and carrying amounts are
recognised in the Statement of Profit and Loss.
iii. Investments in equity instruments of joint venture - Investments in equity instruments of joint venture are
accounted for at cost in accordance with Ind AS 27 Separate Financial Statements. Where an indication of
impairment exists, the carrying amount of the investment is assessed and written down immediately to its
recoverable amount. On disposal of investments in joint venture, the difference between net disposal proceeds
and carrying amounts are recognised in the Statement of Profit and Loss.
iv. Investments in other equity instruments - Investments in equity instruments which are held for trading are
classified s at fair value through profit or loss (FVTPL). For all other equity instruments, the Company makes an
irrevocable choice upon initial recognition, on an instrument by instrument basis, to classify the same either as at
fair value through other comprehensive income (FVOCI) or fair value through profit or loss (FVTPL). Amounts
presented in other comprehensive income are not subsequently transferred to profit or loss. However, the
Company transfers the cumulative gain or loss within equity. Dividends on such investments are recognized in
profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment.
v. Investments in mutual funds - The Company has measured its investment in mutual fund at FVTPL in its financial
statements. Profit or loss on fair value of mutual fund is recognised in statement of profit and loss.
De-recognition of financial assets
A financial asset is primarily de-recognised when the contractual rights to receive cash flows from the asset have
expired or the Company has transferred its rights to receive cash flows from the asset.
Non-derivative financial liabilities
Subsequent measurement
Subsequent to initial recognition, all non-derivative financial liabilities are measured at amortised cost using the
effective interest method.
A financial liability is de-recognised 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
de-recognition 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.
Derivative financial instruments and hedge accounting
The Company uses derivative financial instruments such as interest rate swaps to hedge its variable interest rate 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 at the end of each reporting period. Derivatives are
carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any
gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the
effective portion of cash flow hedges, which is recognised in OCI and later reclassified to profit or loss when the
hedge item affects profit or loss or treated as basis adjustment if a hedged forecast transaction subsequently results
in the recognition of a non-financial asset or non-financial liability.
For the purpose of hedge accounting, hedges are classified as:
• Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an
unrecognised firm commitment.
• Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular
risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency
risk in an unrecognised firm commitment.
At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to
which the Company wishes to apply hedge accounting and the risk management objective and strategy for
undertaking the hedge. The documentation includes the Company's risk management objective and strategy for
undertaking hedge, the hedging/economic relationship, the hedged item or transaction, the nature of the risk being
hedged, hedge ratio and how the entity will assess the effectiveness of changes in the hedging instrument's fair value
in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedged risk.
Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are
assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial
reporting periods for which they were designated
Hedges that meet the strict criteria for hedge accounting are accounted for, as described below:
i. Fair value hedges: Changes in fair value of the designated portion of derivatives that qualify as fair value hedges
are recognised in statement of profit and loss immediately, together with any changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk.
ii. Cash flow hedges: The effective portion of changes in the fair value of the hedging instrument is recognised in OCI
in the cash flow hedge reserve, while any ineffective portion is recognised immediately in statement of profit and
loss.
The Company has entered into certain forward (derivative) contracts to hedge risks which are not designated as
hedges. These derivatives are initially recognised at fair value on the date a derivative contract is entered into and are
subsequently re-measured to their fair value at the end of each reporting period. Any profit or loss arising on
cancellation or renewal of such derivative contract is recognised as income or as expense in statement of profit and
loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a
currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to
realise the assets and settle the liabilities simultaneously.
4.10 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 for financial assets. The Company assesses on forward looking basis the expected
credit losses associated with its assets and impairment methodology applied depends on whether there has been a
significant increase in credit risk. An impairment loss is recognised based on the 12 months probability of default or
life time probability of default and the expected loss good default estimated for each financial asset.
Trade receivables
In respect of trade receivables, the Company applies the simplified approach of Ind AS 109, which requires
measurement of loss allowance at an amount equal to lifetime expected credit losses. Lifetime expected credit losses
are the expected credit losses that result from all possible default events over the expected life of a financial
instrument.
Other financial assets
In respect of its other financial assets, the Company assesses if the credit risk on those financial assets has increased
significantly since initial recognition. If the credit risk has not increased significantly since initial recognition, the
Company measures the loss allowance at an amount equal to 12-month expected credit losses, else at an amount
equal to the lifetime expected credit losses.
When making this assessment, the Company uses the change in the risk of a default occurring over the expected life
of the financial asset. To make that assessment, the Company compares the risk of a default occurring on the financial
asset as at the balance sheet date with the risk of a default occurring on the financial asset as at the date of initial
recognition and considers reasonable and supportable information, that is available without undue cost or effort, that
is indicative of significant increases in credit risk since initial recognition. The Company assumes that the credit risk on
a financial asset has not increased significantly since initial recognition if the financial asset is determined to have low
credit risk at the balance sheet date.
4.11 Income taxes
Tax expense recognized in statement of profit and loss comprises the sum of deferred tax and current tax except the
ones recognized in other comprehensive income or directly in equity.
Current tax is determined as the tax payable in respect of taxable income for the year and is computed in accordance
with relevant tax regulations. 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).
Deferred tax liabilities are generally recognised in full for all taxable temporary differences. Deferred tax assets are
recognised to the extent that it is probable that the underlying tax loss or deductible temporary difference will be
utilised against future taxable income. This is assessed based on the Company's forecast of future operating results,
adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss.
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 statement of profit and loss is recognised
outside statement of profit and loss (either in other comprehensive income or in equity).
The Company offsets current tax assets and current tax liabilities; deferred tax assets and deferred tax liabilities;
where it has a legally enforceable right to set off the recognized amounts and where it intends either to settle on a
net basis, or to realize the asset and settle the liability simultaneously.
4.12 Cash and cash equivalents
Cash and cash equivalents include cash in hand, balance with banks in current in current accounts and other short
term highly liquid investments with original maturity of three months and less.
4.13 Employee benefits
Provident fund
Contribution towards provident fund for certain employees is made to the regulatory authorities, where the Company
has no further obligations. Such benefits are classified as defined contribution plan as the Company does not carry
any further obligations, apart from the contributions made on a monthly basis. In addition, for other employees, the
provident fund trust set-up by the Company is treated as a defined benefit plan to the extent the Company has to
meet the interest shortfall, if any. Accordingly, the contribution paid or payable and the interest shortfall, if any is
recognized as an expense in the period in which services are rendered by the employee.
Gratuity
Gratuity is a post-employment benefit and is in the nature of a defined benefit plan. The liability recognized in the
balance sheet in respect of gratuity is the present value of the defined benefit/obligation at the balance sheet date,
together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined
benefit/obligation is calculated at or near the balance sheet date by an independent actuary using the projected unit
credit method. This is based on standard rates of inflation, salary growth rate and mortality. Discount factors are
determined close to each year-end by reference to market yields on government bonds that have terms to maturity
approximating the terms of the related liability. Service cost on the Company's defined benefit plan is included in
employee benefits expense. Net interest expense on the net defined benefit liability is included in finance costs.
Actuarial gains/losses resulting from re-measurements of the liability are included in other comprehensive income.
Compensated absences
The Company also provides benefit of compensated absences to its employees which are in the nature of long -term
employee benefit plan. Liability in respect of compensated absences becoming due and expected to be availed more
than one year after the balance sheet date is estimated on the basis of an actuarial valuation performed by an
independent actuary using the projected unit credit method as on the reporting date. Actuarial gains and losses
arising from experience adjustments and changes in actuarial assumptions are recorded in the statement of profit and
loss in the year in which such gains or losses arise.
Superannuation fund
Contribution made towards superannuation fund (funded by payments to Life Insurance Corporation of India) is
charged to statement of profit and loss on accrual basis.
Short-term employee benefits
Short-term employee benefits comprise of employee costs such as salaries, bonus etc. is recognized on the basis of
the amount paid or payable for the period during which services are rendered by the employee.
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