2. MATERIAL ACCOUNTING POLICIES
The accounting policies applied by the Company in the
preparation of its financial statements are listed below. Such
accounting policies have been applied consistently to all the
periods presented in these financial statements.
2.1 Basis of Preparation of Financial Statements
a) Statement of compliance with Ind AS:
These financial statements are prepared in accordance with
the Indian Accounting Standards (hereinafter referred to as
the ‘Ind AS’) notified under the Companies (Indian Accounting
Standards) Rules, 2015 (as amended from time to time) and
presentation requirements of Division II of Schedule III to the
Companies Act, 2013 (Ind AS compliant schedule III), as are
applicable.
b) Basis of measurement:
These financial statements are prepared under the historical
cost convention on accrual basis except for the following
material items that have been measured at fair value as
required by relevant Ind AS:
- certain financial assets (including derivative financial
instruments) that are measured at fair value;
- share based payments; Fair Value as explained in relevant
accounting policy;
- defined benefit plans - plan assets measured at fair
value.
Fair value measurement:
Fair value is the price that would be received on sale of an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (that is,
an exit price). It is a market-based measurement, not an entity-
specific measurement. 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 to 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 best economic
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 participant 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 is available to
measure fair value, maximizing the use of relevant observable
inputs and minimising the use of unobservable inputs.
Where required/appropriate, external valuers are
involved.
All financial assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorised
within the fair value hierarchy established by Ind AS 113, that
categorises into three levels, the inputs to valuation techniques
used to measure fair value. These are based on the degree
to which the inputs to the fair value measurements are
observable and the significance of the inputs to the fair value
measurement in its entirety:
Level 1: inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the entity can
access at the measurement date.
Level 2: inputs are inputs other than quoted prices included
within Level 1 that are observable for the asset or liability, either
directly(i.e. as prices) or indirectly(i.e. derived from prices).
Level 3: inputs are unobservable inputs for the asset or liability.
The fair value hierarchy gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or
liabilities (Level 1 inputs) and the lowest priority to unobservable
inputs (Level 3 inputs).
For financial assets and liabilities maturing within one year from
the Balance Sheet date and which are not carried at fair value,
the carrying amount approximates fair value due to the short
maturity of these instruments.
The Company recognises transfers between levels of fair
value hierarchy at the end of reporting period during which
change has occurred.
c) Current non-current classification:
The Company presents assets and liabilities in the balance
sheet based on current/non-current classification. An asset is
treated as current when it is:
- Expected to be realised or intended to be sold or
consumed in normal operating cycle;
- Held primarily for the purpose of trading;
- Expected to be realised within twelve months after the
reporting period; or
- Cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least twelve
months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in normal operating cycle;
- It is held primarily for the purpose of trading;
- It is due to be settled within twelve months after the
reporting period; or
- There is no unconditional right to defer the settlement of
the liability for at least twelve months after the reporting
period.
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current
assets and liabilities.
The operating cycle is the time between the acquisition of
assets for processing and their realisation in cash and cash
equivalents. Based on the nature of products/services and
time between acquisition of assets for processing/rendering
of services and their realization in cash and cash equivalents,
operating cycle is less than 12 months. However, for the
purpose of current/non-current classification of assets &
liabilities period of 12 months has been considered as normal
operating cycle.
d) Functional and presentation currency:
Items included in the financial statements of the Company
are measured using the currency of the primary economic
environment in which the Company operates (i.e. the
“functional currency”). The financial statements are presented
in Indian Rupee, the national currency of India, which is the
functional currency of the Company.
e) Rounding of amounts:
All amounts disclosed in the financial statements and notes are
in Indian Rupees in lakhs rounded off to two decimal places as
permitted by Schedule III to the Companies Act, 2013, unless
otherwise stated.
2.2 Use of estimates
The preparation of financial statements in conformity with
the recognition and measurement principles of the Ind AS
requires management to make judgements, estimates and
assumptions that affect the application of the accounting
policies and the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities on the date of the
financial statements, and the reported amounts of revenues,
expenses and the results of operations during the reporting
period. Actual results could differ from those estimates. The
estimates and underlying assumptions are reviewed on an
"ongoing basis". Such estimates & assumptions are based
on management evaluation of relevant facts & circumstances
as on date of financial statements. Revisions to accounting
estimates are recognised in the period in which the estimate
is revised if the revision affects only that period; they are
recognised in the period of the revision and future periods if
the revision affects both current and future periods.
2.3 Revenue recognition
Sale of goods
Revenue from contract with customers is recognised when
the Company satisfies performance obligation by transferring
promised goods and services to the customer. Performance
obligations are satisfied at the point of time when the customer
obtains controls of the asset.
Revenue towards satisfaction of a performance obligation is
measured at the amount of transaction price (net of variable
consideration) allocated to that performance obligation. The
transaction price of goods sold and services rendered is net
of variable consideration on account of various discounts and
schemes offered by the Company as part of the contract.
Revenue (other than sale)
Revenue (other than sale) is recognised to the extent that it is
probable that the economic benefits will flow to the Company
and the revenue can be reliably measured.
Insurance Claims
Insurance claims are accounted for on the basis of claims
admitted and to the extent that there is no uncertainty in
receiving the claims.
Export Benefits
Export benefits/incentives constituting Duty Draw back,
incentives under FPS/FMS/MEIS/RoDTEP and duty free
advance license scheme are accounted for on accrual basis
where there is reasonable assurance that the Company will
comply with the conditions attached to them and the export
benefits will be received.
Interest Income
Interest income is recognized on a time proportion basis taking
into account the amount outstanding and the applicable
effective interest rate (EIR). EIR is the rate that exactly discounts
the estimated future cash payments or receipts over the
expected life of a financial liability or a financial asset to their
gross carrying amount.
Dividend
Dividend income is recognized when the Company’s right to
receive dividend is established by the reporting date, which is
generally when shareholders approve the dividend.
2.4 Property, Plant and Equipment (PPE)
Property, plant and equipment is stated at acquisition cost net
of accumulated depreciation and accumulated impairment
losses, if any. 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
repairs and maintenance are charged to the Statement of
Profit and Loss during the period in which they are incurred.
Cost of an item of property, plant and equipment comprises:
i. its purchase price, including import duties and non -
refundable purchase taxes (net of duty/tax credit availed),
after deducting trade discounts and rebates.
ii. any costs directly attributable to bringing the asset to the
location and condition necessary for it to be capable of
operating in the manner intended by management.
iii. borrowing cost directly attributable to the qualifying asset
in accordance with accounting policy on borrowing cost.
iv. the costs of dismantling, removing the item and restoring
the site on which it is located.
PPE in the course of construction for production, supply
or administrative purposes are carried at cost, less any
recognised impairment loss. Cost includes direct costs,
related pre-operational expenses and for qualifying assets
applicable borrowing costs to be capitalised in accordance
with the Company’s accounting policy. Administrative, general
overheads and other indirect expenditure (including borrowing
costs) incurred during the project period which are not directly
related to the project nor are incidental thereto, are expensed.
Property, plant and equipment which are not ready for intended
use as on the date of Balance Sheet are disclosed as “Capital
work-in-progress”. They are classified to the appropriate
categories of property, plant and equipment when completed
and ready for intended use. Depreciation of these assets, on
the same basis as other items of PPE, commences when the
assets are ready for their intended use.
An item of property, plant and equipment is derecognized
upon disposal or when no future economic benefits are
expected to arise from the continued use of asset. Any gain or
loss arising on the disposal or retirement of an item of property,
plant and equipment is determined as the difference between
the sales proceeds and the carrying amount of the asset and
is recognised in the Statement of Profit and Loss.
The Company identifies and determines cost of each
component/part of the plant and equipment separately, if the
component/part has a cost which is significant to the total cost
of the plant and equipment and has useful life that is materially
different from that of the remaining plant and equipment.
Machinery spares which meets the criteria of PPE is capitalized
and depreciated over the useful life of the respective asset.
On transition to Ind AS:
Under the Previous GAAP, all property, plant and equipment
were carried at in the Balance Sheet on basis of historical cost.
In accordance with provisions of Ind AS 101 First time adoption
of Indian Accounting Standards, the Company, for certain
properties, has elected to adopt fair value and recognized as
of April 1, 2016 as the deemed cost as of the transition date.
The resulting adjustments have been directly recognized in
retained earnings. The balance assets have been recomputed
as per the requirements of Ind AS retrospectively as applicable.
Depreciation:
Depreciation on Property, Plant & Equipment (other than
freehold land and capital work in progress) is provided on the
straight line method, based on their respective estimate of
useful lives, as given below. Estimated useful lives of assets
are determined based on internal assessment estimated
by the management of the Company and supported by
technical advice wherever so required. The management
believes that useful lives currently used, which is as prescribed
under Schedule II to the Companies Act, 2013, fairly reflect
its estimate of the useful lives and residual values of Property,
Plant & Equipment ( considered at 5% of the original cost),
though these lives in certain cases are different from lives
prescribed under Schedule II.
Assets individually costing ' 5,000 or less are fully depreciated
in the year of acquisition.
Depreciation of an asset begins when it is available for use, i.e.,
when it is in the location and condition necessary for it to be
capable of operating in the manner intended by management.
Depreciation of an asset ceases at the earlier of the date that
the asset is retired from active use and is held for disposal and
the date that the asset is derecognised.
Depreciation methods, useful lives and residual values are
reviewed periodically including at the end of each financial
year. Any changes in depreciation method, useful lives and
residual values are treated as a change in accounting estimate
and applied/adjusted prospectively, if appropriate.
Measurement of Fair Value:
a) Fair value hierarchy:
The fair value of freehold and leasehold land has been
determined by external, independent property valuers, having
appropriate recognised professional qualifications and
experience in the category of the property being valued. The
fair value measurement has been categorised as level 2 fair
value based on the inputs to the valuations technique used.
b) Valuation technique:
Value of the property has been arrived at using market
approach using market corroborated inputs. Adjustments
have been made for factors specific to the assets valued
including location and condition of the assets, the extent to
which input relate to items that are comparable to the assets
and the volume or the level of activity in the markets within
which the inputs are observed.
2.5 Intangible assets
Identifiable intangible assets are recognised when the
Company controls the asset, it is probable that future economic
benefits attributed to the asset will flow to the Company and
the cost of the asset can be reliably measured.
At initial recognition, the separately acquired intangible assets
with finite useful lives are recognised at cost of acquisition.
Following initial recognition, the intangible assets are carried
at cost less any accumulated amortisation and accumulated
impairment losses, if any.
Intangible assets not ready for the intended use on the date
of the balance sheet are disclosed as ‘intangible assets under
development".
Intangible assets are derecognised (eliminated from the
balance sheet) on disposal or when no future economic
benefits are expected from its use and subsequent disposal.
Gains or losses arising from the retirement or disposal of an
intangible asset are determined as the difference between the
net disposal proceeds and the carrying amount of the asset
are recognised as income or expense in the statement of
profit and loss.
Deemed cost on transition to Ind AS:
Under the Previous GAAP, all Intangible assets were carried at
in the Balance Sheet on basis of historical cost. The Company
has elected to continue with the carrying value of all of its
intangible assets recognised as of April 1, 2016 (the transition
date) measured as per the previous GAAP and use such
carrying value as its deemed cost as of the transition date.
Amortisation:
Intangible assets are amortised on a straight line basis over the
estimated useful lives of respective assets from the date when
the asset are available for use, on pro-rata basis. Estimated
useful lives by major class of finite-life intangible assets are
as follows:
The amortisation period and the amortisation method for finite-
life intangible assets is reviewed at each financial year end.
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 and adjusted prospectively.
2.6 Research and development expenditure
Research expenditure is charged to the Statement of profit
and loss. Development costs of products are also charged to
the Statement of Profit and Loss unless a product’s technical
feasibility has been established, in which case such expenditure
is capitalised as an intangible asset under development.
Tangible assets used in research and development are
capitalised under respective heads. These development costs
are amortised over the estimated useful life of the projects or
the products they are incorporated within. The amortisation of
capitalised development costs begins as soon as the related
product is released to production.
2.7 Financial Instruments
Financial Assets:
Initial recognition and measurement:
Financial assets are recognised when the Company becomes
a party to the contractual provisions of the instrument.
On initial recognition, a financial asset is recognised at fair
value, except for trade receivables which are initially measured
at transaction price. In case of financial assets which are
recognised at fair value through profit and loss (FVTPL), its
transaction costs are recognised in the statement of profit
and loss. In other cases, the transaction costs are added to or
deducted from the fair value of the financial assets.
Financial assets are subsequently classified and
measured at:
- amortised cost (if it is held within a business model
whose objective is to hold the asset in order 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)
- fair value through profit and loss (FVTPL)
- fair value through other comprehensive income (FVOCI).
Equity Instruments:
All investments in equity instruments in scope of Ind AS
109 classified under financial assets are initially measured
at fair value.
Investments in equity instruments of subsidiary - Investments
in equity instruments of subsidiary are carried at cost less
impairment losses if any. 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 & Loss.
If the equity investment is not held for trading, the Company
may, on initial recognition, irrevocably elect to measure
the same either at FVOCI or FVTPL. The Company makes
such election on an instrument-by-instrument basis. Equity
Instruments which are held for trading are classified as
measured at FVTPL.
Fair value changes on an equity instrument is recognised
as other income in the Statement of Profit and Loss unless
the Company has elected to measure such instrument
at FVOCI. Fair value changes excluding dividends, on an
equity instrument measured at FVOCI are recognized in OCI.
Amounts recognised in OCI are not subsequently reclassified
to the Statement of Profit and Loss. Dividend income on the
investments in equity instruments are recognised as ‘other
income’ in the Statement of Profit and Loss.
The Company does not have any equity investments
designated at FVOCI.
On disposal of the investment ,the difference between the
net disposal proceeds and the carrying amount is charged or
credited to the statement of profit & Loss.
Investments in Mutual fund:
Investments in Mutual funds are measured at fair value through
profit and loss (FVTPL).
Derivative financial instruments:
The Company uses derivative financial instruments, such as
forward currency contracts and currency option contracts to
mitigate its foreign currency risks and interest rate risks. Such
derivative financial instruments are recorded 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.
The purchase contracts that meet the definition of a derivative
under Ind AS 109 are recognised in the statement of profit
and loss.
Any gains or losses arising from changes in the fair value of
derivatives are taken directly to statement of profit or loss.
Derecognition:
The Company derecognises a financial asset when the
contractual rights to the cash flows from the financial asset
expire, or it transfers the contractual rights to receive the cash
flows from the asset.
Impairment of Financial Asset:
In accordance with Ind AS 109, the Company applies the
expected credit loss (”ECL”) model for measurement and
recognition of impairment loss on financial assets and credit
risk exposures. The Company follows ‘simplified approach’ for
recognition of impairment loss allowance on trade receivables
or contract revenue receivables. Simplified approach does not
require the Company to track changes in credit risk. Rather,
it recognizes impairment loss allowance based on lifetime
ECL at each reporting date, right from its initial recognition.
This involves use of provision matrix constructed on the basis
of historical credit loss experience and adjusted for forward
looking information. The expected credit loss allowance is
based on the ageing of the receivables that are due and the
rates used in the provision matrix.
For recognition of impairment loss on other financial assets
and risk exposure, the Company determines that whether
there has been a significant increase in the credit risk since
initial recognition. If credit risk has not increased significantly,
12-month ECL is used to provide for impairment loss. However,
if credit risk has increased significantly, lifetime ECL is used. If, in
a subsequent period, credit quality of the instrument improves
such that there is no longer a significant increase in credit risk
since initial recognition, then the entity reverts to recognising
impairment loss allowance based on 12-month ECL.
ECL is the difference between all contractual cash flows that
are due to the Company in accordance with the contract and
all the cash flows that the entity expects to receive (i.e., all
cash shortfalls), discounted at the original EIR. Lifetime ECL are
the expected credit losses resulting from all possible default
events over the expected life of a financial instrument. The
12-month ECL is a portion of the lifetime ECL which results
from default events that are possible within 12 months after
the reporting date.
The Company measures the expected credit loss associated
with its assets based on historical trend, industry practices and
the business environment in which the entity operates or any
other appropriate basis. The impairment methodology applied
depends on whether there has been a significant increase in
credit risk.
ECL impairment loss allowance (or reversal) recognised during
the period is recognised as income/expense in the Statement
of Profit and Loss.
Financial Liabilities and equity instruments:
Classification as debt or equity
Debt and equity instruments issued by the Company are
classified as either financial liabilities or as equity in accordance
with the substance of the contractual arrangements and the
definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting all
of its liabilities. Equity instruments issued by the Company are
recognised at the proceeds received, net of direct issue costs.
Financial liabilities
Initial recognition and measurement:
Financial liabilities are recognised when the Company becomes
a party to the contractual provisions of the instrument.
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, 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 fair value of a financial instrument at initial recognition is
normally the transaction price. If the Company determines that
the fair value at initial recognition differs from the transaction
price, difference between the fair value at initial recognition
and the transaction price shall be recognized as gain or loss
unless it qualifies for recognition as an asset or liability. This
normally depends on the relationship between the lender and
borrower or the reason for providing the loan. Accordingly in
case of interest-free loan from promoters to the Company,
the difference between the loan amount and its fair value is
treated as an equity contribution to the Company.
In accordance with Ind AS 113, the fair value of a financial
liability with a demand feature is not less than the amount
payable on demand, discounted from the first date that the
amount could be required to be paid.
The Company’s financial liabilities include trade and other
payables and loans and borrowings including bank overdrafts.
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the 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, unless and to
the extent capitalised as part of costs of an asset.
The effective interest method is a method of calculating the
amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is
the rate that exactly discounts estimated future cash payments
(including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected life of the
financial liability, or (where appropriate) a shorter period, to the
net carrying amount on initial recognition.
Trade and other payables
For trade and other payables maturing within one year from
the balance sheet date, the carrying amounts approximate fair
value due to the short maturity of these instruments.
Derecognition
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 or loss.
Off setting of Financial Instruments
Financial assets and financial liabilities are offset and the net
amount is reported in the Balance Sheet if there is currently
enforceable legal right to offset the recognised amount and
there is an intention to settle on a net basis, to realise the
assets and settle the liabilities simultaneously.
2.8 Impairment of Non-financial assets
The carrying amounts of non-financial assets other than
inventories are assessed at each reporting date to ascertain
whether there is any indication of impairment. If any such
indication exists then the asset’s recoverable amount is
estimated. An impairment loss is recognised, as an expense
in the Statement of Profit and Loss, for the amount by which
the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value
less cost to sell and value in use. Value in use is ascertained
through discounting of the estimated future cash flows using
a discount rate that reflects the current market assessments
of the time value of money and the risk specific to the assets.
For the purpose of assessing impairment, assets are grouped
at the lowest levels into cash generating units for which there
are separately identifiable cash flows.
Impairment losses recognised in prior years are reversed when
there is an indication that the impairment losses recognised no
longer exist or have decreased. Such reversals are recognised
as an increase in carrying amounts of assets to the extent
that it does not exceed the carrying amounts that would have
been determined (net of amortization or depreciation) had no
impairment loss been recognised in previous years.
2.9 Borrowing costs
Borrowing costs comprises interest expense on borrowings
calculated using the effective interest method and exchange
differences arising from foreign currency borrowings to the
extent that they are regarded as an adjustment to interest
costs.
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and
of allocating the interest income or interest expense over the
relevant period.
The effective interest rate (EIR) is the rate that exactly discounts
estimated future cash payments or receipts through the
expected life of the financial instrument or, when appropriate,
a shorter period to the net carrying amount of the financial
asset or financial liability. EIR calculation does not include
exchange differences.
Borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset, which are
assets that necessarily take a substantial period of time
considering project as a whole to get ready for their intended
use or sale, are included in the cost of those assets. Such
borrowing costs are capitalised as part of the cost of the asset
when it is probable that they will result in future economic
benefits to the entity and the costs can be measured reliably.
Other borrowing costs are recognised as an expense in the
period in which they are incurred.
The Capitalisation of borrowing costs as part of the cost of
a qualifying asset commences when expenditure for the
asset is being incurred, borrowing costs are being incurred
and activities that are necessary to prepare the asset for its
intended use or sale are in progress.
Capitalisation of borrowing costs is suspended or ceases
when substantially all the activities necessary to prepare the
qualifying asset for its intended use or sale are interrupted or
completed.
Investment income earned on the temporary investment of
specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for
Capitalisation.
2.10 Foreign currency transactions
The financial statements are presented in Indian Rupees (INR),
the functional currency of the Company. Items included in the
financial statements of the Company are recorded using the
currency of the primary economic environment in which the
Company operates (the ‘functional currency’).
Foreign currency transactions are translated into the functional
currency using exchange rates at the date of the transaction.
Foreign exchange gains and losses from settlement of these
transactions, and from translation of monetary assets and
liabilities at the reporting date exchange rates are recognised
in the Statement of Profit and Loss.
Non-monetary assets and liabilities denominated in a foreign
currency and measured at historical cost are translated at the
exchange rate prevalent at the date of transaction.
Ind AS 101 includes an optional exemption that allows a first¬
time adopter to continue the above accounting treatment in
respect of the long-term foreign currency monetary items
recognised in the financial statements for the period ending
immediately before the beginning of the first Ind AS financial
reporting period as per the previous GAAP. The Company
has elected to avail this optional exemption. However, the
capitalization of exchange differences is not allowed on any
new long term foreign currency monetary item recognized
from the first Ind AS financial reporting period.
2.11 Leases
The determination of whether an arrangement is (or contains)
a lease is based on the substance of the arrangement at the
inception of the lease. The arrangement is, or contains, a lease
if fulfilment of the arrangement is dependent on the use of a
specific asset or assets and the arrangement conveys a right
to use the asset or assets, even if that right is not explicitly
specified in an arrangement.
Company as a lessee
The Company’s lease asset classes primarily consist of leases
for Land & office building. 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.
The company recognises a right-of-use asset and a lease
liability at the lease commencement date. The right-of-use
asset is initially measured at cost, which comprises the initial
amount of the lease liability adjusted for any lease payments
made at or before the commencement date, plus any initial
direct costs incurred and an estimate of costs to dismantle
and remove the underlying asset or to restore the underlying
asset or the site on which it is located, less any lease incentives
received.
The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the
earlier of the end of the useful life of the right-of-use asset or
the end of the lease term. The estimated useful lives of right-
of-use assets are determined on the same basis as those of
property, plant and equipment. In addition, the right-of-use
asset is periodically reduced by impairment losses, if any, and
adjusted for certain re-measurements of the lease liability.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, company’s
incremental borrowing rate.
Generally, the Company uses its incremental borrowing rate as
the discount rate.
Lease payments included in the measurement of the lease
liability comprise the following:
- Fixed payments, including in-substance fixed payments;
- Variable lease payments that depend on an index or a
rate, initially measured using the index or rate as at the
commencement date;
- Amounts expected to be payable under a residual value
guarantee; and
- The exercise price under a purchase option that the
Company is reasonably certain to exercise, lease
payments in an optional renewal period if the company
is reasonably certain to exercise an extension option,
and penalties for early termination of a lease unless the
company is reasonably certain not to terminate early.
The lease liability is subsequently remeasured by increasing the
carrying amount to reflect interest on the lease liability, reducing
the carrying amount to reflect the lease payments made and
remeasuring the carrying amount to reflect any reassessment
or lease modifications or to reflect revised in-substance fixed
lease payments. The company recognises the amount of the
re-measurement of lease liability due to modification as an
adjustment to the right-of-use asset and statement of profit
and loss depending upon the nature of modification. Where
the carrying amount of the right-of-use asset is reduced to
zero and there is a further reduction in the measurement of the
lease liability, the Company recognises any remaining amount
of the re-measurement in the statement of profit and loss.
The company presents right-of-use assets and lease liabilities
separately in balance sheet.
Short-term leases and leases of low-value assets
The company has elected not to recognise right-of-use assets
and lease liabilities for short term leases that have a lease term
of 12 months or less and low value leases. The company
recognises the lease payments associated with these leases
as an expense on a straight-line basis over the lease term.
2.12 Inventories
Inventories are valued at the lower of cost and net realisable
value.
Costs incurred in bringing each product to its
present location and condition, are accounted for
as follows:
- Raw materials, stores and spares: cost includes cost of
purchase (viz. the purchase price, import duties and other
taxes (other than those subsequently recoverable by the
entity from the taxing authorities), and transport, handling
and other costs directly attributable to the acquisition and
is net of trade discounts, rebates and other similar items)
and other costs incurred in bringing the inventories to
their present location and condition. Cost is determined
on Moving Weighted Average Method.
- Materials and other supplies 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.
- Spare parts, which do not meet the definition of property,
plant and equipment are classified as inventory.
- Finished goods and work in progress: cost includes
cost of direct materials and labour and a proportion of
manufacturing overheads based on the normal operating
capacity, but excluding borrowing costs.
- Traded goods: cost includes cost of purchase and other
costs incurred in bringing the inventories to their present
location and condition. Cost is determined on first in first
out basis.
Net realisable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and
the estimated costs necessary to make the sale.
Obsolete, slow moving and defective inventories are identified
from time to time and, where necessary, a provision is made
for such inventories.
2.13 Employee benefits
Short- term employee benefits:
All employee benefits payable wholly within twelve months of
rendering the service are classified as short-term employee
benefits. Benefits such as salaries, wages, social security
contributions, short term compensated absences (paid annual
leaves) etc. are measured on an undiscounted basis at the
amounts expected to be paid when the liabilities are settled
and are expensed in the period in which the employee renders
the related service.
Post-employment benefits:
i) Defined contribution plan
The defined contribution plan is post employment benefit plan
under which the Company contributes fixed contribution to a
government administered fund and will have no obligation to
pay further contribution. The Company’s defined contribution
plan comprises of Provident Fund, Employee State Insurance
Scheme and Labour Welfare Fund. The Company’s contribution
to defined contribution plans are recognized in the Statement
of Profit and Loss in the period in which employee renders the
related service.
ii) Defined benefit plan
The Company’s obligation towards gratuity liability is a
"defined benefit" obligation. The present value of the defined
benefit obligations is determined on the basis of actuarial
valuation using the projected unit credit method. The rate
used to discount "defined benefit obligation" is determined by
reference to market yields at the Balance Sheet date on Indian
Government Bonds for the estimated term of obligations.
The amount recognised as ‘Employee benefit expenses’ in the
Statement of Profit and Loss is the cost of accruing employee
benefits promised to employees over the current year and
the costs of individual events such as past/future service
benefit changes and settlements (such events are recognised
immediately in the Statement of Profit and Loss).
The amount of net interest expense, calculated by applying the
liability discount rate to the net defined benefit liability or asset,
is charged or credited to ‘Finance costs’ in the Statement of
Profit and Loss.
Re-measurement of net defined benefit liability/asset
pertaining to gratuity comprise of actuarial gains/losses (i.e.
changes in the present value of the defined benefit obligation
resulting from experience adjustments and effects of changes
in actuarial assumptions), the return on plan assets (excluding
interest) and the effect of the asset ceiling (if any, excluding
interest) and is recognised immediately in the balance sheet
with a charge or credit recognised in other comprehensive
income in the period in which they occur. Re-measurements
are not reclassified to profit or loss account in subsequent
periods.
Other long-term employee benefit obligations:
The liabilities for earned leave that are not expected to be
settled wholly within 12 months are measured as the present
value of expected future payments to be made in respect of
services provided by employees up to the end of the reporting
period using the projected unit credit method. The benefits are
discounted using the market yields at the end of the reporting
period that have terms approximating to the terms of the
related obligation. Remeasurements as a result of experience
adjustments and changes in actuarial assumptions are
recognised in the Statement of Profit and Loss. Accumulated
leave, which is expected to be utilized within the next 12
months, is treated as short term employee benefit.
2.14 Share-Based Payments
Employees of the Company receive remuneration in the form
of share based payments in consideration of the services
rendered (equity settled transactions).
Under the equity settled share based payment, the fair
value on the grant date of the awards given to employees
is recognised as ‘employee benefit expense’ with a
corresponding increase in equity over the vesting period. The
fair value of the options on the grant date is calculated using
an appropriate valuation model.
The total expense is recognised over the vesting period, which
is the period over which all of the specified vesting conditions
are to be satisfied. At the end of each period, the entity revises
its estimates of the number of options that are expected to
vest based on the non-market vesting and service conditions.
It recognises the impact of the revision to original estimates, if
any, in profit or loss, with a corresponding adjustment to equity.
An additional expense is recognised for any modification that
increases the total fair value of the shares based payments
transactions, or is otherwise beneficial to the employee as
measured at the date of modification.
The dilutive effect of outstanding options is reflected as
additional share dilution in the computation of diluted earnings
per share. When the options are exercised, the Company
issues fresh equity shares.
2.15 Government Grant
Government grants are recognised only when there is
reasonable assurance that the Company will comply with the
conditions attaching to them and the grants will be received.
Government grants are recognised in profit or loss on a
systematic basis over the periods in which the Company
recognises as expenses the related costs for which the grants
are intended to compensate.
Accordingly, government grants:
a) related to or used for assets are included in the Balance
Sheet as deferred income and recognised as income in
profit or loss on a systematic basis over the useful life of
the assets.
b) related to an expense item is recognised in the statement
of profit and loss on a systematic basis over the
periods that the related costs, for which it is intended to
compensate, are expensed and presented as deduction
from the related/relevant expense.
In the unlikely event that a grant previously recognised is
ultimately not received, it is treated as a change in estimate
and the amount cumulatively recognised is expensed in the
Statement of Profit and Loss.
Export benefits available under prevalent schemes are
accrued in the year in which the goods are exported and there
is no uncertainty in receiving the same.
2.16 Taxation
Tax expense comprises of current and deferred tax
and includes any adjustments related to past periods in
current and/or deferred tax adjustments that may become
necessary due to certain developments or reviews during
the relevant period.
Current income tax:
Tax on income for the current period is determined on the
basis of taxable income (or on the basis of book profits
wherever minimum alternate tax is applicable) and tax credits
computed in accordance with the provisions of the Income
Tax Act 1961, and based on the expected outcome of
assessments/appeals.
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to the taxation
authorities. 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, either in other
comprehensive income or directly in equity, is also recognized
in other comprehensive income or in equity, as appropriate
and not in the Statement of Profit and Loss. Management
periodically evaluates positions taken in the tax returns with
respect to situations in which applicable tax regulations are
subject to interpretation and establishes provisions where
appropriate.
Current tax assets and current tax liabilities are offset when
there is a legally enforceable right to set off the recognized
amounts and there is an intention to settle the asset and the
liability on a net basis.
Deferred tax:
Deferred tax is provided using the liability method on temporary
differences between the tax basis 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:
- When the deferred tax liability arises from the initial
recognition of goodwill or 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;
- In respect of taxable temporary differences associated
with investments in subsidiaries, associates and interests
in joint arrangements, 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 unabsorbed tax depreciation.
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.
- In respect of deductible temporary differences
associated with investments in subsidiaries, associates
and interests in joint arrangements, 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 assets 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. Deferred tax items are
recognised in correlation to the underlying transaction either in
OCI or directly in equity.
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 taxes relate to
the same taxable entity and the same taxation authority.
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