3. MATERIAL ACCOUNTING POLICIES3.1 Property, plant and equipment
Recognition and measurement
Items of property, plant and equipment except for
Leasehold land are measured at cost less accumulated
depreciation and any accumulated impairment losses, if
any.
Leasehold land which is carried at cost less accumulated
amortisation cost & impairment loss, if any.
Spare parts which are meeting the requirement of
property, plant and equipment are capitalised as property,
plant and equipment. All other types of spare parts are
charged to the statement of profit and loss.
The cost of an item of property, plant and equipment
comprises:
a) Its purchase price, including import duties and non¬
refundable purchase taxes, after deducting trade
discounts and rebates.
b) Any directly attributable cost of bringing the asset
to its location and condition necessary for it to be
capable of operating in the manner intended by
Management.
If significant parts of an item of property, plant and
equipment have different useful lives, then they are
accounted and depreciated for as separate items (major
components) of property, plant and equipment.
Gains or losses arising from de-recognition of a property,
plant and equipment 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.
Capital work-in-progress comprises cost of property,
plant and Equipment that are not yet ready for their
intended use at the year end. Expenditure/ Income
during construction period (including financing cost
related to borrowed funds for construction or acquisition
of qualifying PPE) is included under Capital Work-in¬
Progress, and the same is allocated to the respective PPE
on the completion of their construction. Advances given
towards acquisition or construction of PPE outstanding
at each reporting date are disclosed as Capital Advances
under “Other Non current Assets.
Subsequent expenditure
Subsequent expenditure is capitalised only if it is
probable that the future economic benefits associated
with the expenditure will flow to the Company.
Depreciation
Depreciation is calculated on pro-rata basis using the
diminishing balance method on cost of items of property,
plant and equipment less their estimated residual
values over the estimated residual useful lives based on
Schedule II of the Companies Act, 2013 except for plant
& machinery and Leasehold land.
In case of plant & machinery, based on internal
assessment, the management believes that the useful
lives as given below best represent the period over which
management expects to use these assets. Hence the
useful lives for these assets may differ from the useful
lives as prescribed under Part C of Schedule II of the
Companies Act, 2013. The management believes that
these estimated useful lives are realistic and reflect fair
approximation of the period over which the assets are
likely to be used.
Amortisation on leasehold land is charged on straight
line method over a period of lease tenure.
Depreciation methods, useful lives and residual values
are reviewed at each reporting date and adjusted if
appropriate.
3.2 Intangible AssetsRecognition and measurement
Intangible assets comprise of computer software and
patent / trademark, which acquired by the Company
are initially measured at cost. Such intangible assets
are subsequently measured at cost less accumulated
amortisation and any accumulated impairment losses.
Subsequent expenditure
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied in the
specific asset to which it relates.
Amortisation
Amortisation is calculated to write off the cost of
intangible assets less their estimated residual values and
it is included in ” Depreciation and Amortisation Expense”
in the Statement of profit and loss.
Intangible assets are amortised over the estimated useful
lives as given below:
3.3 Inventories
Inventories which comprise raw materials, packing
materials, work-in-progress, finished goods, trading
goods, consumables and stores & spares are carried at
the lower of cost and net realisable value.
The cost of inventories is based on weighted average
formula and includes expenditure incurred in acquiring the
inventories, costs of production or conversion and other
costs incurred in bringing the inventories to their present
location and condition. In the case of finished goods and
work in progress, cost includes an appropriate share of
fixed production overheads based actual production.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of
completion and the estimated costs necessary to make
the sale.
Obsolete, defective and unserviceable inventories
are duly provided for. The comparison of cost and net
realisable value is made on an item-by-item basis.
The net realisable value of work-in-progress is determined
with reference to the selling prices of related finished
products. Raw materials and other supplies held for use
in the production of finished products are not written down
below cost except in cases where material prices have
declined and it is estimated that the cost of the finished
products will exceed their net realisable value.
3.4 Borrowing costs
Borrowing costs are interest and other costs (including
exchange differences relating to foreign currency
borrowings to the extent that they are regarded as an
adjustment to interest costs) incurred in connection with
the borrowing of funds. Borrowing costs that are directly
attributable to the acquisition or construction of an asset
that necessarily takes a substantial period of time to get
ready for its intended use are capitalised as part of the
cost of that asset till the date it is ready for its intended
use or sale less any investment income on the temporary
investment of those borrowings.
Other borrowing costs are recognised as an expense in
the period in which they are incurred.
3.5 Impairment of Non-Financial assets
Assets are tested for impairment whenever events or
changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is
recognised 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 costs of
disposal and value in use. For the purpose of assessing
impairment, assets are grouped at the lowest levels for
which there are separately identifiable cash inflows which
are largely independent of the cash inflows from other
assets or groups of assets.
3.6 Income Tax
Income tax expense comprises current and deferred tax.
It is recognised in profit or loss except to the extent that
it relates to a business combination, or items recognised
directly in equity or in other comprehensive income.
Current Tax
Current tax comprises the expected tax payable or
receivable on the taxable income or loss for the year and
any adjustment to the tax payable or receivable in respect
of previous years. The amount of current tax reflects the
best estimate of the tax amount expected to be paid or
received after considering the uncertainty, if any, related
to income taxes. It is measured using tax rates enacted or
substantively enacted by the reporting date.
Current tax assets and current tax liabilities are offset
only if, the Company:
• has a legally enforceable right to set off the
recognised amounts; and
• i ntends either to settle on a net basis, or to realise
the asset and settle the liability simultaneously.
Deferred tax
Deferred tax is recognised on differences between the
carrying amounts of assets and liabilities in the Balance
sheet and the corresponding tax bases used in the
computation of taxable profit and are accounted for using
the liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences, and
deferred tax assets are generally recognised for all
deductible temporary differences, carry forward tax
losses and allowances to the extent that it is probable
that future taxable profits will be available against which
those deductible temporary differences, carry forward
tax losses and allowances can be utilised. Deferred tax
assets and liabilities are measured at the applicable tax
rates. Deferred tax assets and deferred tax liabilities are
off set, and presented as net.
Unrecognised deferred tax assets are reassessed at
each reporting date and recognised to the extent that it
has become probable that future taxable profits will be
available against which they can be used.
Deferred tax assets and liabilities are offset only if:
• t he Company has a legally enforceable right to set
off current tax assets against current tax liabilities;
and
• the deferred tax assets and the deferred tax liabilities
relate to income taxes levied by the same taxation
authority on the same taxable Company.
3.7 Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise
cash at banks and on hand and short-term deposits with
an original maturity of three months or less, which are
subject to an insignificant risk of changes in value.
For the purpose of the Statement of cash flows, cash
and cash equivalents consist of cash and short-term
deposits, as defined above, as they are considered an
integral part of the Company's cash Management.
3.8 Trade Payables
Trade payables represent liabilities for goods including
capital goods and services provided to the Company
prior to the end
of Financial year which are unpaid. Trade and other
payables are reported as current liabilities unless
payment is not due within 12 months after the reporting
period. They are recognised initially at their fair value
and subsequently measured at amortised cost using the
effective interest method.
3.9 Financial instruments
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.
Financial assetsInitial recognition and measurement
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.
However, trade receivables that do not contain a significant
financing component are measured at transaction price.
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 Company commits to purchase or sell the asset.
Subsequent measurementa) Financial assets carried at amortised cost (AC)
A financial asset is measured at amortised cost
using the effective interest rate method, 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.
b) Financial assets at fair value through other
comprehensive income (FVTOCI)
A financial asset is measured at FVTOCI if it is held
within a business model whose objective is achieved
by both collecting contractual cash flows and selling
financial assets 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.
c) Financial assets at fair value through profit or
loss (FVTPL)
A Financial asset which is not classified in any of the
above categories is measured at FVTPL.
Investment in subsidiaries, Associates and Joint
Ventures
The Company has opted to account for its
investments in subsidiaries, associates and joint
venture at cost less provision for diminution other
than temporary.
Other Equity Investments
All other equity investments are measured at
fair value, with value changes recognised in
Statement of Profit and Loss, except for those equity
investments for which the Company has made an
irrevocable choice to present the value changes in
‘Other Comprehensive Income’.
Impairment of Financial assets
I n accordance with Ind AS 109, the Company uses
‘Expected Credit Loss' (ECL) model, for evaluating
impairment of Financial assets other than those
measured at fair value through profit and loss
(FVTPL).
ECL are measured through a loss allowance at an
amount equal to:
• The 12-months ECL (ECL that result from those
default events on the Financial instrument
that are possible within 12 months after the
reporting date); or
• Full lifetime ECL (ECL that result from all
possible default events over the life of the
Financial instrument)
For trade receivables, the Company applies
‘simplified approach' which requires expected lifetime
losses to be recognised from initial recognition of the
receivables. The Company uses historical default
rates to determine impairment loss on the portfolio
of trade receivables. At every reporting date these
historical default rates are reviewed and changes in
the forward looking estimates are analysed.
For other assets, the Company uses 12-month
ECL to provide for impairment loss where there
is no significant increase in credit risk. If there is
significant increase in credit risk full lifetime ECL is
used.
Financial liabilitiesInitial recognition and measurement
All Financial liabilities are recognised at fair value
and in case of loans, net of directly attributable cost.
Fees of recurring nature are directly recognised in
the Statement of Profit and Loss as finance cost.
Subsequent measurement
Financial liabilities are carried at amortised cost
using the effective interest method. 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.
a) Derivative Financial instruments and Hedge
Accounting
The Company uses various derivative financial
instruments such as forwards and Interest
rate swaps to mitigate the risk of changes
in exchange rates and Interest rates. Such
derivative financial instruments are initially
recognised at fair value on the date on which
a derivative contract is entered into and are
also subsequently 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.
Any gains or losses arising from changes in
the fair value of derivatives are taken directly
to Statement of Profit and Loss, except for the
effective portion of cash flow hedges which is
recognised in Other Comprehensive Income
and later to Statement of Profit and Loss
when the hedged item affects profit or loss
or treated as basis adjustment if a hedged
forecast transaction subsequently results in
the recognition of a non-Financial assets or
non-Financial liability.
In case of loss / gains from interest rate
swaps, directly attributable to the acquisition or
construction of an asset that necessarily takes
a substantial period of time to get ready for
its intended use are capitalised as part of the
cost of that asset till the date it is ready for its
intended use or sale.
Hedges that meet the criteria for hedge
accounting are accounted for as follows:
Cash flow hedge
The Company designates derivative
contracts or non-derivative financial assets /
liabilities as hedging instruments to mitigate
the risk of movement in interest rates and
foreign exchange rates for foreign exchange
exposure on highly probable future cash
flows attributable to a recognised asset or
liability or forecast cash transactions. When a
derivative is designated as a cash flow hedging
instrument, the effective portion of changes in
the fair value of the derivative is recognised in
the cash flow hedging reserve being part of
other comprehensive income. Any ineffective
portion of changes in the fair value of the
derivative is recognised immediately in the
Statement of Profit and Loss. If the hedging
relationship no longer meets the criteria for
hedge accounting, then hedge accounting
is discontinued prospectively. If the hedging
instrument expires or is sold, terminated or
exercised, the cumulative gain or loss on the
hedging instrument recognised in cash flow
hedging reserve till the period the hedge was
effective remains in cash flow hedging reserve
until the underlying transaction occurs. The
cumulative gain or loss previously recognised
in the cash flow hedging reserve is transferred
to the Statement of Profit and Loss upon the
occurrence of the underlying transaction. If the
forecasted transaction is no longer expected to
occur, then the amount accumulated in cash
flow hedging reserve is reclassified in the
Statement of Profit and Loss.
Fair Value Hedge
The Company designates derivative contracts
or non-derivative financial assets / liabilities
as hedging instruments to mitigate the risk
of change in fair value of hedged item due to
movement in interest rates, foreign exchange
rates and commodity prices.
Changes in the fair value of hedging
instruments and hedged items that are
designated and qualify as fair value hedges are
recorded in the Statement of Profit and Loss. If
the hedging relationship no longer meets the
criteria for hedge accounting, the adjustment
to the carrying amount of a hedged item for
which the effective interest method is used is
amortised to Statement of Profit and Loss over
the period of maturity.
b) De-recognition of Financial instruments
The Company derecognises a financial asset
when the contractual rights to the cash flows
from the Financial asset expire or it transfers
the Financial asset and the transfer qualifies
for de-recognition under Ind AS 109. A financial
liability (or a part of a financial liability) is
derecognised from the Company's Balance
Sheet when the obligation specified in the
contract is discharged or cancelled or expires.
c) Offsetting
Financial assets and financial liabilities are
offset and the net amount is reported in the
balance sheet when, and only when, the
Company has legally enforceable right to set
off the amount and it intends, either to settle
them on net basis or to realise the assets and
settle the liabilities simultaneously.
3.10 Revenue RecognitionRevenue from contracts with customer
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 is measured based on transaction price,
which is the fair value of the consideration received or
receivable, stated net of discounts, returns and value
added tax. Transaction price is recognised based on the
price specified in the contract, net of the estimated sales
incentives/ discounts. Accumulated experience is used to
estimate and provide for the discounts/ right of return,
using the expected value method.
Sale of Products
Revenue from sale of goods is recognised on the basis
of approved contracts, when all the significant risks and
rewards of ownership of the goods have been passed
to the buyer, usually on delivery of the goods and
acceptance by the buyer. Any additional amount based on
the terms of the agreement entered into with customers,
is recognised in the period when the collectability of the
profit share becomes probable and a reliable measure
of the profit share is available. Revenue from the sale of
goods is measured at the fair value of the consideration
received or receivable, net of returns and allowances,
trade discounts and volume rebates. The Company does
not provide any warranties or maintenance contracts to
its customers.
Variable consideration
This includes incentives, volume rebates, discounts etc.
It 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. It is reassessed
at end of each reporting period.
Significant financing component
Generally, the Company receives short-term advances
from its customers. Using the practical expedient in Ind
AS 115, the Company does not adjust the promised
amount of consideration for the effects of a significant
financing component if it expects, at contract inception,
that the period between the transfer of the promised
good or service to the customer and when the customer
pays for that good or service will be one year or less.
Cost to obtain a contract
The Company pays sales commission to its selling agents
for each contract that they obtain for the Company. The
Company has elected to apply the optional practical
expedient for costs to obtain a contract which allows the
Company to immediately expense sales commissions
because the amortisation period of the asset that the
Company otherwise would have used is one year or less.
Costs to fulfill a contract i.e. freight, insurance and other
selling expenses are recognised as an expense in the
period in which related revenue is recognised.
Other Operating Revenues
Other Operating revenue mainly consists of Sale of Scrap,
Export Incentives from Duty Drawback and RoDTEP
arising from the production of finished goods.
Export Incentives
Export benefits under Duty Drawback benefits and
Remission of Duties and Taxes on Exported Products
Scheme (RoDTEP) are accounted as revenue on accrual
basis as and when export of goods take place, where
there is a reasonable assurance that the benefits will
be received, and the Company will comply with all the
attached conditions.
Interest Income
Interest income is recorded using the effective interest rate
(EIR). EIR is the rate that exactly discounts the estimated
future cash payments or receipts over the expected life
of the financial instrument or a shorter period, where
appropriate, to the gross carrying amount of the financial
asset or to the amortised cost of a financial liability.
I nterest income is included in ’’Other Income” in the
Statement of profit and loss
Interest income earned on the temporary investment
of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs
eligible for capitalisation.
Dividends
Revenue is recognised when the Company's right to
receive the payment is established, which is generally
when shareholders approve the dividend.
Insurance and other claims
Revenue in respect of Insurance and other claim is
recognised only on reasonable certainty of ultimate
collection.
3.11 Foreign Currencies
The Financial Statements are presented in Indian rupees,
which is the functional currency of the Company and the
currency of the primary economic environment in which
the Company operates.
Transactions and balances
Transactions in foreign currencies are initially recorded
by the Company at its functional currency spot rates at
the date the transaction first qualifies for recognition.
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 recognised in profit or loss.
3.12 Employee benefitsShort term employee benefits
Liabilities for short term employee benefits that are
expected to be settled wholly within 12 months after the
end of the period in which the employees render the
related service are recognised in respect of employees'
service up to the end of the reporting period and are
measured at the amounts expected to be paid when the
liabilities are settled. The liabilities are reported as current
employee benefits payable in the balance sheet.
Post-employment benefits
a) Defined benefit plans
The liability or asset recognised in the balance
sheet in respect of defined benefit plans is the
present value of the defined benefits obligation at
the end of the reporting period less the fair value
of plan assets. The defined benefit obligation is
calculated annually by actuaries using the Projected
Unit Credit Method at the year end.
The present value of the defined benefit obligation
is determined by discounting the estimated future
cash outflows by reference to market yields at the
end of the reporting period on government bonds
that have terms approximating to the terms of the
related obligations.
The net interest cost is calculated by applying the
discount rate to the net balance of the defined
benefit obligation and the fair value of plan assets.
This cost is included in Employee Benefit Expense
in the Statement of profit and loss.
Re-measurement gains and losses arising from
experience adjustments and changes in actuarial
assumptions are recognised in the period in
which they occur, directly in Other Comprehensive
Income. They are included in retained earnings in
the Statement of changes in equity.
Changes in the present value of the defined
benefit obligation resulting from plan amendments
or curtailments are recognised immediately in the
profit or loss as past service cost.
b) Defined contribution plans
Contributions under Defined Contribution Plans
payable in keeping with the related schemes are
recognised as expenses for the period in which the
employee has rendered the service.
3.13 Leases
As a lessee
Leases in which a significant portion of the risks and
rewards of ownership are not transferred to the Company
as lessee are classified as operating leases. Payments
made under operating leases are charged to the
Statement of profit and loss on a straight-line basis over
the period of the lease unless the payments are structured
to increase in line with expected general inflation to
compensate for the lessor's expected inflationary cost
increases.
At inception of a contract, the Company assesses
whether a contract is, or contains, a lease. 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.
1. The contract involves the use of an identified asset -
this may be specified explicitly or implicitly and should
be physically distinct or represent substantially all
of the capacity of a physically distinct asset. If the
lessor has a substantive substitution right, then the
asset is not identified.
2. The Company has the right to obtain substantially
all of the economic benefits from use of the asset
throughout the period of use; and
3. The Company as a lessee has the right to direct
the use of the asset. The Company has this right
when it has the decision-making rights that are most
relevant to changing how and for what purpose the
asset is used. In rare cases where the decision
about how and for what purpose the asset is used is
predetermined, the Company has the right to direct
the use of the asset if either:
a) the Company as a lessee has the right to
operate the asset; or
b) t he Company as a lessee designed the asset
in a way that predetermines how and for what
purpose it will be used
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 assets are 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. 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 amortised
cost 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, using the
incremental borrowing rate.
It is re -measured when there is a change in future
lease payments arising from a change in an index
or rate, if there is a change in the estimate of the
amount expected to be payable under a residual
value guarantee, or if the Company changes its
assessment of whether it will exercise a purchase,
extension or termination option.
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying
amount of the right-of-use asset, or is recorded in
profit or loss if the carrying amount of the right-of-
use asset has been reduced to zero.
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 leases of low-value assets. The Company
recognises the lease payments associated with
these leases as an expense on a straight-line basis
over the lease term.
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