2A. MATERIAL ACCOUNTING POLICIES
i) Statement of Compliance with Ind AS
The financial statements have been prepared in
accordance with Indian Accounting Standards (Ind
AS) notified under Section 133 of Companies Act,
2013 (‘the Act’) read together with Companies (Indian
Accounting Standards) Rules, 2015 and other relevant
provisions of the Act.
ii) Basis of Preparation and Presentation
The financial statements have been prepared on the
historical cost basis except for the following;
• Certain financial assets and liabilities
(including derivative instruments) is measured
at fair value;
• defined benefit plans - plan asset measured at
fair value
Historical cost is generally based on the fair value of
the consideration given in exchange for goods and
services.
For financial reporting purposes, fair value
measurements are categorised into Level 1, 2, or 3
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,
which are described as follows:
• 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 or indirectly; and
• Level 3 inputs are unobservable inputs for the
asset or liability
All assets and liabilities have been classified as current
or non-current as per the Company’s normal operating
cycle and other criteria set out in the Schedule III to
the Companies Act, 2013. Based on the nature of
products/activities of the Company and the normal
time between acquisition of assets for processing
and their realisation in cash and cash equivalents, the
Company has ascertained its operating cycle as 12
months for engineering business for the purpose of
classification of its assets and liabilities as current and
non current .
These financial statements are presented in Indian
Rupees which is the Company’s functional currency.
All amounts are rounded off to the nearest lakhs
(including two decimals), unless otherwise stated. The
accounting policies adopted in the preparation of the
financial statements are consistent with those of the
previous year.
iii) Property, Plant and Equipment
Property, Plant and Equipment are stated at cost
of acquisition, less accumulated depreciation and
accumulated impairment losses, if any. The cost
comprises purchase price (excluding refundable
taxes), borrowing costs if capitalization criteria are
met and includes directly attributable cost of bringing
the asset to its working condition for the intended
use. Any trade discounts and rebates are deducted in
arriving at the purchase price. Freehold land is not
depreciated.
Subsequent expenditures related to an item of property,
plant and equipment are added to its carrying value
only when it is probable that the future economic
benefits from the asset will flow to the Company and
cost can be reliably measured. All other repairs and
maintenance are charged to the Statement of Profit
and Loss during the reporting period in which they are
incurred.
Losses arising from the retirement of, and gains or
losses arising from disposal of property, plant and
equipment are recognised in the Statement of Profit
and Loss.
Depreciation on property, plant and equipment has
been provided on straight line method as per the useful
lives estimated by management. The life of the assets
has been assessed based on technical evaluation which
are higher than those specified by Schedule II to the
Act, taking into account the nature of the assets, the
estimated usage of the assets, the operating conditions
of the assets, past history of replacement, anticipated
technological changes, etc.
The estimated useful lives, residual values and
depreciation method are reviewed at the end of each
reporting period, with the effect of any changes in
estimate accounted for on a prospective basis.
Gains and losses on disposals are determined by
comparing proceeds on sale with carrying amount.
These are included in Statement of Profit and Loss
within other gains / losses.
iv) Capital work-in-progress
Projects under which tangible fixed assets are not
yet ready for their use are carried at cost, comprising
direct cost, related incidental expenses and attributable
interest, if any.
v) Intangible Assets
Intangible assets, being computer software, are stated
at acquisition cost, net of accumulated amortisation
and accumulated impairment losses, if any. The cost
comprises acquisition and implementation cost of
software for internal use (including software coding,
installation, testing and certain data conversion).
Amortisation is recognised on a straight-line basis
over their estimated useful lives. The estimated useful
life and amortisation method are reviewed at the end
of each reporting period, with the effect of any changes
in estimate being accounted for on a prospective basis.
Gains or losses arising from the retirement or disposal
of an intangible asset are determined as the difference
between the disposal proceeds and the carrying
amount of the asset and are recognised as income or
expense in the Statement of Profit and Loss.
Research costs are charged to the Statement of Profit
and Loss as they are incurred.
vi) Impairment of Assets
The Company assesses at end of each reporting period
whether there is any indication that an asset may be
impaired. If any such indication exists, the Company
estimates the recoverable amount of the asset. The
recoverable amount is the higher of an asset’s fair
value less costs of disposal and value in use. If such
recoverable amount of the asset or the recoverable
amount of the cash generating unit to which the
asset belongs is less than its carrying amount, the
carrying amount is reduced to its recoverable amount
(cash generating unit). The reduction is treated as an
impairment loss and is recognised in the Statement of
Profit and Loss. If at the Balance Sheet date there is an
indication that if a previously assessed impairment loss
no longer exists, the recoverable amount is reassessed
and the asset is reflected at the lower of recoverable
amount and the carrying amount that would have been
determined had no impairment loss been recognised.
Non financial asset other than goodwill that suffered
an impairment are reviewed for possible reversal of
the impairment at the end of each reporting period.
For the purposes 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 (cash generating unit).
vii) Financial instruments
Financial assets and financial liabilities are
recognised when the Company becomes a party
to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially
measured at fair value except trade recievable which
is measured at transaction price. Transaction costs
that are directly attributable to the acquisition or issue
of financial assets and financial liabilities (other than
financial assets and financial liabilities at fair value
through profit or loss) are added to or deducted from the
fair value of the financial assets or financial liabilities,
as appropriate, on initial recognition,. Transaction
costs directly attributable to the acquisition of financial
assets or financial liabilities at fair value through profit
or loss are recognised immediately in the Statement of
Profit and Loss. “
Financial assets
All recognised financial assets are subsequently
measured in their entirety at either amortised cost
or fair value, depending on the classification of the
financial assets.
Classification:
Debt instruments that meet the following conditions
are subsequently measured at amortised cost:
- the asset is held within a business model whose
objective is to hold assets in order to collect
contractual cash flows; and
- the contractual terms of the instrument give
rise on specified dates to cash flows that are
solely payments of principal and interest on the
principal amount outstanding.
All other financial assets are subsequently measured
at fair value.
Effective interest method
The effective interest method is a method of
calculating the amortised cost of a debt instrument and
of allocating interest income over the relevant period.
The effective interest rate is the rate that exactly
discounts estimated future cash payments or receipts
(including all fees and amounts that form an integral
part of the effective interest rate, transaction costs and
other premiums or discounts) through the expected
life of the debt instrument, or, where appropriate, a
shorter period, to the net carrying amount on initial
recognition.
Income is recognised on an effective interest basis
for debt instruments other than those financial assets
classified as at FVTPL. Interest income is recognised
in the Statement of Profit and Loss and is included in
the “Other income” line item.
Financial assets at fair value through profit or loss
(FVTPL)
Financial assets at FVTPL are measured at fair
value at the end of each reporting period, with any
gains or losses arising on remeasurement recognised
in the Statement of Profit and Loss. The net gain or
loss recognised in the Statement of Profit and Loss
incorporates any dividend or interest earned on the
financial asset. Dividend on financial assets at FVTPL
is recognised when the Company’s right to receive
the dividends is established, it is probable that the
economic benefits associated with the dividend will
flow to the entity, the dividend does not represent
a recovery of part of cost of the investment and the
amount of dividend can be measured reliably.
Impairment of financial assets
The Company applies the expected credit loss model
for recognising impairment loss on financial assets
measured at amortised cost, loan commitments, trade
receivables, financial guarantees not designated as
FVTPL and fair value through other comprehensive
income and other contractual rights to receive cash or
other financial asset.
For trade receivables or any contractual right to
receive cash or another financial asset that result from
revenue transactions, the Company always measures
the loss allowance at an amount equal to lifetime
expected credit losses.
Further, for the purpose of measuring lifetime
expected credit loss (“”ECL””) allowance for trade
receivables, the Company has used a practical
expedient as permitted under Ind AS 109 Financial
Instruments. This expected credit loss allowance is
computed based on a provision matrix which takes
into account historical credit loss experience and
adjusted for forward-looking information.
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.
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.
Derecognition of financial assets
A financial asset is derecognised only when
• The contractual rights to the cash flows from
the financial asset expire, or
• The Company has transferred the rights to
receive cash flows from the financial asset or
• retains the contractual rights to receive the
cash flows of the financial asset but assumes a
contractual obligation to pay the cash flows to
one or more recipients.
• The company has no obligation to pay amounts
to the eventual recipients unless it collects
equivalent amounts from the original asset.
Short-term advances by the company with the
right of full recovery of the amount lent plus
accrued interest at market rates do not violate
this condition.
• The company is prohibited by the terms of
the transfer contract from selling or pledging
the original asset other than as security to the
eventual recipients for the obligation to pay
them cash flows.
• The company has an obligation to remit any
cash flows it collects on behalf of the eventual
recipients without material delay. In addition,
the company is not entitled to reinvest such cash
flows, except for investments in cash or cash
equivalents (as defined in Ind AS 7 Statement
of Cash Flows) during the short settlement
period from the collection date to the date of
required remittance to the eventual recipients,
and interest earned on such investments is
passed to the eventual recipients.
Where the entity has transferred an asset, the Company
evaluates whether it has transferred substantially all
risks and rewards of ownership of the financial asset.
In such cases, the financial asset is derecognised.
Foreign exchange gains and losses
The fair value of financial assets denominated in a
foreign currency is determined in that foreign currency
and translated at the spot rate at the end of each
reporting period. For foreign currency denominated
financial assets measured at amortised cost and
FVTPL, the exchange differences are recognised in
the Statement of Profit and Loss.
Financial liabilities and equity instruments
Classification as debt or equity
Debt and equity instruments issued by a 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 a group entity are recognised at the proceeds
received, net of direct issue costs.
Financial liabilities
All financial liabilities are subsequently measured at
amortised cost using the effective interest method or
at FVTPL. Borrowings are intially recognised at fair
value, net of transaction costs incurred.
Financial liabilities that are not held-for-trading and
are not designated as at FVTPL are measured at
amortised cost at the end of subsequent accounting
periods. The carrying amounts of financial liabilities
that are subsequently measured at amortised cost are
determined based on the effective interest method.
Derecognition of financial liabilities
The Company derecognises financial liabilities
when, and only when, the Company’s obligations are
discharged, cancelled or have expired. An exchange
with a lender of debt instruments with substantially
different terms is accounted for as an extinguishment
of the original financial liability and the recognition
of a new financial liability. A substantial modification
of the terms of an existing financial liability (whether
or not attributable to the financial difficulty of the
debtor) is accounted for as an extinguishment of the
original financial liability and the recognition of a
new financial liability. The difference between the
carrying amount of the financial liability derecognised
and the consideration paid including any non-cash
assets transferred or liabilities assumed, and payable
is recognised in the Statement of Profit and Loss.
Offsetting financial instruments
Financial assets and liabilities are offset and the net
amount is reported in the Balance Sheet where there
is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net
basis or realise the asset and settle the liability
simultaneously. The legally enforceable right must
not be contingent on future events and must be
enforceable in the normal course of business and in
the event of default, insolvency or bankruptcy of the
Company or the counterparty.
Financial guarantee contracts
Financial guarantee contracts issued by the Company
are those contracts that require a payment to be made
to reimburse the holder for a loss it incurs because
the specified debtor fails to make a payment when
due in accordance with the original or modified terms
of a debt instrument, financial guarantee contracts
are recognised initially as a financial liability at
fair value, adjusted for transaction costs that are
directly attributable to the issuance of the guarantee.
Subsequently, the liability is measured at the higher
of the amount of loss allowance determined as
per impairment requirements of Ind AS 109 and
the amount recognised less cumulative amount
amortisation where appropriate.
The Fair value of financial guarantees is determined
based on the present value of the difference in cash
flows between the contractual payments required
under the debt instrument and the payments that would
be required without the guarantee, or the estimated
amount that would be payable to a third party for
assuming the obligation.
viii) Inventories
Inventories are valued at the lower of the acquisition
/ production cost and net realisable value. Costs of
inventories are determined on weighted average basis.
Raw materials and stores, work in progress, traded and
finished goods are stated at the lower of cost and net
realisable value. Cost of raw materials, consumables
spares and traded goods comprises cost of purchases
and other costs incurred in bringing the inventories
to their present location and condition. Cost of work-
in-progress and finished goods comprises direct
materials, direct labour and an appropriate proportion
of variable and fixed overhead expenditure, the latter
being allocated on the basis of normal operating
capacity. Cost of inventories also include all other
costs incurred in bringing the inventories to their
present location and condition.
ix) Earnings per share
Basic Earnings per share are calculated by dividing the
net profit / (loss) after tax for the year attributable to
equity shareholders of the Company by the weighted
average number of equity shares outstanding during
the year.
Diluted earnings per share adjusts the figures used in
the determination of basic earnings per share to take
into account
• the after income tax effect of interest and
other financing costs associated with dilutive
potential equity shares, and
• the weighted average number of additional
equity shares that would have been outstanding
assuming the conversion of all dilutive
potential equity shares.
x) Employee Benefits
a) Short-term employee benefits
Liabilities for wages and salaries, including
non-monetary benefits that are expected to
be settled wholly within 12 months after the
end of the period in which the employees
render the related service are recognised in
respect of employees’ services up to the end
of the reporting period and are measured at
the undiscounted amounts expected to be paid
when the liabilities are settled. The liabilities
are presented as current employee benefit
obligations in the Balance Sheet.
b) Other long-term employee benefits
The liabilities for earned leave are not expected
to be settled wholly within 12 months after
the end of the period in which the employees
render the related service. They are therefore
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.
The obligations are presented as current
liabilities in the Balance Sheet if the entity
does not have an unconditional right to defer
settlement for at least twelve months after the
reporting period, regardless of when the actual
settlement is expected to occur.
c) Post-employment obligations
The Company operates the following post¬
employment schemes:
- Defined Contribution plans such as
employee state insurance scheme.
- Defined Benefit plans such as gratuity.
Defined Contribution Plans
The Company’s contribution to pension
and employee state insurance scheme are
considered as defined contribution plans,
as the Company does not carry any further
obligations apart from the contributions made
on a monthly basis and are charged as an
expense based on the amount of contribution
required to be made.
The Company’s liability towards gratuity,
which is a defined benefit plan, is determined
on the basis of valuations, as at Balance Sheet
date, carried out by an independent actuary
using Projected Unit Credit Method. 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 obligation.
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.
Remeasurement 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 and in the Balance Sheet.
Changes in the present value of the defined
benefit obligation resulting from plan
amendments or curtailments are recognised
immediately in the Statement of Profit and
Loss as past service cost.
The eligible employees of the Company are
entitled to receive post-employment benefits
in respect of provident fund, in which both the
employees and the Company make monthly
contributions at a specified percentage as
applicable of the employees’ eligible salary.
The contributions are made to the Employees
provident fund department.
d) A liability for a termination benefit is
recognised at the earlier of when the entity can
no longer withdraw the offer of the termination
benefit and when the entity recognises any
related restructuring costs.
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