3. SIGNIFICANT ACCOUNTING POLICIES
A. Current and non-current classification
All the 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.
Assets: An asset is classified as current when it satisfies any of the following criteria:
a) It is expected to be realized in, or is intended for sale or consumption in, the
Company's normal operating cycle;
b) It is held primarily for the purpose of being traded;
c) It is expected to be realized within twelve months after the reporting date; or
d) It is cash or cash equivalent unless it is restricted from being exchanged or used to
settle a liability for at least twelve months after the reporting date.
Liabilities: A liability is classified as current when it satisfies any of the following
criteria:
a) It is expected to be settled in the Company's normal operating cycle;
b) It is held primarily for the purpose of being traded;
c) It is due to be settled within twelve months after the reporting date; or
d) The Company does not have an unconditional right to defer settlement of the
liability for at least twelve months after the reporting date. Terms of a liability that
could, at the option of the counterparty, result in its settlement by the issue of equity
instruments do not affect its classification.
All other assets/ liabilities are classified as noncurrent. Based on the nature of products
and the time between the acquisition of assets for processing and their realization in
Cash or cash equivalents, the Company has ascertained its normal operating cycle as
12 months for the purpose of Current / Noncurrent classification of assets and
liabilities.
B. Property, plant and equipment (PPE)
PPE is recognized 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.
PPE is stated at original cost net of tax/duty credits availed, if any, less accumulated
depreciation and cumulative impairment, if any. Property, plant and equipment
acquired on hire purchase basis are recognized at their cash values. For qualifying
assets, borrowing costs are capitalized in accordance with the Company's accounting
policy.
PPE not ready for the Ended use on the Balance Sheet date is disclosed as "capital
work in-progress.
Depreciation is recognized using straight line method so as to write off the cost of the
assets (other than freehold land and properties under construction) less their residual
values over their useful lives specified in Schedule Il to the Companies Act, 2013, or
in the case of assets where the useful life was determined by technical evaluation, over
the useful life so determined.
Depreciation method is reviewed at each financial year end to reflect the expected
pattern of consumption of the future economic benefits embodied in the asset. The
estimated useful life and residual values are also reviewed at each financial year end
and the effect of any change in the estimates of useful life/ residual value is accounted
on prospective basis.
Depreciation on additions to / deductions from, owned assets is calculated pro rata to
the period of use.
An item of Property, plant and equipment is derecognized when it is estimated that
Company will not receive future economic benefits from its use or upon its disposal.
Any gains and losses on disposal of such item of property, plant and equipment are
determined by comparing the proceeds from disposal with the carrying amount of
property, plant and equipment, and are recognized in the statement of profit and loss.
C. Depreciation and amortization
Depreciation method, estimated useful lives and residual values are determined based
on technical parameters / assessment, taking into account the nature of the asset, the
estimated usage of the asset, the operating conditions of the asset, past history of
replacement, anticipated technological changes, manufacturers warranties and
maintenance support, etc.
The estimated useful life of Property, Plant & Equipment is aligned to the useful life
specified under Schedule II to the Companies Act, 2013 except useful life for
computing depreciation in the following case:
The management believes that these estimated useful lives are realistic and reflect fair
approximation of the period over which the Property, Plant and Equipment are likely to be
used.
Depreciation on additions to property, plant and equipment is provided on a pro-rata basis
from the date of acquisition or installation, and in the case of a new project, from the date of
commencement of commercial production.
Depreciation on an item of property, plant and equipment sold, discarded, demolished or
scrapped, is provided up to the date on which such item of property, plant and equipment is
sold, discarded, demolished or scrapped.
The Company reviews the residual value, useful lives and depreciation method annually and,
if expectations differ from previous estimates, the change is accounted for as a change in
accounting estimate on a prospective basis.
D. Impairment of assets
As at the end of each accounting year, the Company reviews the carrying amounts of
its PPE, investment property, intangible assets and investments in subsidiary company
to determine whether there is any indication that those assets have suffered an
impairment loss. If such indication exists, the said assets are tested for impairment so
as to determine the impairment loss, if any. The intangible assets with indefinite life
are tested for impairment each year.
Impairment loss is recognized when the carrying amount of an asset exceeds its
recoverable amount. Recoverable amount is determined:
a) in the case of an individual asset, at the higher of the net selling price and the value
in use; and
b) in the case of a cash generating unit (a group of assets that generates identified,
independent cash flows), at the higher of the cash generating unit's net selling price
and the value in use.
The amount of value in use is determined as the present value of estimated future cash
flows from the continuing use of an asset and from its disposal at the end of its useful
life. For this purpose, the discount rate (pre-tax) is determined based on the weighted
average cost of capital of the Company suitably adjusted for risks specified to the
estimated cash flows of the asset
For this purpose, a cash generating unit is ascertained as the smallest identifiable group
of assets that generates cash inflows that are largely independent of the cash inflows
from other assets or groups of assets.
If recoverable amount of an asset (or cash generating unit) is estimated to be less than
its carrying amount, such deficit is recognized immediately in the Statement of Profit
and Loss as impairment loss and the carrying amount of the asset (or cash generating
unit) is reduced to its recoverable amount.
When an impairment loss subsequently reverses, the carrying amount of the asset (or
cash generating unit) is increased to the revised estimate of its recoverable amount, but
so that the increased carrying amount does not exceed the carrying amount that would
have been determined had no impairment loss is recognized for the asset (or cash
generating unit) in prior years. A reversal of an impairment loss is recognized
immediately in the Statement of Profit and Loss.
E. Financial Instruments
1) Financial assets
Financial assets are recognized when the Company becomes a party to the contractual
provisions of the instrument.
All financial assets are recognized at fair value on initial recognition. Financial assets
are subsequently classified as measured at
• amortized cost
• fair value through profit and loss (FVTPL)
• fair value through other comprehensive income (FVTOCI)
Financial assets are not reclassified subsequent to their recognition, except if and in
the period the Company changes its business model for managing financial assets.
Derecognition
The Company derecognizes 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 assets
The Company recognizes loss allowances for expected credit losses on:
- Financial assets measured at amortized cost;
At each reporting date, the Company assesses whether financial assets carried at
amortized cost has impaired and provisions are made for impairment accordingly. A
financial asset is 'credit impaired' when one or more events that have a detrimental
impact on the estimated future cash flows of the financial asset have occurred.
When determining whether the credit risk of a financial asset has increased
significantly since initial recognition and when estimating expected credit losses, the
Company considers reasonable and supportable information that is relevant and
available without undue cost or effort. This includes both quantitative and qualitative
information and analysis, based on the Company's historical experience and informed
credit assessment and including forward looking information.
Measurement of expected credit losses
Expected credit losses are a probability-weighted estimate of credit losses. Credit
losses are measured as the present value of all cash shortfalls (i.e. the difference
between the cash flows due to the Company in accordance with the contract and the
cash flows that the Company expects to receive).
Presentation of allowance for expected credit losses in the balance sheet
Loss allowances for financial assets measured at amortized cost are deducted from the
gross carrying amount of the assets.
Write-off
The gross carrying amount of a financial asset is written off (either partially or in full)
to the extent that there is no realistic prospect of recovery. This is generally the case
when the Company determines that the debtor does not have assets or sources of
income that could generate sufficient cash flows to repay the amounts subject to the
write-off.
ii) Financial liabilities
Financial liabilities are recognized when the Company becomes a party to the
contractual provisions of the instrument. Financial liabilities are initially measured at
the amortized cost unless at initial recognition, they are classified as fair value through
profit and loss.
Financial liabilities are subsequently measured at amortized cost using the effective
interest rate (EIR) method. Financial liabilities carried at fair value through profit or
loss is measured at fair value with all changes in fair value recognized in the Statement
of Profit and Loss.
Derecognition
A financial liability is derecognized when the obligation specified in the contract is
discharged, cancelled or expires.
iii) 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 recognized 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.
F. Borrowing costs
Borrowing costs attributable to the acquisition or construction of fixed assets are
capitalised as part of cost of the assets, up to the date the asset is put to use. Other
Borrowing cost is charged to Statement of Profit & loss in the year in which they are
incurred.
G. Income tax
Income tax comprises current and deferred tax. It is recognized in statement of profit
or loss except to the extent that it relates to an item recognized directly in equity or in
other comprehensive income.
Current tax
Current tax comprises the expected tax payable or receivable on the taxable income
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 (and tax laws) enacted or substantively enacted by the
reporting date. Current tax assets and current tax liabilities are offset only if there is a
legally enforceable right to set off the recognized amounts, and it is intended to realise
the asset and settle the liability on a net basis or simultaneously.
Deferred tax
Deferred tax is recognized in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the corresponding
amounts used for taxation purposes. Deferred tax is also recognized in respect of
carried forward tax losses and tax credits.
Deferred tax assets are recognized to the extent that it is probable that future taxable
profits will be available against which the temporary difference can be utilized. The
existence of unused tax losses is strong evidence that future taxable profit may not be
available. Therefore, in case of a history of recent losses the Company recognizes a
deferred tax asset only to the extent that it has sufficient taxable temporary differences
or there is convincing other evidence that sufficient taxable profit will be available
against which such deferred tax asset can be realized. Deferred tax assets-
unrecognized or recognized, are reviewed at each reporting date and are recognized
/reduced to the extent that it is probable/no longer probable respectively that the related
tax benefit will be realized.
Minimum Alternate Tax (MAT) credit is recognized as an asset only when and to the
extent there is convincing evidence that the Company will pay normal income tax
during the specified period. Such asset is reviewed at each balance sheet date and the
carrying amount of the MAT credit asset is written down to the extent there is no longer
a convincing evidence to the effect that the Company will pay normal income tax
during the specified period.
H. Inventories
Inventories are valued at the lower of cost and net realizable value after providing for
obsolesces and damages as under:
(i) Raw and packing materials, stores and spares including fuel: At Cost on FIFO basis
(ii) Stock in trade and Finished Goods: At Cost plus appropriate overheads
Cost includes cost of purchase, cost of conversion and other costs incurred in bringing
the inventories to their present location and condition. Cost is determined on first in
first out (FIFO) basis.
Net realizable 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.
I. Cash and cash equivalents
Cash and bank balances also include fixed deposits, margin money deposits,
earmarked balances with banks and other bank balances which have restrictions on
repatriation. Short term and liquid investments being subject to more than insignificant
risk of change in value, are not included as part of cash and cash equivalents.
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