4. Material Accounting Policies

a) Property, Plant and Equipment

Property, Plant and Equipment are stated
at cost less accumulated depreciation and
accumulated impairment losses, if any. Cost
includes all expenses related to the acquisition
and installation of Property, Plant and Equipment
which comprises its purchase price net of any
trade discounts and rebates, any import duties
and other taxes (other than those subsequently

recoverable from the tax authorities), any
directly attributable expenditure on making
the asset ready for its intended use and other
incidental expenses.

Machinery spares which can be used only in
connection with an item of Property, Plant
and Equipment and whose use is expected to
be irregular are capitalised and depreciated
over the useful life of the principal item of the
relevant class of assets. Subsequent expenditure
on property, plant and equipment after its
purchase / completion is capitalised only if such
expenditure results in an increase in the future
benefits from such asset beyond its previously
assessed standard of performance.

Capital Work in Progress

Properties in the course of construction for
production, supply or administrative purposes are
carried at cost, less any recognised impairment
loss. Cost comprises direct cost, related incidental
expenses and for qualifying assets, borrowing
costs capitalised in accordance with the
Company's accounting policy. Such properties
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 property
assets, commences when the assets are ready
for their intended use.

An item of property, plant and equipment is
derecognised upon disposal or when no future
economic benefits are expected to arise from
the continued use of the 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 statement of profit & loss.

Intangible Assets

Intangible assets with finite useful lives that
are acquired separately are carried at cost less
accumulated amortisation and accumulated
impairment losses. 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

c) Impairment of non-financial assets

At the end of each reporting period, the Company
reviews the carrying amounts of its Property,
Plant and equipment and intangible assets
to determine whether there is an indication
that those assets may be impaired. If any such
indication exists, the Company estimates the
asset's recoverable amount in order to determine
the extent of impairment loss (if any). When it is
not possible to estimate the recoverable amount
of an individual asset, the Company estimates the
recoverable amount of the cash-generating to
which the asset belongs. When a reasonable and
consistent basis of allocation can be identified,
corporate assets are allocated to individual cash¬
generating units, or otherwise they are allocated
to the smallest group of cash-generating units
for which a reasonable and consistent allocation
basis can be identified.

The recoverable amount of an individual asset or
CGU is the higher of an asset's or CGU's fair value
less costs of disposal and its value in use. Value
in use is based on the estimated future cash
flows, discounted to their present value using a
pre-tax discount rate that reflects current market
assessments of the time value of money and the
risks specific to the asset or CGU. In determining
fair value less costs of disposal, recent market
transactions are considered.

An impairment loss is recognized if the carrying
amount of an asset or CGU exceeds its recoverable
amount. Impairment losses are recognised in the
profit or loss. They are allocated first to reduce the
carrying amount of any goodwill allocated to the
CGU, and then to reduce the carrying amounts of
other assets in the CGU on a pro rata basis.

The Company reviews at each reporting date
whether there is an indication that previously
recognised impairment losses no longer exist
or have decreased. If such indication exists, the
Company estimates the recoverable amount
of an asset or CGU. A previously recognised
impairment loss is reversed only if there has been
a change in the estimates used to determine the
recoverable amount. Such reversal is made only
to the extent that the carrying amount of the
asset does not exceed its recoverable amount,
nor exceed the carrying amount that would have

been determined, net of depreciation, had no
impairment loss been recognised for the asset in
prior years.

Intangible assets with indefinite useful lives are
tested for impairment annually, and whenever
there is an indication that the assets may
be impaired.

d) Goodwill

Goodwill represents the excess of the
consideration paid to acquire a business
over underlying fair value of the identified
assets acquired.

Goodwill is not amortized but is reviewed for
impairment at least annually. For the purpose of
impairment testing, goodwill is allocated to each
of the cash-generating units (or groups of cash¬
generating units) expected to benefit from the
synergies of the combination. Cash-generating
units to which goodwill has been allocated are
tested for impairment annually, or more frequently
when there is an indication that the unit may be
impaired. If the recoverable amount of the cash¬
generating unit is less than the carrying amount
of the unit, the impairment loss is allocated first
to reduce the carrying amount of any goodwill
allocated to the unit and then to the other assets
of the unit pro-rata on the basis of the carrying
amount of each asset in the unit. An impairment
loss recognized for goodwill is not reversed in a
subsequent period.

On disposal of a cash-generating unit, the
attributable amount of goodwill is included in the
determination of the profit or loss on disposal.

e) Foreign Exchange Transactions and Translation

Foreign currency transactions are recorded at
exchange rates prevailing on the date of the
transaction. The net gain or loss on account of
exchange differences arising on settlement of
foreign currency transactions are recognized as
income or expense of the period in which they
arise. Monetary assets and liabilities denominated
in foreign currency as at the balance sheet date
are translated at the closing rate. The resultant
exchange rate differences are recognized in
the statement of profit and loss. Non-monetary
assets and liabilities are carried at the rates
prevailing on the date of transaction.

f) Inventories

Inventories are stated at lower of cost and net
realizable value. Cost is determined on the
weighted average method and is net of tax
credits and after providing for obsolescence
and other losses. Cost includes all charges in
bringing the goods to their existing location and
conditions, including various tax levies (other
than those subsequently recoverable from the
tax authorities), transit insurance and receiving
charges. Cost of work-in-progress and finished
goods include cost of direct materials consumed,
labour cost and a proportion of manufacturing
overheads based on the normal operating
capacity but excluding borrowing costs.

Net realizable value is the contracted selling
value less the estimated costs of completion and
the estimated costs necessary to make the sales.

g) Financial Instruments

Financial assets and/or financial liabilities are
recognized when the Company becomes party
to a contract embodying the related financial
instruments. All financial assets and financial
liabilities are initially measured at transaction
values and where such values are different from
the fair value, at fair value. Transaction costs
that are 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 as the case may be, the fair value
of such assets or liabilities, on initial recognition.
Transaction costs directly attributable to the
acquisition of financial assets or financial
liabilities at fair value through profit or loss are
recognized immediately in profit or loss.

The financial assets and financial liabilities are
offset and presented on net basis in the Balance
Sheet when there is a current legally enforceable
right to set-off the recognized amounts and it is
intended to either settle on net basis or to realize
the asset and settle the liability simultaneously.

(I) Financial assets:

i. Initial recognition and measurement of
financial assets

All financial assets are recognized initially at
fair value. Transaction costs that are directly

attributable to the acquisition of financial
assets that are not at fair value through
profit or loss are added to the fair value on
initial recognition.

ii. Subsequent measurement of financial
assets

For purposes of subsequent measurement,
financial assets are classified in
below categories:

• Financial assets at amortized cost

• Financial assets at fair value through
other comprehensive income (FVTOCI)
with recycling of cumulative gains and
losses (debt instruments)

• Financial assets designated at fair
value through OCI with no recycling
of cumulative gains and losses upon
derecognition (equity instruments)

• Financial assets at fair value through
profit or loss (FVTPL)

Financial assets at amortized cost

A financial asset is measured at amortized
cost if it is held within a business model
whose objective is to hold financial assets 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
(SPPI) on the principal amount outstanding.

After initial measurement, such financial
assets are subsequently measured at
amortized cost using the effective interest
rate (EIR) method. Amortized 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 amortization is included in finance
income in the profit or loss. The losses arising
from impairment are recognized in the profit
or loss. This category generally applies to
trade and other receivables.

Financial assets at fair value through profit
or loss

FVTPL is a residual category for financial
assets. Any financial asset which does not
meet the criteria for categorization as at

amortized cost or as FVTOCI is classified
as at FVTPL.

The Company measures investment in
subsidiaries at cost less impairment loss, if
any, as per Ind AS 27 - Separate Financial
Statements. Transaction costs incurred in
connection with investment in subsidiaries
are capitalized in the cost of investment.

iii. De-recognition of financial assets

A financial asset is de-recognized when the
contractual rights to the cash flows from the
financial asset expire or the Company has
transferred its contractual rights to receive
cash flows from the asset or has assumed
an obligation to pay the received cash
flows in full without material delay to a third
party under a 'pass-through' arrangement;
and either (a) the Company has transferred
substantially all the risks and rewards of
the asset, or (b) the Company has neither
transferred nor retained substantially all
the risks and rewards of the asset, but has
transferred control of the asset.

When the Company has transferred its rights
to receive cash flows from an asset or has
entered into a pass-through arrangement,
it evaluates if and to what extent it has
retained the risks and rewards of ownership.
When it has neither transferred nor retained
substantially all of the risks and rewards
of the asset, nor transferred control of the
asset, the Company continues to recognize
the transferred asset to the extent of the
Company's continuing involvement. In that
case, the Company also recognizes an
associated liability. The transferred asset and
the associated liability are measured on a
basis that reflects the rights and obligations
that the Company has retained.

iv. Impairment of financial assets

The Company recognizes loss allowances
using the expected credit loss (ECL) model
for trade receivables. The Company applies
a simplified approach in calculating ECLs.
Therefore, the Company does not track
changes in credit risk, but instead recognises
a loss allowance based on lifetime ECLs at
each reporting date. The Company has

established a provision matrix that is based
on its historical credit loss experience,
adjusted for forward-looking factors specific
to the trade receivables and the economic
environment.

(II) Financial liabilities:

i. Initial recognition and measurement of
financial liabilities

The Company's financial liabilities include
trade and other payables, loans and
borrowings including bank overdrafts. All
financial liabilities are recognized initially at
fair value, in case of loan and borrowings and
payables, fair value is reduced by directly
attributable transaction costs.

ii. Subsequent measurement of financial
liabilities

For purposes of subsequent measurement,
financial liabilities are classified in
two categories:

• Financial liabilities at fair value through
profit or loss

• Financial liabilities at amortised cost
(loans and borrowings)

Financial liabilities at fair value through
profit or loss

Financial liabilities at fair value through profit
or loss include financial liabilities designated
upon initial recognition as at fair value
through profit or loss (FVTPL).

Financial liabilities designated upon initial
recognition at fair value through profit or
loss are designated at the initial date of
recognition only if the criteria in Ind-AS 109
are satisfied. For liabilities designated as
FVTPL, fair value gains/ losses on changes
in fair value of such liability are recognized in
the statement of profit or loss.

Financial liabilities at amortized cost

Financial liabilities that are not held for
trading and are not designated as at FVTPL
are measured at amortized cost at the end
of each subsequent accounting period. The
carrying amounts of financial liabilities that
are subsequently measured at amortized

cost are determined based on effective
interest method. Interest expenses that is
not capitalized as part of cost of an asset is
included in the 'finance cost' line item.

Amortized 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 amortization
is included as finance costs in the statement
of profit and loss. This category generally
applies to borrowings.

iii. De-recognition of Financial Liabilities

A financial liability (or a part of a financial
liability) is derecognized from its balance
sheet when the obligation specified in the
contract is discharged or cancelled or expired.

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 recognized in the statement of
profit and loss.

h) Cash & Cash Equivalents

Cash and cash equivalents consist of cash on
hand, short demand deposits and highly liquid
investments that are readily convertible into
known amounts of cash and which are subject
to an insignificant risk of change in value. Short
term means investments with original maturities
/ holding period of three months or less from the
date of investments. Bank overdrafts that are
repayable on demand and form an integral part of
the Company's cash management are included
as a component of cash and cash equivalent for
the purpose of statement of cash flow.

i) Revenue Recognition

Revenue towards satisfaction of performance
obligation from contracts with customers is
recognised upon transfer of control of promised
products or services to customers in an amount
that reflects the consideration which the
Company expects to receive in exchange for
those products or services.

The Company exercises judgement in
determining whether the performance obligation
is satisfied at a point in time or over a period of
time. The Company considers indicators such
as how customer consumes benefits as services
are rendered or who controls the asset as it is
being created or existence of enforceable right to
payment for performance to date and alternate
use of such product or service, acceptance of
delivery by the customer, etc.

In respect of fixed-price contracts, revenue is
recognised using percentage-of-completion
method ('POC method') of accounting based
on the progress towards complete satisfaction
of the performance obligation of the contract
at the reporting date. The progress is measured
based on the Company's efforts or inputs to
the satisfaction of the performance obligation,
by reference to the costs incurred up to the
end of reporting period and costs to complete
as a percentage of total estimated costs in
the contract.

Estimates of revenues, cost or extent of progress
towards completion are revised if circumstances
change. Any resulting increases or decreases
in estimated revenues or costs are reflected
in the profit or loss in the period in which the
circumstances that give rise to the revision
become known by Management.

In respect of variable consideration, the nature
of the contracts gives rise to several types of
variable considerations including but not limited
to claims, unpriced change orders, award and
incentive fees, change in law, liquidated damages
and penalties. The Company recognizes revenue
for variable consideration when it is probable
that a significant reversal in the amount of
cumulative revenue recognized will not occur.
The Company estimates the amount of revenue
to be recognized on variable consideration
using the expected value or the most likely
amount method, whichever is expected to better
predict the amount.

Revenue is measured based on the transaction
price, which is the consideration, adjusted
for volume discounts, price concessions and
Performance penalty, if any, as specified in
the contract with the customer. Revenue also

excludes taxes collected from customers.

Unbilled Revenues are recognised when there
is an excess of revenue earned over billings
on contracts.

Contract assets in the nature of unbilled revenues
are initially recognised for revenue earned
from operations as receipt of consideration
is conditional on successful completion of
performance obligation. Upon fulfilment of
performance obligation and acceptance by the
customer, the amounts recognised as unbilled
revenues are reclassified to Trade Receivables.

Contract liability is the obligation to transfer
goods or services to a customer for which the
Company has received consideration (or an
amount of consideration is due) from customer.
Contract liabilities are classified as advance from
customers and recognised as revenue when the
Company performs under the project.

Other Income:

Dividend income is recognized when the right to
receive the same is established.

Interest income is recognized on accrual basis.

j) Product Warranty Expenses

Provision is made in the financial statements for
the estimated liability on account of costs that
may be incurred on products sold under warranty.
The estimates for the costs to be incurred
for providing free service under warranty are
determined based on historical information, past
experience, average cost of warranty claims that
are provided for in the year of sale.

k) Employee Benefits

Employee benefits include provident fund,
superannuation fund, family pension fund,
gratuity fund and compensated absences.

Defined contribution plans

The Company's contribution to provident fund,
family pension fund and superannuation fund
are considered as defined contribution plans and
are charged as an expense based on the amount
of contribution required to be made and when
services are rendered by the employees.

Defined benefit plans

For defined benefit plans in the form of gratuity
fund, the cost of providing benefits is determined
using the projected unit credit method, with
actuarial valuations being carried out at the end
of each annual reporting period. Remeasurement,
comprising actuarial gains and losses, the effect
of the changes to the asset ceiling (if applicable)
and the return on plan assets (excluding net
interest), is reflected immediately in the balance
sheet with a charge or credit recognised in other
comprehensive income in the period in which
they occur. Remeasurement recognised in other
comprehensive income is reflected immediately
in retained earnings and is not reclassified to
statement of profit & loss. Past service cost
is recognised in statement of profit & loss in
the period of a plan amendment. Net interest
is calculated by applying the discount rate at
the beginning of the period to the net defined
benefit liability or asset. Defined benefit costs are
categorised as follows:

• service cost (including current service cost,
past service cost, as well as gains and losses
on curtailments and settlements);

• net interest expense or income; and

• remeasurement

The Company presents the first two components
of defined benefit costs in statement of profit &
loss in the line item 'Employee benefits expense'.
Curtailment gains and losses are accounted for
as past service costs.

The retirement benefit obligation recognised
in the standalone balance sheet represents
the actual deficit or surplus in the Company's
defined benefit plans. Any surplus resulting from
this calculation is limited to the present value of
any economic benefits available in the form of
refunds from the plans or reductions in future
contributions to the plans.

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.

Short-term and other long-term employee
benefits

A liability is recognised for benefits accruing to
employees in respect of wages and salaries,
annual leave, sick leave and other short term
employee benefits in the period the related
service is rendered at the undiscounted amount
of the benefits expected to be paid in exchange
for that service.

Liabilities recognised in respect of long-term
employee benefits in form of compensated
absences are measured at the present value of
the estimated future cash outflows expected to
be made by the Company in respect of services
provided by employees up to the reporting date.

Share-based payment transactions of the
Company

Certain eligible Employees of the Company and
its subsidiaries receive remuneration in the form
of share-based payments, whereby employees
render services as consideration for equity
instruments (equity-settled transactions) of the
listed parent entity i.e., GMM Pfaudler Limited.

The cost of equity-settled transactions is
determined by the fair value at the date when
the grant is made using an appropriate valuation
model. That cost is recognised, together with a
corresponding increase in share-based payment
reserves in equity, over the period in which the
performance and/ or service conditions are
fulfilled in employee benefits expense. The
cumulative expense recognised for equity-
settled transactions at each reporting date until
the vesting date reflects the extent to which the
vesting period has expired and the Company's
best estimate of the number of equity instruments
that will ultimately vest. The statement of profit
and loss expense or credit for a period represents
the movement in cumulative expense recognised
as at the beginning and end of that period and is
recognised in employee benefits expense. Service
and non-market performance conditions are not
taken into account when determining the grant
date fair value of awards, but the likelihood of the
conditions being met is assessed as part of the
Company's best estimate of the number of equity
instruments that will ultimately vest. Market
performance conditions are reflected within

the grant date fair value. Any other conditions
attached to an award, but without an associated
service requirement, are considered to be non
vesting conditions. Non-vesting conditions are
reflected in the fair value of an award and lead to
an immediate expensing of an award unless there
are also service and/or performance conditions.

When the terms of an equity-settled award are
modified, the minimum expense recognised
is the expense had the terms had not been
modified, if the original terms of the award are
met. An additional expense is recognised for
any modification that increases the total fair
value of the share-based payment transaction,
or is otherwise beneficial to the employee as
measured at the date of modification. Where
an award is cancelled by the entity or by the
counterparty, any remaining element of the fair
value of the award is expensed immediately
through profit or loss. The Company raises
recharge invoices to subsidiaries for the shares
granted to the respective subsidiaries' employees
based on the fair value of the options determined
on grant date and netted of against the share
based payment expense.

The dilutive effect of outstanding options is
reflected as additional share dilution in the
computation of diluted earnings per share.

l) Operating Expenses

Operating Expenses are charged to statement of
Profit and Loss on accrual basis.

m) Leases

The Company's lease asset classes primarily
consist of leases for land and buildings. 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.
Identification of a lease requires significant
judgment. The Company uses significant
judgement in assessing the lease term (including
anticipated renewals) and the applicable
discount rate.

The Company determines the lease term as the
non-cancellable period of a lease, together with
both periods covered by an option to extend

the lease. In assessing whether the Company
is reasonably certain to exercise an option to
extend a lease, or not to exercise an option to
terminate a lease, it considers all relevant facts
and circumstances that create an economic
incentive for the Company to exercise the option
to extend the lease, or not to exercise the option
to terminate the lease. The Company revises
the lease term if there is a change in the non¬
cancellable period of a lease.

Right of Use Assets

At the date of commencement of the lease,
the Company recognizes a right-of-use asset
("ROU") and a corresponding lease liability for
all lease arrangements in which it is a lessee,
except for leases with a term of twelve months
or less (short-term leases) and low value leases.
For these short-term and low value leases, the
Company recognizes the lease payments as an
operating expense on a straight-line basis over
the term of the lease.

The right-of-use assets are initially recognized at
cost, which comprises the initial amount of the
lease liability adjusted for any lease payments
made at or prior to the commencement date
of the lease plus any initial direct costs less
any lease incentives. They are subsequently
measured at cost less accumulated amortisation
and impairment losses.

Lease liabilities

The lease liability is initially measured at
amortized cost at the present value of the
future lease payments. The lease payments
are discounted using the interest rate implicit
in the lease or, if not readily determinable, using
the incremental borrowing rates in the country
of domicile of these leases. Lease liabilities are
remeasured with a corresponding adjustment
to the related right of use asset if the Company
changes its assessment if whether it will exercise
an extension or a termination option.

The Company remeasures the lease liability (and
makes a corresponding adjustment to the related
right-of-use asset) whenever:

• The lease term has changed or there is a
significant event or change in circumstances
resulting in a change in the assessment

of exercise of a purchase option, in which
case the lease liability is remeasured by
discounting the revised lease payments
using a revised discount rate.

• The lease payments change due to changes
in an index or rate or a change in expected
payment under a guaranteed residual
value, in which cases the lease liability is
remeasured by discounting the revised lease
payments using an unchanged discount rate
(unless the lease payments change is due to
a change in a floating interest rate, in which
case a revised discount rate is used).

• A lease contract is modified and the lease
modification is not accounted for as a
separate lease, in which case the lease
liability is remeasured based on the lease
term of the modified lease by discounting
the revised lease payments using a revised
discount rate at the effective date of the
modification.