2.1 Significant Accounting Policies
2.1.1 Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable. Amounts
disclosed as revenue are exclusive of taxes and net of returns, Trade Allowances, Rebates,
other similar allowances, Goods and Service Tax and amounts collected on behalf of third
parties, if any.
The Company recognises revenue when the amount of revenue can be reliably measured, it is
probable that future economic benefits will flow to the Company and specific criteria have been
met for each of the Company's activities as described below:
2.1.1.a Sale of Goods
Revenue from the sale of goods is recognised when the goods are delivered, and titles have
passed, at which moment all the following conditions are satisfied:
• The Company has transferred to the buyer significant risks and rewards of ownership of the
goods;
• The Company retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold;
• The amount of revenue can be measured reliably;
• It is probable that economic benefits associated with the transaction will flow to the Company;
and
• The costs incurred or to be incurred in respect of the transaction can be measured reliably.
2.1.1. b Dividend Income
Dividend income from investments is recognised when the Company's right to receive payment
has been established (provided that it is probable that the economic benefits will flow to the
Company and the amount of income can be measured reliably).
2.1.1. c Interest Income
Interest income from a financial asset is recognised when it is probable that the economic
benefits will flow to the Company and the amount of income can be measured reliably. Interest
income is accrued on a time basis by reference to the principal amount outstanding and at the
effective interest rate. Effective interest rate is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial asset to that asset's net carrying amount
on initial recognition.
2.1.2 Inventories
Inventories are measured at cost and net realizable value, whichever is lower. Net realizable
value is the estimated selling price in the ordinary course of business less estimated cost
necessary to make sale. Cost in respect of raw materials and stock in trade are determined on
FIFO basis. Costs in respect of all other Inventories are computed on weighted average basis
method. Finished goods and process stock include cost of conversion and other costs incurred
in acquiring the inventory and bringing them to their present location and condition.
Inventories are written down to net realizable value item by item except where it is appropriate to
group similar or related items. When a decline in the price of materials, indicates that the cost of
the finished products exceeds net realizable value, the materials are written down to their
replacement cost. When the circumstances that previously caused inventories to be written
down below cost no longer exist or when there is clear evidence of an increase in net realizable
value because of changed economic circumstances, the amount of the write-down is reversed
so that the new carrying amount is the lower of the cost and the revised net realizable value.
Inventories are recognised as expense in the period in which the related revenue is recognised.
2.1.3 Property, Plant and Equipment
2.1.3.a Recognition of Property, Plant and Equipment
Property, plant and equipment are tangible items that are held for use in the production or
supply of goods and services, rental to others or for administrative purposes and are expected
to be used during more than one period. The cost of an item of property, plant and equipment is
recognised as an asset if an only if 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. Freehold
land is carried at cost less accumulated impairment losses. All other items of property, plant and
equipment are stated at cost less accumulated depreciation and accumulated impairment
losses. Cost of an item of property, plant and equipment comprises:
• Its purchase price, all costs including financial costs till commencement of commercial
production are capitalized to the cost of qualifying assets. CENVAT/Tax credit, if any, are
accounted for by reducing the cost of capital goods;
• Any other costs directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended by management.
All other repairs and maintenance are charged to profit or loss during the reporting period in
which they are incurred.
2.1.3. b Depreciation of Property, Plant and Equipment
Each part of an item of property, plant and equipment with a cost that is significant in relation to
the total cost of the item is depreciated separately on straight-line method. Parts of plant and
equipment that are technically advised to be replaced at prescribed intervals / periods of
operation, insurance spares and cost of inspection / overhauling are depreciated separately
based on their specific useful life provided these are of significant amounts. The depreciation
charge for each period is recognised in profit or loss unless it is included in the carrying amount
of another asset. Depreciable amount of an item of property, plant and equipment is arrived at
after deducting estimated residual value. The depreciable amount of an asset is allocated on a
systematic basis over its useful life as disclosed in Note 4. The Company reviews the residual
value and useful life at each financial year-end and, if expectations differ from previous
estimates, the residual value and useful lives are changed prospectively and accounted for as a
change in accounting estimate. Depreciation commences when the item of property, plant and
equipment is in the location and condition necessary for it to be capable of operating in the
manner intended by management. Depreciation ceases at the earlier of the date that the asset
is classified as held for sale (or included in a disposal group that is classified as held for sale)
and the date that the asset is derecognized. The Company review the depreciation method at
each financial year- end and if, there has been a significant change in the expected pattern of
consumption of the future economic benefits embodied in the asset, the method is changed to
reflect the changed pattern. Such a change is accounted as a change in accounting estimate on
prospective basis.
2.1.3. c Compensation for Impairment
The Company recognises compensation from third parties for items of property, plant and
equipment that were impaired, lost or given up in profit or loss when the compensation becomes
receivable.
2.1.3. d Derecognition of Property, Plant and Equipment
The carrying amount of an item of property, plant and equipment is derecognized on disposal or
when no future economic benefits are expected from its use or disposal. The gain or loss from
the derecognition of an item of property, plant and equipment is recognised in profit or loss when
the item is derecognized.
2.1.4 Leases
The Company determines an arrangement as a lease based on the substance of the
arrangement after assessing whether the arrangement is dependent on the use of specific
asset or assets and whether the arrangement conveys a right to use the asset or assets. The
Company classifies all leases into finance and operating leases at the earlier of the date of the
lease agreement and the date of commitment by the parties to the principal provisions of the
lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards
incidental to ownership. A lease is classified as an operating lease if it does not transfer
substantially all the risks and rewards incidental to ownership. The Company has applied
accounting for leases for assets taken on lease. The Company has not given assets on lease.
2.1.4. a Finance lease as lessee
The Company recognises property leased under finance leases at the lower of the fair value of
the lease property and present value of minimum lease payments. Lease payments are
discounted at the interest rate implicit in the lease to calculate present value of minimum lease
payments. Initial direct costs are added to the amount recognised as an asset. Minimum lease
payments are apportioned between the finance charge and the reduction of the outstanding
liability. Contingent rents are charged as expenses in the period in which they are incurred. The
leased property is depreciated as per the depreciation policy specified in Note 2.1.3.
2.1.4. b Operating lease as lessee
Operating lease payments are recognised as an expense on a straight-line basis over the lease
term, except where another systematic basis is more representative of the time pattern in which
economic benefits from the leased asset are consumed or the payments to the lessor are
structured to increase in line with expected general inflation to compensate for the lessor's
expected inflationary cost increases. Where payments to the lessor are structured to increase
in line with expected general inflation to compensate for the lessor's expected inflationary cost
increases, lease expense is recognised based on the contractual lease payments. Contingent
rentals arising under operating leases are recognised as an expense in the period in which they
are incurred.
2.1.5 Employee Benefits
2.1.5. a Short-term Employee Benefits
Short-term employee benefits are employee benefits (other than termination benefits) that are
expected to be settled wholly before twelve months after the end of the reporting period in which
the employees render the related service. Short-term employee benefits include salaries,
wages, social security contributions, bonus, paid annual leave etc. Liabilities recognised in
respect of short-term employee benefits are measured at the undiscounted amount of the
benefits expected to be paid in.
2.1.7 Foreign currency transactions and translations
Functional currency of the Company is Indian rupee. The financial statements have been
presented under its functional currency. Any transaction that is denominated in a currency other
than the functional currency is regarded as foreign currency transaction. All foreign currency
transactions are recorded, on initial recognition in the functional currency, by apply to the
foreign currency amount the spot exchange rate between the functional currency and the
foreign currency at the date of the transaction. In case of consideration received in advance, the
exchange rate prevailing on the date of receipt or payment of advance is considered when
subsequently the related asset is given up or received to the extent of advance consideration.
At the end of the reporting period:
1. Foreign Currency Monetary items are translated using the exchange rate for immediate
delivery at the end of the reporting period;
2. Non-Monetary items that are measured in terms of historical cost in a foreign currency are
translated using the exchange rate at the date of the transaction; and
3. Non-Monetary items that are measured at fair value in a foreign currency are translated using
the exchange rates at the date when the fair value was measured.
Exchange difference arising on the settlement of monetary items or on translating monetary
items at rates different from those at which they were translated on initial recognition during the
period or in previous financial statements are recognised in profit or loss in the period in which
they arise.
2.1.8 Borrowing Costs
Interest and other costs that the Company incurs in connection with the borrowing of funds are
identified as borrowing costs. The Company capitalises borrowing costs that are directly
attributable to the acquisition, construction or production of a qualifying asset as part of the cost
of that asset. Other borrowing costs are recognised as an expense in the period in which it is
incurred. A qualifying asset is an asset that necessarily takes a substantial period of time to get
ready for its intended use. The Company identifies the borrowings into specific borrowings and
general borrowings. Specific borrowings are borrowings that are specifically taken for the
purpose of obtaining a qualifying asset. General borrowings include all other borrowings and
also the amount outstanding as on the balance sheet date of specific borrowings. Borrowing
cost incurred actually on specific borrowings are capitalised to the cost of the qualifying asset.
For general borrowings, the company determines the amount of borrowing costs eligible for
capitalisation by applying a capitalisation rate to the expenditures on the qualifying asset based
on the weighted average of the borrowing costs applicable to general borrowings. The
capitalisation on borrowing costs commences when the company incurs expenditure for the
asset, incurs borrowing cost and undertakes activities that are necessary to prepare the asset
for its intended use or sale. The capitalisation of borrowing costs is suspended during extended
periods in which active development of a qualifying asset is suspended. The capitalisation of
borrowing costs ceases when substantially all the activities necessary to prepare the qualifying
asset for its intended use or sale are complete.
2.1.9. a Recognition, classification, measurements and derecognition of Financial Assets
Financial assets include cash and cash equivalents, trade and other receivables, investments
in securities and other eligible current and non-current assets. At initial recognition, all financial
assets are measured at fair value. Such financial assets are subsequently classified and
measured under one of the following three categories according to the purpose for which they
are held and contractual Cash Flow characteristics. Financial assets are reclassified only when
the purpose for which they are held changes. Financial assets are derecognised when the right
to cash flows from the financial asset expires or when the financial asset is transferred resulting
in transfer of significant risks and rewards to the buyer. Where significant risks and rewards are
retained on transfer of a financial asset, the financial asset is not derecognised, and a financial
liability is recognised for the consideration received. Where the transfer of financial asset
results in partial transfer of risks and rewards, the asset is derecognised if the buyer obtains the
right to sell the asset to other party unilaterally without attaching any conditions otherwise the
financial asset continues to the recognised to the extent of continuing involvement.
2.1.9. a.i Financial Assets at amortised cost
Financial assets at amortised cost, at the date of initial recognition, are held to collect
contractual cash flows of principal and interest on principal amount outstanding on specified
dates. These financial assets are intended to be held until maturity. Therefore, they are
subsequently measured at amortised cost by applying the Effective Interest Rate (EIR) method
to the gross carrying amount of the financial asset. The EIR amortisation is included as interest
income in the profit or loss. The losses arising from impairment are recognised in the profit or
loss.
2.1.9. a.ii Financial asset at Fair Value through Other Comprehensive Income (FVOCI)
Financial asset at FVOCI, at the date of initial recognition, are held to collect contractual cash
flows of principal and interest on principal amount outstanding on specified dates, as well as
held for selling. Therefore, they are subsequently measured at each reporting date at fair value,
with all fair value movements recognised in Other Comprehensive Income (OCI). Interest
income calculated using the Effective Interest Rate (EIR) method, impairment gain or loss and
foreign exchange gain or loss are recognised in the Statement of Profit and Loss. On
derecognition of the asset, cumulative gain or loss previously recognised in Other
Comprehensive Income is reclassified from the OCI to Statement of Profit and Loss.
2.1.9. a.iiiFinancial assets at Fair Value through Profit or Loss (FVPL)
Financial Assets at FVPL, at the date of initial recognition, are held for trading, or which are
measured neither at Amortised Cost nor at Fair Value through OCI. Therefore, they are
subsequently measured at each reporting date at fair value, with all fair value movements
recognised in the Statement of Profit and Loss.
2.1.9. b Impairment of Financial Assets
The Company recognizes the impairment on financial assets based on the expected credit loss
model for the financial assets which are not measured at fair value through profit or loss. In case
of trade receivables, the Company follows a simplified approach wherein an amount equal to
lifetime ECL is measured and recognized as loss allowance. In case of other financial assets
expected credit losses are measured at an amount equal to 12-month ECL unless there has
been significant increase in credit risk from initial recognition in which case these are measured
at lifetime expected credit loss. The amount of expected credit losses or reversal that is required
to adjust the loss allowance at the reporting date to the amount that is required to be recognized
is recognized as an impairment gain or loss in the profit and loss for the period.
2.1.9. c Recognition, classification, measurement and derecognition of financial liabilities
Financial liabilities include long-term and short- term loans and borrowings, trade and other
payables and other eligible current and non- current liabilities. All financial liabilities are
recognised initially at fair value and, in the case of loans and borrowings and other payables, net
of directly attributable transaction costs. The Company derecognises a financial liability when
the obligation specified in the contract is discharged, cancelled or expires.
After initial recognition, financial liabilities are classified under one of the following two
categories:
2.1.9. c.i Financial liabilities at amortised cost
After initial recognition, such financial liabilities are subsequently measured at amortised cost
by applying the Effective Interest Rate (EIR) method to the gross carrying amount of the
financial liability. The EIR amortisation is included in finance expense in the statement profit or
loss.
2.1.9.c.ii Financial liabilities at Fair Value through Profit or Loss (FVPL)
Financial Liabilities at FVPL are those which are designated as such on initial recognition, or
which are held for trading. Fair value gains / losses attributable to changes in own credit risk is
recognised in OCI. These gains /losses are not subsequently transferred to Statement of Profit
and Loss. All other changes in fair value of such liabilities are recognised in the Statement of
Profit and Loss.
2.1.10 Off-setting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance
sheet if there is a currently enforceable legal right to offset the recognised amounts and there is
an intention to settle on a net basis, to realise assets and settle liabilities simultaneously.
2.1.11 Earnings per Share
Basic earnings per share is calculated by dividing the profit or loss for the period attributable to
the equity holders of the company by the weighted average number of ordinary shares
outstanding during the year. For the purpose of calculating diluted earnings per share, the net
profit or loss for the period attributable to equity shareholders and the weighted average number
of shares outstanding during the period are adjusted for the effects of all dilutive potential equity
shares. (Refer Note 23)
2.1.12 Impairment of Non-Financial Assets
The Company reviews the carrying amounts of its Property, Plant and Equipment, including
Capital Work in progress of a “Cash Generating Unit” (CGU) at the end of each reporting period
to determine whether there is any indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of the assets is estimated in order to
determine the extent of the 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 Unit to which the asset belongs.
Recoverable amount is determined:
i) In case of individual asset, at higher of the fair value less cost to sell and value in use; and
ii) In case of cash generating unit (a Company of assets that generates identified, independent
cash flows), at the higher of the cash generating unit's fair value less cost to sell and the value in
use.
If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its
carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognized immediately in the Statement of Profit
and Loss.
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