2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Accounting Convention:
The financial statements have been prepared and presented in accordance with Ind AS under the historical cost
convention on the accrual basis except for certain financial instruments which are measured at fair value at the
end of each reporting period, as explained in the accounting policies mentioned below. Historical cost is generally
based on the fair value of the consideration given in exchange of goods or services. The Company complies with
the Accounting Standards issued by the Institute of Chartered Accountants of India and the relevant provisions of
the Companies Act, 2013, to the extent applicable and directions prescribed by the Reserve Bank of India. The
financial statements are presented in Indian rupees.
2.2 Statement of compliance:
The financial statements have been prepared as a going concern in accordance with Indian Accounting Standards
(Ind AS) notified under the Section 133 of the Companies Act, 2013 ("the Act") read with the Companies (Indian
Accounting Standards) Rules, 2015 and other relevant provisions of the Act.
2.3 Use of Estimates and Judgments
The preparation of the Ind AS financial statements in conformity with the generally accepted accounting principles
in India requires management to make estimates and assumptions that affect the reported amount of assets and
liabilities as of the Balance Sheet date, reported amount of revenue and expenses for the year and disclosure of
contingent liabilities and contingent assets as of the date of Balance Sheet. The estimates and assumptions used in
these Ind AS financial statements are based on management's evaluation of the relevant facts and circumstances
as of the date of the Ind AS financial statements. The actual amounts may differ from the estimates used in the
preparation of the Ind AS financial statements and the difference between actual results and the estimates are
recognized in the period in which the results are known/materialize.
2.4 Revenue recognition
Ind AS 115 applies, with limited exceptions, to all revenue arising from contracts with its customers. Ind AS 115
establishes a five-step model to account for revenue arising from contracts with customers and requires that
revenue be recognized at an amount that reflects the consideration to which an entity expects to be entitled in
exchange for transferring goods or services to a customer. Ind AS 115 requires entities to exercise judgment,
taking into consideration all of the relevant facts and circumstances when applying each step of the model to
contracts with their customers. It also specifies the accounting for the incremental costs of obtaining a contract
and the costs already related to fulfilling a contract. The Company has adopted the modified retrospective method
of applying Ind AS 115 Revenue from Contract with customers in its initial year of application. Revenue is
measured at the fair value of the consideration received or receivable.
Sale of goods: Revenue from sale of products is recognized at the point in time when control of the asset is
transferred to the customer, generally when the product is shipped to the customer.
Other Revenues: Other operating revenues comprise of income from ancillary activities incidental to the
operations of the Company and is recognized when the right to receive the income is established as per the terms
of the contract. Service income is recognized as and when services are rendered as per the terms of the contract.
2.5 Other income:
Interest: Interest income is calculated on effective interest rate, but recognized on a time proportion basis taking
into account the amount outstanding and the rate applicable.
Dividend: Dividend income is recognized when the right to receive dividend is established.
Insurance Claim: Insurance Claims are recognized when the claims are assessed to be receivable.
Rental Income: Rental income from operating leases is accrued based on the terms of the relevant lease.
2.6 Finance Cost
Borrowing costs include exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to the interest cost. Borrowing costs that are directly attributable to the acquisition or
construction of qualifying assets are capitalised as part of the cost of such assets. A qualifying asset is one that
necessarily takes substantial period of time to get ready for its intended use.
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.
All other borrowing costs are charged to the Statement of Profit and Loss for the period for which they are
incurred.
2.7 Trade receivables:
Trade receivables are measured at amortized cost less provision for impairment, if any.
2.8 Cash and cash equivalents:
Cash and Cash equivalents include cash on hand, cheques and drafts in hand, balances with bank. These do not
include bank balances earmarked / restricted for specific purposes.
2.9 Financial Instruments:
a. Classification
The Company classifies its financial assets and financial liabilities in the following measurement categories:
i) Those to be measured subsequently at fair value (either through other comprehensive income, or through
profit or loss), and
ii) Those measured at amortised cost.
The classification depends on the Company's business model for managing the financial assets and the contractual
terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive
income. For investments in debt instruments, this will depend on the business model in which the investment is
held. For investments in equity instruments, this will depend on whether the Company has made an irrevocable
election at the time of initial recognition to account for the equity investment at fair value through other
comprehensive income. The Company reclassifies debt investments when and only when its business model for
managing those assets changes.
b. Measurement
Financial assets are initially measured at fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets (other than financial assets at fair value through profit or loss) are added to
financial assets, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of
financial assets at fair value through profit or loss are recognised immediately in the Statement of Profit and Loss.
c. Amortised cost:
Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of
principal and interest are measured at amortised cost. A gain or loss on a debt investment that is subsequently
measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the asset
is derecognised or impaired. Interest income from these financial assets is included in other gain or loss using the
effective interest rate method.
d. Fair value through other comprehensive income (FVOCI):
Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets'
cash flows represent solely payments of principal and interest, are measured at fair value through other
comprehensive income FVOCI. Movements in the carrying amount are taken through OCI, except for the
recognition of impairment gains or losses and interest revenue are recognised in profit and loss. When the
financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity
to profit or loss and recognised under other income. Interest income from these financial assets is included in
other gain or loss using the effective interest rate method.
e. Fair value through profit or loss (FVtL):
Assets that do not meet the criteria for amortised cost or FVOCI are measured at fair value through profit or loss.
A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss is recognised
in profit or loss and presented in the statement of profit and loss under other gain or loss in the period in which it
arises. Interest or dividend income, if any from these financial assets is separately included in other gain or loss.
f. Derecognition
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset
expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of
the risks and rewards of ownership of the financial asset are transferred or in which the Company neither
transfers nor retains substantially all of the risks and rewards of ownership and does not retain control of the
financial asset.
If the Company enters into transactions whereby it transfers assets recognised on its balance sheet, but retains
either all or substantially all of the risks and rewards of the transferred assets, the transferred assets are not
derecognized.
A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expires.
2.10 Non-Performing Assets & Write-off Policy
The company shall directly reduce the gross carrying amount of a financial asset when the entity has no
reasonable expectations of recovering a financial asset in its entirety or a portion thereof. A write-off constitute
derecognition event. Identification of Non-Performing Assets (NPAs) is being done as per the guidelines of Master
Direction-Non Banking Financial Company -Non -Systemically Important Non- Deposit taking Company (Reserve
Bank) Directions, 2016 prescribed by the Reserve Bank of India. The company is writing off NPAs in its books of
accounts every year.
2.11 Inventories
Inventories are stated at cost or net realisable value whichever is lower. Cost is determined on First-In-First-Out
basis.
Net realisable value represents the estimated selling price for inventories less all estimated costs of completion
and costs necessary to make the sale.
'Cost' comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventory to the
present location and condition.
Items such as spare parts, stand-by equipment and servicing equipment which is not plant and machinery gets
classified as inventory.
2.12Property, plant and equipment:
Property, plant and equipment are carried at cost of acquisition or construction less accumulated depreciation.
The cost of fixed assets comprises of purchase price and all other attributable costs of bringing the assets to
working condition for intended use.
Cost of an item of property, plant and equipment comprises its purchase price, including import duties and non -
refundable purchase taxes, after deducting trade discounts and rebates, any directly attributable cost of bringing
the item to its working condition for its intended use and estimated costs of dismantling and removing the item
and restoring the site on which it is located.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are
expected to arise from 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 the statement of profit and loss.
2.13 Intangible assets and amortisation thereof.
Intangible assets, representing software is initially recognised at cost and subsequently carried at cost less
accumulated amortisation and accumulated impairment, if any. The Company recognises internally generated
intangible assets when it is certain that the future economic benefit attributable to the use of such intangible
assets are probable to flow to the Company and the expenditure incurred for development of such intangible
assets can be measured reliably. The cost of an internally generated intangible asset comprises all directly
attributable costs necessary to create, produce, and prepare the asset to be capable of operating in the manner
intended by the Company. The intangible assets including those internally generated is amortised using the
straight line method over a period of five years, which is the Management's estimate of its useful life. The useful
lives of intangible assets is reviewed at each financial year end and adjusted prospectively, if appropriate.
Intangible assets not ready for the intended use on the date of Balance Sheet are disclosed as 'Intangible assets
under development'. An intangible asset is derecognised on disposal, or when no future economic benefits are
expected. Gains and losses arising from derecognition of an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of the assets are recognised in the Statement of Profit and Loss
when the asset is derecognised.
2.14Depreciation:
On fixed assets, depreciation is provided on written down Value method. The rates of depreciation prescribed in
Schedule II to the Companies Act, 2013, are considered as minimum rates.
2.15Trade and other payables:
These amounts represent liabilities for goods and services provided to the Company prior to the end of financial
period which are unpaid. They are recognised at their fair value.
2.16Impairment of non-financial assets
At the end of each reporting period, the Company reviews the carrying amounts of its assets 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 asset 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 the higher of fair value less costs of disposal and value in use. In assessing value in use, the
estimated future cash flows are 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 for which the estimates
of future cash flows have not been adjusted.
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 recognised immediately in the statement of Profit and Loss.
When an impairment loss subsequently reverses, the carrying amount of the asset (or a 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 been recognised for the
asset (or cash generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the
statement of Profit and Loss.
2.17Foreign Currency Transactions
i) Functional currency
The functional currency of the company is the Indian rupee. These financial statements are presented in Indian
rupees.
ii) Initial Recognition
On initial recognition, all foreign currency transactions are recorded by applying to the foreign currency amount
the exchange rate between the functional currency and the foreign currency at the date of the transaction.
iii) Subsequent Recognition
As at the reporting date, non-monetary items which are carried in terms of historical cost denominated in a
foreign currency are reported using the exchange rate at the date of the transaction. All non-monetary items
which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the
exchange rates that existed when the values were determined.
All monetary assets and liabilities in foreign currency are restated at the end of accounting period. Exchange
differences on restatement of all other monetary items are recognised in the Statement of Profit and Loss.
2.18Employees benefits:
Short-term employee benefits:
All employee benefits payable wholly within twelve months of rendering the service are classified as short term
employee benefits. These benefits include salary, wages and bonus. The undiscounted amount of short- term
employee benefits expected to be paid in exchange for the services rendered by employees is recognised during
the period of rendering of service by the employee.
Defined contribution plans
The Company has defined contribution plans for post-employment benefits namely Provident Fund which are
recognised by the income tax authorities. The Company contributes to a Government administered provident fund
on behalf of its employees and has no further obligation beyond making its contribution. The Company makes
contributions to state plans namely Employee's State Insurance Fund and has no further obligation beyond making
the payment to them. The Company's contributions to the above funds are charged to the Statement of Profit and
Loss every year.
2.19Borrowings:
Borrowing Cost that are directly attributable to the acquistion/ construction of the qualifying asset are capitalised
until the time all the substantial activities necessary to prepare such assets for the intended use are complete. All
other borrowing costs are recognised as expenditure during the period in which they are incurred.
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently
measured at amortised cost.
Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged,
cancelled or expired. The difference between the carrying amount of a financial liability that has been
extinguished or transferred to another party and the consideration paid, including any non-cash assets transferred
or liabilities assumed is recognised in profit or loss.
2.20 Income Tax
Tax expense for the period, comprising current tax and deferred tax, are included in the determination of the net
profit or loss for the period.
Current tax:
Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the taxation
laws prevailing in the respective jurisdictions.
Current tax assets and current tax liabilities are offset when there is a legally enforceable right to set off the
recognised amounts and there is an intention to settle the asset and the liability on a net basis.
Deferred tax:
Deferred tax is recognized using the balance sheet approach. Deferred tax assets and liabilities are recognized for
deductible and taxable temporary differences arising between the tax base of assets and liabilities and their
carrying amount in financial statements.
Deferred tax asset is recognized to the extent that it is probable that taxable profit will be available against which
such deferred tax assets can be realized. The carrying amount of deferred tax assets is reviewed at each reporting
date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow
all or part of the deferred income tax asset to be utilized.
2.21 Earnings per share (EPS):
Basic EPS is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the
weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted
EPS, the net profit or loss for the period attributable to equity shareholders and the weighted average number of
additional equity shares that would have been outstanding are considered assuming the conversion of all dilutive
potential equity shares. Earnings considered in ascertaining the EPS is the net profit for the period and any
attributable tax thereto for the period.
2.22 Cashflow:-
Cash flows are reported using the indirect method, whereby net profit before tax is adjusted for the effects of
transactions of a non-cash nature and any deferrals of past or future cash receipts and payments. The cash flows
from regular operating, investing and financing activities of the company are segregated.
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