2 Material accounting policies
a. Financial instruments
A financial instrument is any contract that gives rise to
a financial asset of one entity and a financial liability or
equity instrument of another entity.
i. Recognition and initial measurement
Trade receivables are initially recognised when they
are originated. All other financial assets and financial
liabilities are initially recognised when the Company
becomes a party to the contractual provisions of
the instrument.
Financial assets and liabilities are initially measured
at fair value except for trade receivable which are
initially measured at transaction price. Transaction
costs that are directly attributable to the acquisition
or issue of financial assets and liabilities (other than
financial assets and financial liabilities at fair value
through profit or loss) are added to or deducted
from the fair value measured on initial recognition of
financial assets or financial liability.
ii. Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is classified
and, measured at
• amortised cost;
• Fair value through other comprehensive income
('FVOCI') - debt investment;
• FVOCI - equity investment; or
• Fair value through profit and loss ('FVTPL')
Financial assets are not reclassified subsequent to their
initial recognition, except if and in the period the Company
changes its business model for managing financial assets.
A financial asset is measured at amortised cost if
it meets both of the following conditions and is not
designated as at FVTPL:
• the asset is held within a business model whose
objective is to hold assets 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 on the principal
amount outstanding.
This category is the most relevant to the Company.
After initial measurement, such financial assets are
subsequently measured at amortised cost using the
effective interest rate (EIR) method. Amortised 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 amortisation is included
in finance income in the profit or loss. The losses arising
from impairment are recognised in the profit or loss.
A debt investment is measured at FVOCI if it
meets both of the following conditions and is not
designated as at FVTPL:
• the asset is held within a business model whose
objective is achieved by both collecting contractual
cash flows and selling financial assets; and
• the contractual terms of the financial asset give
rise on specified dates to cash flows that are solely
payments of principal and interest on the principal
amount outstanding.
On initial recognition of an equity investment that is
not held for trading, the Company may irrevocably
elect to present subsequent changes in the
investment’s fair value in OCI (designated as FVOCI
- equity investment). This election is made on an
investment- by- investment basis.
All financial assets not classified as measured at
amortised cost or FVOCI as described above are
measured at FVTPL. This includes all derivative financial
assets. On initial recognition, the Company may
irrevocably designate a financial asset that otherwise
meets the requirements to be measured at amortised
cost or at FVOCI as at FVTPL if doing so eliminates
or significantly reduces an accounting mismatch that
would otherwise arise.
Investment in Subsidiary:
The Company has elected to recognize its investments
in subsidiaries at cost less accumulated impairment
loss, if any in accordance with the option available in Ind
AS 27, ‘Separate Financial Statements’. Cost represents
amount paid for acquisition of the said investments.
On disposal of an investment, the difference between
the net disposal proceeds and the carrying amount is
charged or credited to profit or loss. The details of such
investment are given in Note 4A. Refer to the accounting
policies in (g)(i) Impairment of non-financial assets.
Financial assets that are held for trading or are
managed and whose performance is evaluated on a
fair value basis are measured at FVTPL.
Financial liabilities: classification, subsequent
measurement and gains and losses
Financial liabilities are classified as measured at
amortised cost or FVTPL. A financial liability is
classified as at FVTPL if it is classified as held for-
trading, or it is a derivative or it is designated as such
on initial recognition. Financial liabilities at FVTPL
are measured at fair value and net gains and losses,
including any interest expense, are recognised in
statement of profit and loss. Financial liabilities are
subsequently measured at amortised cost using
the effective interest method. Interest expense and
foreign exchange gains and losses are recognised
in statement of profit and loss. Any gain or loss on
derecognition is also recognised in statement of
profit and loss.
iii. Derecognition
Financial assets
The Company derecognises 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 derecognised.
Financial liabilities
The Company derecognises a financial liability
when its contractual obligations are discharged or
cancelled, or expire.
The Company also derecognises a financial liability
when its terms are modified and the cash flows under
the modified terms are substantially different. In this
case, a new financial liability based on the modified
terms is recognised at fair value. The difference between
the carrying amount of the financial liability extinguished
and the new financial liability with modified terms is
recognised in statement of profit and loss.
iv. Offsetting
Financial assets and financial liabilities are offset and
the net amount presented in the balance sheet when,
and only when, the Company currently has a legally
enforceable right to set off the amounts and it intends
either to settle them on a net basis or to realise the
asset and settle the liability simultaneously.
v. Derivative financial instruments and hedge
accounting
Derivative financial instruments are used to mitigate
the risk of changes in exchange rates on foreign
currency exposures. Derivatives are initially measured
at fair value. Subsequent to initial recognition,
derivatives are measured at fair value, and changes
therein are recognised in statement of profit and loss.
The Company designates certain derivatives as
hedging instruments to hedge the variability in
cash flows associated with highly probable forecast
transactions arising from changes in foreign
exchange rates.
At inception of designated hedging relationships, the
Company documents the risk management objective
and strategy for undertaking the hedge. The Company
also documents the economic relationship between
the hedged item and the hedging instrument,
including whether the changes in cash flows of the
hedged item and hedging instrument are expected to
offset each other.
Cash flow hedges:
Where a derivative or non-derivative financial liability
is designated as a cash flow hedging instrument,
the effective portion of changes in the fair value of
the derivative or non-derivative financial liability is
recognised in OCI and accumulated in other equity
under the heading cash flow hedging reserve. Ineffective
portion of changes in the fair value of the derivative is
recognised immediately in statement of profit and loss.
If the hedging instrument no longer meets the criteria
for hedge accounting, expires or is sold, terminated
or exercised, then hedge accounting is discontinued
prospectively. The cumulative gain or loss previously
recognised in other comprehensive income, remains there
until the forecasted transaction occurs. If the forecasted
transaction is no longer expected to occur, then the
balance in other comprehensive income is recognised
immediately in the statement of profit and loss.
b. Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise
cash at banks and on hand and short-term deposits with an
original maturity of three months or less, which are subject
to an insignificant risk of changes in value. For the purpose
of the statement of cash flows, cash and cash equivalents
consist of cash and short-term deposits, as defined above,
net of outstanding bank overdrafts as they are considered
an integral part of the Company’s cash management. Cash
and cash equivalents includes balances with banks which
are unrestricted for withdrawal and usage.
Cash dividend to equity holders
The Company recognises a liability to make cash distributions
to equity holders when the distribution is authorised and the
distribution is no longer at the discretion of the Company. As
per the corporate laws in India, a distribution is authorised
when it is approved by the shareholders. A corresponding
amount is recognised directly in equity. Interim dividends
are recorded as a liability on the date of declaration by the
Company’s Board of Directors.
c. Foreign currency
Transactions in foreign currencies are initially recorded
at spot rates at the date the transaction first qualifies
for recognition.
Monetary assets and liabilities denominated in foreign
currencies are translated at the spot rates of exchange at
the reporting date.
Transactions in foreign currency are translated at the
exchange rates prevailing on the date of the transactions.
Monetary assets and liabilities denominated in foreign
currency are restated at the prevailing year end rates. The
resultant gain/loss upon such restatement along with the
gain/loss on account of foreign currency transactions are
accounted in the Statement of Profit and Loss, except
exchange differences arising from the translation of the
qualifying cash flow hedges to the extent that the hedges
are effective which are recognised in OCI.
d. Property, plant and equipment
i. Recognition and measurement
Items of property, plant and equipment are
measured at cost less accumulated depreciation and
accumulated impairment losses, if any.
Cost of an item or property, plant and equipment
comprises its purchase price, 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. Such cost includes the cost of replacing part
of the plant and equipment and borrowing costs for
long-term construction projects if the recognition criteria
are met. When significant parts of plant and equipment
are required to be replaced at intervals, the Company
depreciates them separately based on their specific
useful lives. All other repair and maintenance costs are
recognised in the statement of profit and loss as incurred.
The cost of a self-constructed item of property, plant
and equipment comprises the cost of materials and
direct labour, any other costs directly attributable to
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.
If significant parts of an item of property, plant and
equipment have different useful lives, then they are
accounted for as separate items (major components)
of property, plant and equipment.
Any gain or loss on disposal of an item of property
plant and equipment is recognised in statement of
profit and loss.
Cost of assets not ready for intended use, as on
the balance sheet date, is shown as capital work-
in-progress. Amounts paid towards the acquisition
of property, plant and equipment outstanding as
of each reporting date are recognised as capital
advance under “non-current assets”.
ii. Subsequent expenditure
Subsequent expenditure related to an item of property,
plant and equipment is capitalised only if it increases
the future benefits from the existing assets beyond its
previously assessed standards of performance.
iii. Depreciation
Depreciation is calculated on cost of items of
property, plant and equipment less their estimated
residual values over their estimated useful lives using
the straight-line method.
The Company, based on technical assessment made
by technical expert and management estimate,
depreciates certain items of plant and equipment
over estimated useful lives which are different
from the useful life prescribed in Schedule II to the
Companies Act, 2013. The management believes
that these estimated useful lives are realistic and
reflect fair approximation of the period over which the
assets are likely to be used.
Depreciation method, useful lives and residual values
are reviewed at each financial year-end and adjusted
if appropriate.
Depreciation on additions (disposals) is provided on
a pro-rata basis i.e. from (upto) the date on which
asset is ready for use (disposed off).
e. Intangible assets
Internally generated: Research and development
Expenditure on research activities is recognised in
statement of profit and loss as incurred.
Development expenditure is capitalised as part of the cost
of the resulting intangible asset only if the expenditure can
be measured reliably, the product or process is technically
and commercially feasible, future economic benefits are
probable, and the Company intends to and has sufficient
resources to complete development and to use or sell the
asset. Otherwise, it is recognised in statement of profit
and loss as incurred. Subsequent to initial recognition, the
asset is measured at cost less accumulated amortisation
and any accumulated impairment losses.
Others
Other intangible assets are initially measured at cost.
Subsequently, such intangible assets are measured at
cost less accumulated amortization and any accumulated
impairment losses.
i. Subsequent expenditure
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied in
the specific asset to which it relates.
ii. Amortisation
Other intangible assets are amortised on a straight
line basis over the estimated useful life as follows:
Amortisation method, useful lives and residual values
are reviewed at the end of each financial year and
adjusted if appropriate.
f. Inventories
Inventories are measured at the lower of cost and net
realisable value. The cost of inventories is based on
the monthly moving weighted average method, and
includes expenditure incurred in acquiring the inventories,
production or conversion costs and other costs incurred in
bringing them to their present location and condition. In the
case of manufactured inventories and work-in-progress,
cost includes an appropriate share of fixed production
overheads based on normal operating capacity.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of
completion and selling expenses. The net realisable value
of work-in-progress is determined with reference to the
selling prices of related finished products.
Raw materials, components and other supplies held for
use in the production of finished products are not written
down below cost except in cases where material prices
have declined and it is estimated that the cost of the
finished products will exceed their net realisable value.
The comparison of cost and net realisable value is made
on an item-by-item basis.
The factors that the Company considers in determining
the allowance for slow moving, obsolete and other non¬
saleable inventory include estimated shelf life, planned
product discontinuances, price changes, ageing of
inventory and introduction of competitive new products,
to the extent each of these factors impact the Company’s
business and markets. The Company considers all these
factors and adjusts the inventory provision to reflect its
actual experience on a periodic basis.
g. Impairment
i. Financial assets (other than at fair value)
The Company assesses at each date of balance
sheet whether a financial asset or a group of financial
assets is impaired. Ind AS 109 requires expected
credit losses to be measured through a loss
allowance. In determining the allowances for doubtful
trade receivables, the Company has used a practical
expedient by computing the expected credit loss
allowance for trade receivables based on a provision
matrix. The provision matrix takes into account
historical credit loss experience and is adjusted
for forward looking information. The expected
credit loss allowance is based on the ageing of the
receivables that are due and allowance rates used
in the provision matrix. For all other financial assets,
expected credit losses are measured at an amount
equal to the 12-months expected credit losses or
at an amount equal to the life time expected credit
losses if the credit risk on the financial asset has
increased significantly since initial recognition.
The Company assumes that the credit risk on
a financial asset has increased significantly if it
is more than the 270 days over and above the
usual credit period.
The Company considers a financial asset to be in
default when the borrower is unlikely to pay its credit
obligations to the Company in full, without recourse
by the Company to actions such as realising security
(if any is held).
Evidence that a financial asset is credit impaired
includes the following observable data:
- significant financial difficulty of the
borrower or issuer;
- a breach of contract such as a default or being
past due over a reasonable period of credit;
- the restructuring of a loan or advance by the
Company on terms that the Company would not
consider otherwise;
- it is probable that the borrower will enter
bankruptcy or other financial reorganisation;
In case of investments, the Company reviews
its carrying value of investments carried at cost
annually, or more frequently, when there is indication
for impairment. If the recoverable amount is less
than its carrying amount, the impairment loss
is accounted for.
ii. Non financial assets
Property, plant and equipment and intangible assets
with finite life are evaluated for recoverability whenever
there is any indication that their carrying amounts
may not be recoverable. If any such indication exists,
the recoverable amount (i.e. higher of the fair value
less cost to sell and the value-in-use) is determined
on an individual asset basis unless the asset does
not generate cash flows that are largely independent
of those from other assets. In such cases, the
recoverable amount is determined for the Cash
Generating Unit (CGU) to which the asset belongs
If the recoverable amount of an asset (or CGU) is
estimated to be less than its carrying amount, the
carrying amount of the asset (or CGU) is reduced
to its recoverable amount. An impairment loss is
recognised in the statement of profit and loss."
h. Employee benefits
i. Defined contribution plans
The Company makes specified monthly contribution
towards employee provident fund to Government
administered provident fund scheme, which is
a defined contribution scheme. The Company’s
contribution is recognised as an expense in the
statement of profit and loss during the period in
which the employee renders the related service.
The Company has no further obligations beyond its
monthly contributions.
ii. Defined benefit plans
For defined benefit plans, the cost of providing benefits
is determined using the Projected Unit Credit method,
with actuarial valuations being carried out at each
balance sheet date. Remeasurements, comprising of
actuarial gains and losses, the effect of the asset ceiling,
excluding amounts included in net interest on the net
defined benefit liability and the return on plan assets
(excluding amounts included in net interest on the net
defined benefit liability), are recognised immediately in
the balance sheet with a corresponding debit or credit
to retained earnings through OCI in the period in which
they occur. Remeasurements are not reclassified to
statement of profit and loss in subsequent periods.
Past service costs are recognised in statement of
profit and loss on the earlier of:
• The date of the plan amendment or curtailment, and
• The date that the Company recognises related
restructuring costs
Net interest is calculated by applying the discount
rate to the net defined benefit liability or asset. The
Company recognises the following changes in the
net defined benefit obligation as an expense in the
statement of profit and loss:
• Service costs comprising current service
costs, past-service costs, gains and losses on
curtailments and nonroutine settlements; and
• Net interest expense or income
When the benefits of a plan are changed or curtailed,
the resulting change in the benefit that relates to
the past service (‘past service cost’) or the gain
or loss on curtailment is recognised immediately
in the statement of profit and loss. The Company
recognises the gains and losses on the settlement of
a defined benefit plan when settlement occurs.
iii. Compensated Absence Policy
The employees of the Company are entitled to
compensated absences. The employees can carry
forward a portion of the unutilised accumulating
compensated absences and utilise it in future periods
or encash the leaves during the period of employment
or retirement or at termination of employment. The
Company records an obligation for compensated
absences in the period in which the employee renders
the services that increases this entitlement. The
Company measures the expected cost of compensated
absences as the additional amount that the Company
expects to pay as a result of the unused entitlement
that has accumulated at the end of the reporting period.
The Company recognises accumulated compensated
absences based on actuarial valuation using the
projected unit credit method. Non-accumulating
compensated absences are recognised in the period in
which the absences occur.
iv. Other long-term employee benefits
The expected cost of accumulating compensated
absences is determined by actuarial valuation
performed by an independent actuary as at March
31st every year using projected unit credit method
on the additional amount expected to be paid /
availed as a result of the unused entitlement that has
accumulated at the balance sheet date. Expense
on non-accumulating compensated absences is
recognised in the period in which the absences occur.
v. Short-term employee benefits
Employee benefits payable wholly within twelve months
of receiving employee services are classified as short¬
term employee benefits. These benefits include salaries
and wages, bonus and ex-gratia. The undiscounted
amount of short-term employee benefits to be paid in
exchange for employee services is recognised as an
expense as the related service is rendered by employees.
vi. Share based compensation
The grant date fair value of options granted to
employees is recognised as employee expense, with a
corresponding increase in equity, over the period that
the employees become unconditionally entitled to the
options. The expense is recorded for each separately
vesting portion of the award. The increase in equity
recognised in connection with share-based payment
transaction is presented as a separate component in
equity under “employee stock option”. No expense
is recognised for options that do not ultimately vest
because service conditions have not been met.
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