2.01 Inventories:
Inventories are valued at the lower of cost and net
realisable value. Cost is computed on a First In
First Out (FIFO) basis. Cost of finished goods and
work-in-progress include all costs of purchases,
conversion costs and other costs incurred in
bringing the inventories to their present location
and condition. The net realisable value is the
estimated selling price in the ordinary course of
business less the estimated costs of completion
and estimated costs necessary to make the sale.
2.02 Cash and cash equivalents:
For the purpose of presentation in the statement
of cash flow statement, cash and cash equivalents
includes cash and cheques in hand, deposits
held at call with financial institutions, other short¬
term, highly liquid investments with original
maturities of three months or less that are readily
convertible to known amounts of cash and which
are subject to an insignificant risk of changes in
value, and bank overdrafts. Bank overdrafts are
shown within borrowings in current liabilities in
the balance sheet.
2.03 Borrowing Cost
Borrowing cost includes interest, amortization
of ancillary costs incurred in connection with
the arrangement of borrowings and exchange
differences arising from foreign currency
borrowings to the extent they are regarded as an
adjustment to the interest cost. Borrowing costs,
if any, directly attributable to the acquisition,
construction or production of an asset that
necessarily takes a substantial period of time
to get ready for its intended use or sale are
capitalized, if any. All other borrowing costs are
expensed in the period in which they occur.
2.04 Loans and Borrowings
After initial recognition, interest-bearing loans
and borrowings are subsequently measured at
amortised cost using the EIR method. Gains and
losses are recognised in profit or loss when the
liabilities are derecognised as well as through
the EIR amortisation process. 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 as finance costs in the Standalone
Statement of Profit and Loss.
2.05 Trade and other payables
These amounts represent liabilities for goods and
services provided to the company prior to the end
of financial year which are unpaid. The amounts
are unsecured. Trade and other payables are
presented as current liabilities unless payment
is not due within 12 months after the reporting
period. They are recognised initially at their fair
value and subsequently measured at amortised
cost using the effective interest method.
2.06 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.
Point of recognition
Financial assets and liabilities, with the exception
of loans, debt securities, deposits and borrowings
are initially recognised on the trade date, i.e.,
the date that the Company becomes a party to
the contractual provisions of the instrument.
This includes regular way trades: purchases or
sales of financial assets that require delivery
of assets within the time frame generally
established by regulation or convention in the
market place. Loans are recognised when funds
are transferred to the customers' account. The
Company recognises debt securities, deposits
and borrowings when funds reach the Company.
Initial recognition
The classification of financial instruments at
initial recognition depends on their contractual
terms and the business model for managing
the instruments, as per the principles of the Ind
AS. Financial instruments are initially measured
at their fair value, except in the case of financial
assets and financial liabilities recorded at FVTPL,
transaction costs are added to, or subtracted
from, this amount. Trade receivables are
measured at the transaction price. When the fair
value of financial instruments at initial recognition
differs from the transaction price, the Company
accounts for as mentioned below:
When the transaction price of the instrument
differs from the fair value at origination and the
fair value is based on a valuation technique using
only inputs observable in market transactions,
the Group recognises the difference between the
transaction price and fair value in net gain on fair
value changes. In those cases where fair value is
based on models for which some of the inputs
are not observable, the difference between the
transaction price and the fair value is deferred
and is only recognised in profit or loss when
the inputs become observable, or when the
instrument is derecognised.
Investment in subsidiaries and associates
The Company has elected to account for
its investments in subsidiaries at cost less
impairment loss (if any).
Subsequent measurement of financial
assets
For subsequent measurement, the Company
classifies a financial asset in accordance with the
below criteria:
i. The Company's business model for
managing the financial asset; and
ii The contractual cash flow characteristics of
the financial asset.
Based on the above criteria, the Company classifies
its financial assets into the following categories:
(a) Financial assets measured at amortized cost
(b) Financial assets measured at fair value
through other comprehensive income
(FVTOCI)
(c) Financial assets measured at fair value
through profit or loss (FVTPL)
(a) Financial assets measured at amortized
cost:
A Financial asset is measured at the amortized
cost if both the following conditions are met:
(i) The Company's business model
objective for managing the financial
asset is to hold financial assets in order
to collect contractual cash flows; and
(ii) 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 applies to cash and cash
equivalents, other bank balances, trade
receivables, loans and other financial
assets of the Company. Such financial
assets are subsequently measured
at amortized cost using the effective
interest method. Under the effective
interest method, the future cash
receipts are exactly discounted to
the initial recognition value using the
effective interest rate. The cumulative
amortization using the effective interest
method of the difference between
the initial recognition amount and
the maturity amount is added to the
initial recognition value (net of principal
repayments, if any) of the financial asset
over the relevant period of the financial
asset to arrive at the amortized cost at
each reporting date. The corresponding
effect of the amortization under effective
interest method is recognized as interest
income over the relevant period of the
financial asset. The same is included
under other income in the Statement
of Profit and Loss. The amortized cost of
a financial asset is also adjusted for loss
allowance, if any.
(b) Financial assets measured at
FVTOCI:
A financial asset is measured at FVTOCI if
both of the following conditions are met:
(i) The Company's business model
objective for managing the financial
asset is achieved both by collecting
contractual cash flows and selling
the financial assets; and
(ii) 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 applies to certain
investments in debt and equity
instruments. Such financial assets
are subsequently measured at fair
value at each reporting date. Fair
value changes are recognized in the
Statement of profit and loss under
'Other Comprehensive Income
(OCI)'. However, the Company
recognizes interest income and
impairment losses and its reversals
in the Statement of Profit and
Loss. On de-recognition of such
financial assets, cumulative gain
or loss previously recognized in
OCI is reclassified from equity to
the Statement of Profit and Loss,
except for instruments which the
Company has irrevocably elected to
be classified as equity through OCI
at initial recognition, when such
instruments meet the definition of
Equity under Ind AS 32 Financial
Instruments: Presentation and
they are not held for trading. The
Company has made such election on
an instrument by instrument basis.
Gains and losses on these equity
instruments are never recycled
to profit or loss. Dividends are
recognised in the statement of
profit or loss as dividend income
when the right of the payment
has been established, except
when the Company benefits from
such proceeds as a recovery of
part of the cost of the instrument,
in which case, such gains are
recorded in OCI. Equity instruments
at FVOCI are not subject to an
impairment assessment.
(c) Financial assets measured at
FVTPL:
A financial asset is measured at
FVTPL unless it is measured at
amortized cost or at FVTOCI as
explained above. This is a residual
category applied to all other
investments of the Company
excluding investments in subsidiary
and associate companies. Such
financial assets are subsequently
measured at fair value at each
reporting date. Fair value changes
are recognized in the Statement of
Profit and Loss.
Financial assets or financial liabilities
held for trading:
The Company classifies financial assets as held for
trading when they have been purchased or issued
primarily for short-term profit making through
trading activities or form part of a portfolio of
financial instruments that are managed together,
for which there is evidence of a recent pattern of
short-term profit taking. Held-for-trading assets
and liabilities are recorded and measured in the
balance sheet at fair value. Changes in fair value
are recognised as net gain on fair value changes
in the Statement of Profit and Loss.
Interest and dividend income or expense is
recorded in net gain on fair value changes
according to the terms of the contract, or when
the right to payment has been established.
Included in this classification are debt securities,
equities, and customer loans that have been
acquired principally for the purpose of selling or
repurchasing in the near term.
Subsequent measurement of financial
liabilities
All financial liabilities of the Company are
subsequently measured at amortized cost using
the effective interest method. Under the effective
interest method, the future cash payments are
discounted exactly to the initial recognition value
using the effective interest rate. The cumulative
amortization using the effective interest method
of the difference between the initial recognition
amount and the maturity amount is added to
the initial recognition value (net of principal
repayments, if any) of the financial liability over
the relevant period of the financial liability to arrive
at the amortized cost at each reporting date.
The corresponding effect of the amortization
under effective interest method is recognized
as interest expense over the relevant period of
the financial liability. The same is included under
finance cost in the Statement of Profit and Loss.
Derecognition
(a) Financial asset:
A financial asset (or, where applicable, a
part of a financial asset or part of a group of
similar financial assets) is derecognized (i.e.
removed from the Company's balance sheet)
when any of the following occurs:
i. The contractual rights to cash flows
from the financial asset expires;
ii. The Company transfers its contractual
rights to receive cash flows of the
financial asset and has substantially
transferred all the risks and rewards
of ownership of the financial asset. A
regular way purchase or sale of financial
assets has been derecognised, as
applicable, using trade date accounting.
iii. The Company retains the contractual
rights to receive cash flows but assumes
a contractual obligation to pay the cash
flows without material delay to one or
more recipients under a 'pass-through'
arrangement (thereby substantially
transferring all the risks and rewards of
ownership of the financial asset);
iv. The Company neither transfers nor
retains substantially all risk and rewards
of ownership and does not retain control
over the financial asset.
In cases where Company has neither
transferred nor retained substantially
all of the risks and rewards of the
Financial asset, but retains control
of the financial asset, the Company
continues to recognize such financial
asset to the extent of its continuing
involvement in the financial asset. In
that case, the Company also recognizes
an associated liability. The financial
asset and the associated liability are
measured on a basis that reflects the
rights and obligations that the Company
has retained.
On de-recognition of a financial asset,
(except as mentioned in ii above for financial
assets measured at FVTOCI), the difference
between the carrying amount and the
consideration received is recognized in the
Statement of Profit and Loss.
Impairment of financial assets (other than at
fair value)
The Company recognises loss allowances
using the Expected Credit Loss (ECL) model for
the financial assets which are not fair valued
through profit and loss. Loss allowance for
trade receivables with no significant financing
component is measured at an amount equal
to lifetime ECL. For all other financial assets,
expected credit losses are measured at an
amount equal to the 12-month ECL, unless there
has been a significant increase in credit risk from
initial recognition, in which case those financial
assets are measured at lifetime ECL. The changes
(incremental or reversal) in loss allowance
computed using ECL model, are recognised as an
impairment gain or loss in the Statement of profit
and loss.
(b) Financial liabilities
A financial liability is derecognised when the
obligation under the liability is discharged,
cancelled or expires. Where 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 a de-recognition
of the original liability and the recognition of
a new liability. The difference between the
carrying value of the original financial liability
and the consideration paid is recognised in
profit or loss.
Impairment of financial assets:
In accordance with Ind AS 109, the Company
applies expected credit loss ('ECL') model
for measurement and recognition of
impairment loss for financial assets.
ECL is the weighted-average of difference
between all contractual cash flows that are
due to the Company in accordance with
the contract and all the cash flows that the
Company expects to receive, discounted at
the original effective interest rate, with the
respective risks of default occurring as the
weights. When estimating the cash flows,
the Company is required to consider:
- All contractual terms of the financial
assets (including prepayment and
extension) over the expected life of
the assets.
- Cash flows from the sale of collateral
held or other credit enhancements that
are integral to the contractual terms."
2.07 Trade receivables
In respect of trade receivables, the Company
applies the simplified approach of Ind AS 109,
which requires measurement of loss allowance
at an amount equal to lifetime expected credit
losses. Lifetime expected credit losses are the
expected credit losses that result from all possible
default events over the expected life of a financial
instrument."
2.08 Other financial assets:
In respect of its other financial assets, the
Company assesses if the credit risk on those
financial assets has increased significantly
since initial recognition. If the credit risk has not
increased significantly since initial recognition,
the Company measures the loss allowance at
an amount equal to 12-month expected credit
losses, else at an amount equal to the lifetime
expected credit losses."
When making this assessment, the Company
uses the change in the risk of a default occurring
over the expected life of the financial asset. To
make that assessment, the Company compares
the risk of a default occurring on the financial
asset as at the balance sheet date with the risk
of a default occurring on the financial asset as
at the date of initial recognition and considers
reasonable and supportable information, that
is available without undue cost or effort, that is
indicative of significant increases in credit risk
since initial recognition. The Company assumes
that the credit risk on a financial asset has not
increased significantly since initial recognition
if the financial asset is determined to have low
credit risk at the balance sheet date.
Offsetting 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 the
assets and settle the liabilities simultaneously.
2.09 Fair value
The Company measures its financial instruments
at fair value in accordance with the accounting
policies mentioned above. Fair value is the
price that would be received on sell of an
asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. The fair value measurement
is based on the presumption that the transaction
to sell the asset or transfer the liability takes place
either: -
- in the principal market for the asset or
liability, or
- in the absence of a principal market, in the
most advantageous market for the asset or
liability."
All assets and liabilities for which fair value is
measured or disclosed in the financial statements
are categorized within the fair value hierarchy
that categorizes into three levels, described as
follows, the inputs to valuation techniques used
to measure value. The fair value hierarchy gives
the highest priority to quoted prices in active
markets for identical assets or liabilities( Level 1
inputs) and the lowest priority to unobservable
inputs (Level 3 inputs).
- Level 1 (unadjusted) - Those where the inputs
used in the valuation are unadjusted quoted
prices from active markets for identical
assets or liabilities that the Company has
access to at the measurement date. The
Company considers markets as active only
if there are sufficient trading activities with
regards to the volume and liquidity of the
identical assets or liabilities and when there
are binding and exercisable price quotes
available on the balance sheet date.
- Level 2 - Those where the inputs that are
used for valuation and are significant, are
derived from directly or indirectly observable
market data available over the entire
period of the instrument's life. Such inputs
include quoted prices for similar assets or
liabilities in active markets, quoted prices
for identical instruments in inactive markets
and observable inputs other than quoted
prices such as interest rates and yield curves,
implied volatilities, and credit spreads. In
addition, adjustments may be required
for the condition or location of the asset or
the extent to which it relates to items that
are comparable to the valued instrument.
However, if such adjustments are based on
unobservable inputs which are significant to
the entire measurement, the Company will
classify the instruments as Level 3.
- Level 3 - Those that include one or more
unobservable input that is significant to the
measurement as whole.
For assets and liabilities that are recognized
in the financial statements at fair value on
a recurring basis, the Company determines
whether transfers have occurred between
levels in the hierarchy by re-assessing
categorization at the end of each reporting
period and discloses the same."
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