2. MATERIAL ACCOUNTING POLICIES
2.1. Revenue and Income recognition:
2.1. a. Revenue from Contracts with Customers :
The Company derives Revenue primarily from
sale of manufactured and traded products being
“Chemicals”.
Revenue from the sale of products is recognised on
satisfaction of performance obligation upon transfer
of control of promised products to customers in an
amount that reflects the consideration the Company
expects to receive in exchange of those products.
In determining the transaction price for the sale of
goods, the company also considers the effects of
variable consideration, the existence of significant
financing components and consideration payable
to the customer (if any).
The performance obligation to transfer each distinct
product consists of supplying the product to a
named destination, handling charges and packing
charges.
The Company accounts for discounts and incentives
to customers as a reduction of revenue based
on the proportionate allocation of the discounts /
incentives to each of the underlying performance
obligation that corresponds to the progress by the
customer towards earning the discount / incentive.
Also, when the level of discount varies with increase
in level of revenue transactions, the Company
recognizes the liability based on its estimate of the
customer's future purchases. If it is probable that
the criteria for the discount will not be met, or if
the amount thereof cannot be estimated reliably,
then discount is not recognized until the payment
is probable and the amount can be estimated
reliably. The Company recognizes changes in the
estimated amount of obligations for discounts in
the period in which the change occurs.
The Company does not expect to have any contracts
where the period between the transfer of the
promised goods to the customer and payment by
the customer exceeds one year. As a consequence,
it does not adjust any of the transaction price for
the time value of money.
Sale of products excludes amounts of indirect taxes
on sales.
2.1. b. Dividend and interest income:
Dividend income from investments is recognised
when the shareholder's right to receive the payment
has been established.
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
time basis, by reference to the principal outstanding
and at the effective interest rate applicable.
2.1. c. Other Operating Income and Other Income:
Revenue with respect to Other Operating Income
and Other Income including insurance and other
claims are recognised when a reasonable certainty
as to its realisation exists.
Other Income
i) Dividend income from investments is recognised
when the shareholder's right to receive the payment
has been established.
ii) 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
time basis, by reference to the principal outstanding
and at the effective interest rate applicable.
iii) Revenue with respect to Other Operating Income
and Other Income including insurance and other
claims are recognised when a reasonable certainty
as to its realisation exists.
2.2. Leases
Short-term leases and leases of low-value assets:
The Company applies the short-term lease
recognition exemption to its short-term leases of
Property, Plant and Equipment (i.e., those leases
that have a lease term of 12 months or less from
the commencement date and do not contain a
purchase option). It also applies the lease of low-
value assets recognition exemption to leases that
are considered of low value and is not intended
for sublease. Lease payments on short-term leases
and leases of low-value assets are recognized as
expense on a straight-line basis over the lease
term or another systematic basis.
The Company as a Lessee:
The Company's lease asset class primarily consist
of leases for immovable properties. The company
assesses whether a contract contains a lease, at
inception of a contract. A contract is, or contains,
a lease if there is an explicit or implicit identified
asset in the contract and Customer controls the
use of an identified asset for a period of time in
exchange for consideration. To assess whether a
contract conveys the right to control the use of an
identified asset, the company assesses whether:
(1) the contract involves the use of an identified
asset (2) the company has substantially all of the
economic benefits from use of the asset through
the period of the lease and (3) the company has
the right to direct the use of the asset.
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.
Certain lease arrangements includes the options to
extend or terminate the lease before the end of
the lease term. ROU assets and lease liabilities
includes these options when it is reasonably certain
that they will be exercised.
The ROU 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 depreciation and impairment losses,
if any.
ROU assets are depreciated from the commencement
date on a straight-line basis over the shorter of
the lease term and useful life of the underlying
asset.
ROU assets are evaluated for recoverability whenever
events or changes in circumstances indicate that
their carrying amounts may not be recoverable. For
the purpose of impairment testing, the recoverable
amount (i.e. the 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.
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.
Lease liability and ROU asset have been separately
presented in the Balance Sheet and lease payments
have been classified as financing cash flows.
2.3. Lease Liabilities and Right-of-Use Assets
The Company assesses whether a contract contains
a lease, at inception of the contract. To assess
whether a contract conveys the right to control the
use of an identified asset, the Company assesses
whether:
(i) the contract involves use of an identified asset;
(ii) the Company obtains substantially all of the
economic benefits from the use of the asset
through the period of the lease and
(iii) the Company has the right to direct the use
of the asset.
Short-term leases and leases of low-value assets:
The Company applies the short-term lease
recognition exemption to its short-term leases of
Property, Plant and Equipment (i.e., those leases
that have a lease term of 12 months or less from
the commencement date and do not contain a
purchase option). It also applies the lease of low-
value assets recognition exemption to leases that
are considered of low value and is not intended
for sublease. Lease payments on short-term leases
and leases of low-value assets are recognized as
expense on a straight-line basis over the lease
term or other systematic basis.
The Company as a Lessee:
The Company's lease asset class primarily consist
of leases for immovable properties. The company
assesses whether a contract contains a lease, at
inception of a contract. A contract is, or contains,
a lease if there is an explicit or implicit identified
asset in the contract and Customer controls the
use of an identified asset for a period of time in
exchange for consideration.
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.
Certain lease arrangements include the options to
extend or terminate the lease before the end of
the lease term. ROU assets and lease liabilities
includes these options when it is reasonably
certain that the option to extend the lease will be
exercised/option to terminate the lease will not be
exercised.
The lease liability is initially measured at present
value of the future lease payments over the
reasonably certain lease term. The lease payments
are discounted using the interest rate implicit in
the lease, if it not readily determinable, using the
incremental borrowing rate. For leases with similar
characteristics, the Company, on a lease by lease
basis, applies either the incremental borrowing rate
specific to the lease or the incremental borrowing
rate for the portfolio as a whole.
Lease liabilities are remeasured with a corresponding
adjustment to the related right-of-use asset if
the Company changes its assessment regarding
extension or termination option.
The right-of-use assets are initially recognized at
cost, which comprises the amount of the initial
measurement of the lease liability adjusted for any
lease payments made at or before the inception
date of the lease along with any initial direct
costs, restoration obligations and lease incentives
received.
Subsequently, the right-of-use assets is measured
at cost less any accumulated depreciation and
accumulated impairment losses, if any. The right-
of-use assets is depreciated using the straight-line
method from the commencement date over the
shorter of lease term or useful life of right-of-use
assets.
The interest cost on lease liability (computed
using effective interest method), is expensed in
the statement of profit and loss, unless eligible for
capitalization as per accounting policy on Borrowing
costs.
The Company accounts for each lease component
within the contract as a lease separately from non¬
lease components of the contract in accordance with
Ind AS 116 Leases and allocates the consideration
in the contract to each lease component on the
basis of the relative standalone price of the lease
component and the aggregate stand-alone price of
the non-lease components.
2.4. Foreign Currencies - Transactions and
translations:
Transactions in currencies other than the Company's
functional currency (foreign currencies) are
recognised at the rates of exchange prevailing at
the dates of the transactions. At the end of each
reporting period, monetary items denominated in
foreign currencies are translated using FEDAI
exchange rate prevailing on the last day of the
reporting period.
Exchange differences on monetary items are
recognised in the Statement of Profit and Loss in
the period in which they arise.
Non-monetary items denominated in foreign currency
which are measured in terms of historical cost are
recorded using the exchange rate at the date of
the transaction.
2.5. Borrowing Costs
Borrowing costs including finance cost on lease
liability specifically identified to the acquisition or
construction of qualifying assets is capitalized as
part of such assets till the date of cessation of
activities related to qualifying assets. A qualifying
asset is one that necessarily takes substantial period
of time to get ready for intended use. All other
borrowing costs are charged to the Statement of
Profit and Loss. Capitalisation of borrowing costs is
suspended and charged to the Statement of Profit
and Loss during extended periods when active
development activity on the qualifying assets is
interrupted.
Borrowing cost also includes exchange differences
arising from foreign currency borrowings to the
extent that they are regarded as an adjustment to
interest costs i.e., equivalent to the extent to which
the exchange loss does not exceed the difference
between the cost of borrowing in functional currency
when compared to the cost of borrowing in a
foreign currency.
When there is an unrealised exchange loss
which is treated as an adjustment to interest and
subsequently there is a realised or unrealised gain
in respect of the settlement or translation of the
same borrowing, the gain to the extent of the
loss previously recognised as an adjustment is
recognised as an adjustment to interest.
2.6. Employee Benefits
2.6. a. Short term Employee Benefits:
All employee benefits payable wholly within twelve
months of rendering the services are classified as
short term employee benefits. Benefits such as
salaries, wages, etc. and the expected cost of bonus,
Ex-gratia, Leave Travel Allowance, Reimbursement
of Medical Expenses, Personal Accident Policy,
Deposit Linked Insurance Policy are recognised,
undiscounted in the period in which the employee
renders the related services.
2.6. b. Post-Employment Benefits
2.6. b.1. Defined Contribution Plan:
The Company's contribution paid /payable during
the year to Provident Fund, Superannuation Fund
and other welfare funds are considered as defined
contribution plans. The Contribution paid/ payable
under these plans are recognised in the Statement
of Profit and Loss during the period in which the
employee renders the services. The above benefits
are classified as Defined Contribution Schemes as
the Company has no further defined obligations
beyond the monthly contributions.
2.6. b.2. Defined Benefit Plans:
The Gratuity Scheme managed by Life Insurance
Corporation of India through a Trust is considered
as defined benefit plan. The present value of the
obligation is determined based on actuarial valuation
being carried out at each reporting date using the
Projected Unit Credit Method.
Actuarial gains and losses are recognised immediately
in other comprehensive income.
Gains or losses on the curtailment or settlement
of any defined benefit plan are recognised when
the curtailment or settlement occurs.
Past service cost is recognized immediately to the
extent that the benefits are already vested and
otherwise it is amortized on straight-line basis over
the remaining average period until the benefits
become vested.
Interest cost is calculated by applying the discount
rate to the net balance of the defined benefit
obligation and the fair value of plan assets.
The defined retirement benefit obligation recognised
in the balance sheet represents the present value
of the defined benefit obligation as reduced by
plan assets.
2.6. b.3. Long term Employee Benefits:
The obligation for long term employee benefits such
as long term compensated absences, long service
awards, etc. is recognised in the same manner as
in the case of defined benefit plans as mentioned
in (b) (ii) above except that the actuarial gains and
losses are recognised immediately in the Statement
of Profit and Loss.
2.7. Income Taxes
Income tax expense represents the sum of current
tax and deferred tax.
2.7. a. Current Tax:
The tax currently payable is based on taxable profit
for the year. Taxable profit differs from ‘Profit Before
Tax' as reported in the Statement of Profit and
Loss because of items of income or expense that
are taxable or deductible in other years and items
that are never taxable or deductible in accordance
with applicable tax laws. The Company's current
tax is calculated using tax rates that have been
enacted or substantively enacted by the end of
the reporting period.
2.7. b. Deferred Tax:
Deferred tax is recognised on temporary differences
between the carrying amounts of assets and liabilities
in the financial statements and the corresponding
tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised
for all taxable temporary differences. Deferred tax
assets are generally recognised for all deductible
temporary differences, the carry forward of unused
tax losses and the carry forward of unused tax
credits to the extent that it is probable that taxable
profits will be available against which these can
be utilised. Such deferred tax assets and liabilities
are not recognised if the temporary difference
arises from the initial recognition (other than in a
business combination) of assets and liabilities in
a transaction that affects neither the taxable profit
nor the accounting profit. In addition, deferred
tax liabilities are not recognised if the temporary
difference arises from the initial recognition of
goodwill.
The carrying amount of deferred tax assets is
reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to
allow all or part of the deferred tax asset to be
recovered.
Deferred tax liabilities and assets are measured
at the tax rates that are expected to apply in the
period in which the liability is settled or the asset
realised, based on tax rates (and tax laws) that
have been enacted or substantively enacted by
the end of the reporting period.
The measurement of deferred tax liabilities and
assets reflects the tax consequences that would
follow from the manner in which the Company
expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets
and liabilities.
2.7. c. Current and Deferred Tax for the Year:
Current and deferred tax are recognised in the
statement of profit and loss, except when they relate
to items that are recognised in Other Comprehensive
Income or directly in equity, in which case, the
current and deferred tax are also recognised in
Other Comprehensive Income or directly in equity
respectively.
2.8. Property, Plant and Equipment
Freehold land is carried at historical cost. All other
items of property, plant and equipment are stated
at historical cost less accumulated depreciation and
accumulated impairment losses, if any.
The cost of PPE comprises of its purchase price
or its construction cost (net of applicable tax
credit, trade discount and rebate if any), Exchange
rate variations attributable to the assets and any
cost directly attributable to bring the asset into
the location and condition necessary for it to be
capable of operating in the manner intended by the
management and initial estimate of decommissioning
costs. Direct costs are capitalized until the asset
is ready for use and includes borrowing cost
capitalised in accordance with the Company's
accounting policy.
Depreciation method, Estimated Useful lives and
residual value
The Company depreciates property, plant and
equipment over their estimated useful lives using
the straight line method. The estimated useful lives
of the assets are as follows :
values over their useful lives, using the straight¬
line method. The estimated useful lives, residual
values and depreciation method are reviewed at
the end of each reporting period, with the effect
of any changes in estimate accounted for on a
prospective basis. The useful life as prescribed
under Schedule II of the Companies Act, 2013 have
been followed except in respect of the following
categories of assets, in whose case the life of
the assets has been assessed as under based
on technical advice, taking into account the nature
of the asset, the estimated usage of the asset,
the operating condition of the asset, past history
of replacement, anticipated technological changes,
manufacturers warranties and maintenance support,
etc.:
- Remembraning of Membrane cell elements-4
years
- Recoating of Anode and Cathode membrane
cell elements- 8-10 years
- Leasehold land and equipment is amortised over
the duration of the lease.
Advances paid towards the acquisition of property,
plant and equipment outstanding at each Balance
Sheet date is classified as capital advances under
Other Non-Current Assets and the cost of the
assets not ready for intended use before such
date are disclosed under ‘Capital work-in-progress'.
Subsequent expenditures relating to property,
plant and equipment is capitalised only when it is
probable that future economic benefits associated
with these will flow to the Company and the cost
of the item can be measured reliably. Repairs and
maintenance costs are recognized in the Statement
of Profit and Loss when incurred. The cost and
related accumulated depreciation are eliminated from
the financial statements upon sale or retirement of
the asset and the resultant gains or losses which
are measured as the difference between the net
disposal proceeds and the carrying amount of the
asset are recognised in the Statement of Profit and
Loss when the asset is derecognised. Assets to
be disposed off are reported at the lower of the
carrying value or the fair value less cost to sell.
2.9. Intangible Assets
Intangible Assets acquired separately:
Intangible assets with finite useful life acquired
separately, are recognized only if it is probable
that future economic benefits that are attributable
to the assets will flow to the enterprise and the
cost of assets can be measured reliably. The
intangible assets are recorded at cost and are
carried at cost less accumulated amortization and
accumulated impairment losses, if any.
Amortisation is recognised on a straight-line basis
over their estimated useful lives from the date
they are available for use. The estimated useful
life and amortisation method are reviewed at the
end of each reporting period, with the effect of
any changes in estimate being accounted for on a
prospective basis. Intangible assets with indefinite
useful lives that are acquired separately are carried
at cost less accumulated impairment losses.
Subsequent expenditures are capitalised only when it
is probable that future economic benefits associated
with these will flow to the Company and the cost
of the item can be measured reliably.
Intangible assets are derecognised on disposal, or
when no future economic benefits are expected
from use or disposal. Gains or losses arising
from derecognition of an intangible asset are
determined as the difference between the net
disposal proceeds and the carrying amount of the
asset, and recognised in the Statement of Profit
and Loss when the asset is derecognised.
RESEARCH AND DEVELOPMENT
Expenditure on research is recognised as an expense
when it is incurred. Expenditure on development
which does not meet the criteria for recognition as
an intangible asset is recognised as an expense
when it is incurred.
Useful Lives of Intangible Assets :
Estimated Useful lives of the Intangible assets are
as follows:
2.10. Impairment of Tangible and Intangible Assets
Intangible assets and property, plant and equipment
are evaluated for recoverability whenever events
or changes in circumstances indicate that their
carrying amounts may not be recoverable. For
the purpose of impairment testing, the recoverable
amount 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 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 such assets are considered to be impaired,
the impairment is recognized in the Statement of
Profit and Loss and is measured by the amount
by which the carrying value of the assets exceeds
the estimated recoverable amount of the asset. An
impairment loss is reversed in the Statement of
Profit and Loss if there has been a change in the
estimates used to determine the recoverable amount.
The carrying amount of the asset is increased to
its revised recoverable amount, provided that this
amount does not exceed the carrying amount
that would have been determined (net of any
accumulated amortization or depreciation) had no
impairment loss been recognized for the asset in
prior years. After a reversal, the depreciation charge
is adjusted in future periods to allocate the asset's
revised carrying amount, less any residual value,
on a systematic basis over its remaining useful
life.
2.11. Inventories
Inventories are stated at the lower of cost and net
realisable value after providing for obsolescence, if
any. Net realisable value represents the estimated
selling price for inventories in the ordinary course
of business less all estimated costs of completion
and estimated costs necessary to make the sale.
Cost of inventories comprises of cost of purchase
(net of recoverable taxes), cost of conversion and
other costs including manufacturing overheads
incurred in bringing them to their respective present
location and condition. Raw materials and other
supplies held for use in 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 realizable value.
Inventory cost formula is as under
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