3. MATERIAL ACCOUNTING POLICIES
3.1 Revenue recognition
Revenue from contract with customers is
recognised when the Company satisfies the
performance obligation by transfer of control of
promised product or service to customers in an
amount that reflects the consideration which the
Company expects to receive in exchange for those
products or services. Revenue excludes taxes
collected from customers.
Sale of products:
Revenue from sale of products is recognised when
the control of the goods has been transferred to
the customer. The performance obligation in case
of sale of product is satisfied at a point in time i.e.
when the material is shipped to the customer or
on delivery to the customer, as per the terms of
the contract.
No element of financing is deemed present as
the payment of transaction price is either made
in advance / due immediately at the point of
sale or the sales are generally made with a credit
term upto 90 days, which is consistent with the
market practice. There are no contracts where the
period between the transfer of promised goods
or services to the customers and payment by the
customers exceed one year. Consequently, no
adjustment is required to the transaction price for
the time value of money.
Contract balances:
The Company classifies the right to consideration
in exchange for deliverables as trade receivable.
A receivable is a right to consideration that is
unconditional upon passage of time. A contract
liability is the obligation to transfer goods or
services to a customer for which the Company
has received consideration (or an amount of
consideration is due) from the customer. If a
customer pays consideration before the Company
transfers goods or services to the customer, a
contract liability is recognised when the payment
is made or the payment is due (whichever is
earlier). Contract liabilities are recognised as
revenue when the Company performs under the
contract. Contract liabilities are presented as
'Advances from customers’.
Other income:
Interest income from a financial asset is
recognised on time basis, by reference to the
principal outstanding at the effective interest
rate applicable, which is the rate which exactly
discounts estimated future cash receipts through
the expected life of the financial asset to that
asset’s net carrying amount on initial recognition.
Insurance claims are recognised to the extent there
is a reasonable certainty of the realisability of the
claim amount. Dividend income from investments
is recognised when the right to receive payment is
established.
3.2 Inventories
Inventories are valued at lower of the cost and
net realisable value. Cost is determined using
weighted average cost basis. Cost of inventories
comprises all costs of materials, duties and taxes
(other than those subsequently recoverable from
tax authorities) and all other costs incurred in
bringing the inventory to their present location
and condition. Cost of finished goods and work-
in-progress includes the cost of materials,
conversion costs, an appropriate share of fixed
and variable production overheads and other
costs incurred in bringing the inventories to
their present location and condition. However,
materials and other items held for use in the
production of inventories are not written down
below cost if the finished products in which they
will be incorporated are expected to be sold at or
above cost. Closing stock of imported materials
include customs duty payable thereon, wherever
applicable. Net realisable value represents the
estimated selling price in the ordinary course of
business less the estimated costs of completion
and the estimated costs necessary to make the
sale.
3.3 Property, plant and equipment
An item of Property, Plant and Equipment (PPE)
that qualifies as an asset is measured on initial
recognition at cost. Following initial recognition,
property, plant and equipment are carried at cost,
as reduced by accumulated depreciation and
impairment losses, if any.
The Company identifies and determines cost
of each part of an item of property, plant and
equipment separately, if the part has a cost
which is significant to the total cost of that item
of property, plant and equipment and has useful
life that is materially different from that of the
remaining item.
Cost comprises of purchase price / cost of
construction, including non-refundable taxes or
levies and any expenses attributable to bring the
PPE to its working condition for its intended use.
Project pre-operative expenses and expenditure
incurred during construction period are capitalised
to various eligible PPE. Borrowing costs directly
attributable to acquisition or construction of
qualifying PPE are capitalised. In respect of the
assets acquired pursuant to demerger of the
Chemical Business Undertaking in the earlier
year, the cost of depreciable capital assets
includes exchange differences on conversion
and on settlement of long-term foreign currency
monetary items that relate to the acquisition of
a depreciable capital asset (whether purchased
within or outside India), as permitted by para
D13AA of Ind AS 101.
Spare parts, stand-by equipment and servicing
equipment that meet the definition of property,
plant and equipment are capitalised at cost and
depreciated over their useful life. Costs in nature
of repairs and maintenance are recognised in
the Statement of Profit and Loss as and when
incurred.
Cost of assets not ready for intended use, as on
the Balance Sheet date, is shown as capital work-
in progress. Expenses those are capitalised are
considered as pre-operative expenses and are
disclosed under capital work-in-progress until
the project is capitalised. Advances given towards
acquisition of PPE outstanding at each Balance
Sheet date are disclosed as Other non-current
assets.
Depreciation is recognised so as to write off
the cost of PPE (other than freehold land and
properties under construction) less their residual
values over their useful lives, using the straight-line
method. The useful lives prescribed in Schedule II
to the Companies Act, 2013 are considered as the
minimum lives. If the management's estimate of
the useful life of a PPE at the time of acquisition
of the asset or of the remaining useful life on a
subsequent review is shorter than that envisaged
in the aforesaid schedule, depreciation is provided
at a higher rate based on the management's
estimate of the useful life/remaining useful
life. 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.
PPE are depreciated over its estimated useful
lives, determined as under:
• Freehold land is not depreciated.
• On other items of PPE, on the basis of
useful life as per Part C of Schedule II to the
Companies Act, 2013 as below:
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.
An item of property, plant and equipment is
derecognised upon disposal or when no future
economic benefits are expected from its use or
disposal. 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 profit or
loss.
In respect of the assets acquired pursuant to
demerger of the Chemical Business Undertaking
in the earlier year, the Company has continued
with the carrying value of its property, plant
and equipment recognised as of 1st April, 2015
(transition date) measured as per the previous
GAAP by the demerged company and used that
carrying value as its deemed cost.
3.4 Investment property
Investment properties are properties held to earn
rentals and/or for capital appreciation (including
property under construction for such purposes).
Investment properties are measured initially at
cost including transaction costs. Subsequent
to initial recognition, investment properties
are measured in accordance with Ind AS 16's
requirements for cost model.
Depreciation is recognised so as to write off the
cost of investment properties less their residual
values over their useful lives, using the straight-line
method. The useful lives prescribed in Schedule
II to the Companies Act, 2013 are considered as
the minimum lives. If the management's estimate
of the useful life of investment properties at the
time of acquisition of the asset or of the remaining
useful life on a subsequent review is shorter
than that envisaged in the aforesaid schedule,
depreciation is provided at a higher rate based
on the management's estimate of the useful life/
remaining useful life. 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.
Investment properties are depreciated over
estimated useful life as per Part C of Schedule II to
the Companies Act, 2013.
An investment property is derecognised upon
disposal or when the investment property is
permanently withdrawn from use and no future
economic benefits are expected from its use or
disposal. Any gain or loss arising on derecognition
of the property (calculated as the difference
between the net disposal proceeds and the
carrying amount of the asset) is included in profit
or loss in the period in which the property is
derecognised.
In respect of the assets acquired pursuant to
demerger of the Chemical Business Undertaking
in the earlier year, the Company has continued
with the carrying value of its investment properties
recognised as of 1st April, 2015 (transition date)
measured as per the previous GAAP by the
demerged company and used that carrying value
as its deemed cost.
3.5 Intangible assets
Intangible assets acquired separately:
Intangible assets with finite useful lives that
are acquired separately are carried at cost less
accumulated amortisation and accumulated
impairment losses. Amortisation is recognised on
a straight-line basis over their estimated useful
lives. 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.
Internally-generated intangible assets - research
and development expenditure:
Expenditure on research activities is recognised
as an expense in the period in which it is incurred.
An internally-generated intangible asset
arising from product development (or from the
development phase of an internal project) is
recognised if, and only if, all of the following have
been demonstrated:
• The technical feasibility of completing the
intangible asset so that it will be available for
use or sale;
• The intention to complete the intangible
asset and use or sell it;
• The ability to use or sell the intangible asset;
• How the intangible asset will generate
probable future economic benefits;
• The availability of adequate technical,
financial and other resources to complete the
development and to use or sell the intangible
asset; and
• The ability to measure reliably the expenditure
attributable to the intangible asset during its
development.
The amount initially recognised for internally-
generated intangible assets is the sum of the
expenditure incurred from the date when the
intangible asset first meets the recognition criteria
listed above. Where no internally-generated
intangible asset can be recognised, development
expenditure is recognised in profit or loss in the
period in which it is incurred.
Subsequent to initial recognition, internally-
generated intangible assets are reported at cost
less accumulated amortisation and accumulated
impairment losses, on the same basis as intangible
assets that are acquired separately.
Derecognition of intangible assets:
An intangible asset is derecognised on disposal,
or when no future economic benefits are expected
from its use or disposal. Gains or losses arising from
derecognition of an intangible asset, measured as
the difference between the net disposal proceeds
and the carrying amount of the asset, are recognised
in profit or loss when the asset is derecognised.
In respect of the assets acquired pursuant to
demerger of the Chemical Business Undertaking
in the earlier year, the Company has continued
with the carrying value of its intangible assets
recognised as of 1st April, 2015 (transition date)
measured as per the previous GAAP by the
demerged company and used that carrying value
as its deemed cost.
3.6 Borrowing costs
Borrowing costs directly attributable to the
acquisition, construction or production of
qualifying assets, which are assets that necessarily
take a substantial period of time to get ready for
their intended use or sale, are added to the cost
of those assets, until such time as the assets are
substantially ready for their intended use or sale.
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 recognised in profit
or loss in the period in which they are incurred.
3.7 Investment in subsidiaries and joint venture
Investment in subsidiaries and joint venture are
carried at cost less accumulated impairment, if
any. Where an indication of impairment exists, the
carrying amount of the investment is assessed
and written down immediately to its recoverable
amount. On disposal of investments in
subsidiaries/joint venture the difference between
net disposal proceeds and the carrying amounts
are recognised in the Statement of Profit and Loss.
3.8 Impairment of non-financial assets and
investment in subsidiaries and joint venture
At the end of each reporting period, the Company
reviews the carrying amounts of its PPE (including
capital-work-in progress), right-of-use assets,
investment property, intangible assets (including
intangible assets under development) and
investment in subsidiaries and joint venture 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. When a reasonable
and consistent basis of allocation can be
identified, corporate assets are also allocated to
individual cash-generating units, or otherwise
they are allocated to the smallest Group of cash¬
generating units for which a reasonable and
consistent allocation basis can be identified.
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 it
is not possible to measure fair value less cost of
disposal because there is no basis for making a
reliable estimate of the price at which an orderly
transaction to sell the asset would take place
between market participa nts at the measurement
dates under market conditions, the asset’s value
in use is used as recoverable amount.
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 profit or 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, to the extent
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 profit or loss.
3.9 Government Grants
Government grants are recognised when there is
reasonable assurance that they will be received
and the Company will comply with the conditions
associated with the grants.
Government grants that compensate the
Company for expenses incurred are recognised
in profit or loss, either as separate line item of
income or deducted in reporting the related
expense, as appropriate, on a systematic basis
over the periods in which the Company recognises
as expenses the related costs for which the
grants are intended to compensate. Government
grants that are receivable as compensation for
expenses or losses already incurred or for the
purpose of giving immediate financial support
to the Company with no future related costs are
recognised in profit or loss in the period in which
they become receivable.
Revenue from export incentives arising from duty
drawback scheme and remission of duties and
taxes on exported product scheme are recognised
on export of goods in accordance with their
respective underlying scheme at fair value of
consideration received or receivable.
3.10 Foreign currency transactions and translation
The 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, foreign currency
monetary items are translated using the closing
rates. Non-monetary items measured at historical
cost in a foreign currency are translated using the
exchange rate at the date of the transaction and
are not translated. Non-monetary items measured
at fair value that are denominated in foreign
currency are translated using the exchange rates
at the date when the fair value was measured.
Exchange differences on monetary items are
recognised in profit or loss in the period in which
they arise except for exchange differences on
foreign currency borrowings relating to assets
under construction for future use, which are
included in the cost of those assets when they are
regarded as an adjustment to interest costs on
those foreign currency borrowings.
3.11 Leases
At inception of a contract, the Company assesses
whether a contract is, or contains, a lease viz.
whether the contract conveys the right to control
the use of an identified asset for a period of time in
exchange for consideration.
a) The Company as lessor
At the inception of the lease the Company
classifies each of its leases as either an
operating lease or a finance lease.
A lease is classified as an operating lease if
it does not transfer substantially all the risks
and rewards incidental to the ownership of an
underlying asset. The Company recognises
lease payments received under operating
leases as income on a straight-line basis
over the lease term or another systematic
basis, as appropriate. If an arrangement
contains lease and non-lease components,
the Company applies Ind AS 115 'Revenue
from contracts with customers’ to allocate
the consideration in the contract. The leasing
transactions of the Company comprise of
only operating leases.
b) The Company as lessee
The Company recognises a right-of-use
asset and a lease liability at the lease
commencement date.
The right-of-use assets are initially
recognised 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. Right-of-use 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.
The lease liability is initially measured at
the present value of the lease payments
that are not paid at the commencement
date, discounted using the interest rate
implicit in the lease or, if that rate cannot be
readily determined, company’s incremental
borrowing rate.
"Lease liabilities" and "Right-of-use assets"
have been separately presented in the
Balance Sheet and lease payments have
been classified as financing cash flows.
The Company applies the short-term
lease recognition exemption to its short¬
term leases (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 to be low value.
Lease payments on short-term leases and
leases of low-value assets are recognised
as expense on a straight-line basis over the
lease term.
Variable lease payments that are not included
in the measurement of lease liabilities is
charged as expense in the statement of profit
and loss under the head 'Rent, lease rentals
and hire charges’/’Power & fuel’.
3.12 Employee benefits
Short-term employee benefits:
All employee benefits payable wholly within twelve
months of rendering the service are classified as
short-term employee benefits. All short-term
employee benefits are accounted on undiscounted
basis during the accounting period based on
services rendered by employees and recognised
as expenses in the Statement of profit and loss.
A liability is recognised for the amount expected
to be paid if the Company has a present legal or
constructive obligation to pay this amount as a
result of past service provided by the employee
and the obligation can be estimated reliably.
These benefits include salary and wages, bonus,
commission, performance incentives, short-term
compensated absences etc.
Long-term employee benefits:
The Company participates in various employee
benefit plans. Post-employment benefits are
classified as either defined contribution plans or
defined benefit plans.
Defined contribution plans:
Retirement benefit in the form of provident and
pension fund is a defined contribution scheme.
The Company has no obligation, other than the
contribution payable to the fund. Payments to
defined contribution plan are recognised as an
expense when employees have rendered service
entitling them to the contributions.
Defined benefit plans:
The Company’s gratuity scheme is a defined
benefit plan and is unfunded. For defined benefit
plan, the cost of providing benefits is determined
using the projected unit credit method, with
actuarial valuations being carried out at the
end of each reporting period. Remeasurement,
comprising actuarial gains and losses reflected
immediately in the balance sheet with a charge or
credit recognised in other comprehensive income
in the period in which they occur. Remeasurement
recognised in other comprehensive income is
reflected immediately in retained earnings and is
not reclassified to statement of profit and loss.
Past service cost is recognised in the statement of
profit and loss in the period of a plan amendment.
Net interest is calculated by applying the discount
rate to the net defined benefit plan at the start of
the reporting period, taking account of any change
in the net defined benefit plan during the year as a
result of contributions and benefit payments.
Defined benefit costs are categorised as follows:
• service cost (including current service cost,
past service cost, as well as gains and losses
on curtailments and settlements);
• net interest expense or income; and
• remeasurement
The Company presents the first two components
of defined benefit costs in the statement of profit
and loss in the line item 'Employee benefits
expense’.
Other long-term employee benefits:
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 service periods or receive cash
compensation on termination of employment.
Since the compensated absences do not fall due
wholly within twelve months after the end of the
period in which the employees render the related
service and are also not expected to be utilised
wholly within twelve months after the end of
such period, the benefit is classified as a long¬
term employee benefit. The Company records an
obligation for such compensated absences in the
period in which the employee renders the services
that increase this entitlement. The obligation is
measured on the basis of independent actuarial
valuation using the projected unit credit method.
3.13 Taxation
Income tax expense comprises of current tax and
deferred tax. It is recognised in the Standalone
Statement of Profit and Loss except to the extent
that it relates to an item recognised directly in
equity or in other comprehensive income.
Current tax:
Current tax comprises amount of tax payable
in respect of the taxable income or loss for the
year determined in accordance with Income Tax
Act, 1961 and any adjustment to the tax payable
or receivable in respect of previous years. The
Company’s current tax is calculated using tax
rates that have been enacted or substantively
enacted by the end of the reporting period.
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 recognised for all taxable
temporary differences. Deferred tax assets are
generally recognised for all deductible temporary
differences to the extent that it is probable that
taxable profits will be available against which
those deductible temporary differences 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 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.
Presentation of current and deferred tax:
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. Where current tax or
deferred tax arises from the initial accounting for a
business combination, the tax effect is included in
the accounting for the business combination.
The Company offsets current tax assets and
current tax liabilities, where it has a legally
enforceable right to set off the recognised
amounts and where it intends either to settle on
a net basis, or to realize the asset and settle the
liability simultaneously. In case of deferred tax
assets and deferred tax liabilities, the same are
offset if the Company has a legally enforceable
right to set off corresponding current tax assets
against current tax liabilities and the deferred tax
assets and deferred tax liabilities relate to income
taxes levied by the same tax authority on the
Company.
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