2 STATEMENT OF MATERIALACCOUNTING POLICIES
This note provides a list of the Significant Accounting Policies adopted in the preparation of these Financial
Statements. These policies have been consistently applied to all the years presented, unless otherwise stated.
2.1 BASIS FOR PREPARATION OF ACCOUNTS
a) Statement of Compliance with Ind AS
The Financial Statements comply in all material aspects with Indian Accounting Standards (Ind AS)
notified under Section 133 of the Companies Act, 2013 (the Act) [Companies (Indian Accounting
Standards) Rules, 2015] and other relevant provisions of the Act.
b) Current versus Non-Current classification
All assets and liabilities have been classified as Current or Non Current as per the Company’s normal
operation cycle i.e. twelve months and other criteria set out in the Schedule III of the Act.
c) Historical Cost Convention
The financial statements are prepared on accrual basis of accounting under historical cost convention
in accordance with Generally Accepted Accounting Principles in India and the relevant provisions of
the Companies Act, 2013 including Indian Accounting Standards notified there under, except for the
following:
- Certain financial assets and liabilities that are measured at fair value
- Defined benefit plans - plan assets measured at fair value
2.2 USE OF ESTIMATES
In preparation of the financial statements, the Company makes judgements, estimates and assumptions
about the carrying values of assets and liabilities that are not readily apparent from other sources. The
estimates and the associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting
estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Significant judgements and estimates relating to the carrying values of assets and liabilities include useful
lives of property, plant and equipment and intangible assets, impairment of property, plant and equipment,
intangible assets and investments, impairment of trade receivables, provision for employee benefits and
other provisions, recoverability of deferred tax assets, commitments and contingencies.
2.3 REVENUE RECOGNITION
a) Sale of Goods
Revenue from the sale of goods is recognised when property in the goods, or all significant risks and
rewards of ownership of the goods have been transferred to the buyer and no significant uncertainty
exists regarding the amount of the consideration that will be derived from the sale of goods as well as its
collection. Revenue from the sale of goods is measured at the fair value of the consideration received or
receivable, net of returns and allowances, related discounts and volume rebates. It includes excise duty
and subsidy and excludes Value Added Tax / Sales Tax/ GST.
b) Rendering of services
Revenue of services are recognized when the services are rendered.
c) Dividend
Dividend income from investments is recognised when the shareholder’s rights to receive payment
have been established.
d) Interest Income
Interest income is accrued on a time proportion basis, by reference to the principal outstanding and the
effective interest rate applicable.
2.4 FOREIGN CURRENCY TRANSACTIONS
a) Functional and Presentation Currency
The financial statements are presented in Indian Rupee (INR), which is company’s functional and
presentation currency.
b) Intial Recognisation
Transactions in foreign currencies are recorded at the exchange rate prevailing on the dates of the
transactions. Exchange difference arrising on foreign exchange transaction settled during the year are
recognized in the Statement of profit and loss of the year.
c) Measurment of foreign currency items at the Balance sheet date
Monetary assets and liabilities denominated in foreign currencies are re-translated into functional
currency at the exchange rate prevailing at the end of the reporting period. Non monetary assets and
liabilities that are measured based on a historical cost in a foreign currency are not re-translated.
Exchange differences arrising out of these transaction are chanrged to the profit and loss.
2.5 PROPERTY, PLANT AND EQUIPMENTS AND INTANGIBLE ASSETS
a) Property, plant and equipment (PPE)
i) Recognition and measurement
Freehold land is carried at cost. All other items of property, plant and equipment are measured at
cost less acccumlated depreciation and impairment losses, if any. Cost includes expenses directly
attributable to the acquisition of the assets. The cost of an item of a PPE comprises its purchase
price including import duty, and other non-refundable taxes or levies and any directly attributable
cost of bringing the assets to its working condition of its intended use. Any trade discounts and
rebates are deducted in arriving at the purchase price.
ii) Subsequent expenditure
Expenditure incurred on substantial expansion upto the date of commencement of commercial
production are capitalised. Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate only when it is probable that future economic benefi
ts associated with the item will fl ow to the Company and the cost of the item can be measured
reliably. The carrying amount of any component accounted for as a separate asset is derecognised
when replaced. All other repairs and maintenance are charged to profit or loss during the reporting
period in which they are incurred.
b) Capital Work-In-Progress And Pre-Operative Expenses During Construction Period
Capital work-in progress includes expenditure directly related to construction and incidental thereto.
The same is transferred or allocated to respective Property, Plant and Equipment on their completion /
commencement of commercial production.
c) Intangible assets
Intangible asstes are held on the balance sheet at cost less accumlated amortisation and imparment loss
if any.
2.6 IMPAIRMENT OF NON- FINANCIAL ASSETS
The Company’s non-fi nancial assets other than inventories and deferred tax assets, are reviewed at each
reporting date to determine whether there is an indication of impairment. If any such indication exists, then
the asset’s recoverable amount is estimated.
For impairment testing, assets that do not generate independent cash infl ows are grouped together into
cash-generating units (CGUs). Each CGU represents the smallest group of assets that generates cash inflows
that are largely independent of the cash inflows of other assets or CGUs.
The recoverable amount of a CGU is the higher of its value in use and its fair value less costs to sell. Value
in use is based on the estimated future cash flows, discounted to their present value using a discount rate
that reflects current market assessments of time value of money and the risks specific to the CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its estimated recoverable
amount. Impairment losses are recognised in the statement of profit and loss. Impairment losses recognised
in respect of a CGU is allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and
then to reduce the carrying amount of the other assets of the CGU on a pro rata basis.
An impairment loss in respect of assets for which impairment loss has been recognized in prior periods, the
Company reviews at reporting date whether there is any indication that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a change in the estimates used to determine the
recoverable amount. Such a reversal is made only to the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been determined, net of depreciation or amortization, if no
impairment loss had been recognized.
2.7 DEPRECIATION AND AMORTISATION
Depreciation is computed using Straight Line Method (SLM) over the useful lives of the assets as specified
in Schedule II to the Companies Act,2013. Lease hold land is amortised over the period of lease.
The assets; residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.Depreciation and amortization on property, plant and equipment added/disposed off during
the year has been provided onpro-rata basis with reference to the date of addition/disposal.
Depreciation and amortization methods, useful lives and residual values are reviewed at the end of each
reporting periodand adjusted if appropriate.
2.8 FINANCIAL INSTRUMENTS
I Financial Assets
a) Classification of financial assets
The Company classifies financial assets as subsequently measures at amortised cost, fair value through
other comprehensive income or fair value through profit & loss on the basis of its business model for
managing the financial assets and the contractual cash flow characteristics of the financial assets.
i) Debt instrument at amortised cost:
A ‘debt Instrument’ is measured at the amortised cost if both the following conditions are met:- The
asset is held within a business model whose objectives is to hold assets for collecting contractual cash
flow and - Contractual terms of the asset give rise on specified dates to cash flow that are solely
payments of principal and interest (SPPI) on the principal amount outstanding.
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 and fees or cost that are an integral part of the EIR. The EIR. Amortisation is included in finance
income in the statement of profit and loss. The losses arising from impairment are recognised in the
statement of profit and loss. The category generally applies to trade and other receivable.
ii) Debt instrument at fair value through other comprehensive income (FVOCI):
Assets that are held for collection of contractual cash flow and selling the financial assets, where the
assets’ cash flow represents solely payments of principal and interest are measuring at FVOCI, movements
in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses,
interest revenue or foreign exchange gains and losses which are recognised in profit and loss. When
the financial assets is derecognised, the cumulative gain or loss previously recognised in OCI is
reclassified from equity to profit or loss and recognised in other gains/ (losses). Interest income from
these financial assets is included in other income suing the EIR method. The company does not have
any instruments classified as fair value through other comprehensive income (FVOCI).
iii) Debt instrument measured at fair through profit and loss (FVTPL):
Assets that do not meet the criteria for amortised cost or FVOCI are measured at fair value through
profit or loss. A gain or loss on a debt instrument that is subsequently measured at fair value through
profit or loss and is not part of a hedging relationship is recognised in profit or loss and presented net
in the statement of profit and loss within other gains/ (losses) in the period in which it arises. Interest
income from these financial assets is included in other income.
iv) Equity investments:
Investment in associates are accounted using equity method.
All other equity investments which are in scope of Ind-AS 109 are measured at fair value. Equity
instrument which are held for trading are classified as at FVTPL. For all other equity investments, the
Company decide to classify the same either as at fair value through other comprehensive income (FVOCI)
or FVTPL. The company makes such election on an instrument-by- instrument basis. The classification
is made on initial recognition and is irrevocable.
For equity investments classified as FVOCI, all fair value changes on the instruments, excluding dividend,
are recognized in other comprehensive income (OCI). There is no recycling of the amounts from OCI to
statement of profit and loss, even on sale of such investment.
Equity investments included within the FVTPL category are measured at fair value with all changes
recognized in the Statement of profit and loss.
Costs of certain unquoted equity instruments has been considered as an appropriate estimate of fair
value because of a wide range of possible fair value measurements and cost represents the best estimate
of fair value within that range.
b) Initial recognition and measurement
All financial assets are recognised initially at fair value and for those instruments that are not
subsequently measured at FVTPL, plus/minus transaction cost that are attributable to the acquisition
of the financial assets.
Trade receivable are carried at original invoice price as the sales arrangements do not contain any
significant financial component. Purchase or sales of financial assets that required delivery of assets
within a time frame established by regulation or convention in the market place (regular way trades) are
recognised on the trade date, i.e., the date that the company commits to purchase or sell the assets.
c) Derecognition of financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a company of similar financial
assets) primarily derecognised (i.e. removed from the company’s balance sheet) when : - The rights to
receive cash flows from the asset have expired, or- The Company has neither transferred nor retained
substantially all the risks and rewards all the assets, but has transferred control of the assets.
When the company has transferred its rights to receive cash flow from an asset or has entered into a
pass-through arrangement, it evaluates whether it has transferred substantially all the risks and rewards
of ownership. In such cases, the financial asset is derecognised. When it has neither transferred nor
retained substantially all of the risks and rewards of the assets, nor transferred control of the assets, the
Company continues to recognise the transferred asset to the extent of the company’s continuing
involvement. In the case, the company recognises and associated liability. The transferred asset and
the associated liability are measured on a basis that reflect the rights and obligations that the company
has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the
lower of the original carrying amount of the asset and maximum amount of consideration that the
company could be required to repay.
d) 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 on following financial assets and credit risk exposure:- Financial
assets that are debt instruments, and are measured at amortised cost e.g., loan, debt security, deposits,
and bank balance.- Trade Receivables
The company follows ‘simplified approach’ for recognition of impairment loss allowance on trade
receivables which do not contain a significant financing component.
The application simplified approach does not require the company to track change in risk. Rather, it
recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its
initial recognition. The company uses a provision matrix to determine impairment loss allowance on the
portfolio of trade receivable. The provision matrix based on its historically observed default rates over
the expected life of the trade receivable and is adjusted for forward looking estimates. At every reporting
date, historically observed default rate updated and change in the forward looking estimates are analysed.
II. Financial Liabilities and equity instruments
Debt and equity instruments issued by an entity are classified as either financial liability or as equity in
accordance with substance of the contractual arrangements and the definition of a financial liability and
an equity instrument.
a) Equity instruments:
An equity instruments is any contact the evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by an entity are recognised at the proceeds
received, net of direct issue costs.
An equity instruments is any contact the evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by an entity are recognised at the proceeds
received, net of direct issue costs.
b) Financial liabilities Classification
Financial liabilities are classified as either’s at FVTPL’ or’ other financial liabilities consists of derivative
financial instruments, wherein the gain/losses arising from remeasurement of these Instruments of
recognized in the statements of profit and loss. Other financial liability (including borrowings and trade
and other payables) are subsequently measured at amortised cost using the effective interest method.
c) Initial recognition and measurement:
All financial liability are recognised initially at fair value and for those instruments that are
notSubsequently measured at FVTPL, plus/minus transaction cost that are attributable to issue of
these instruments.
d) Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled
or expires . When 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 the derecognition of the original liability and the recognition
of the new liability. The difference in the respective carrying amounts is recognised in the statement
of Profit and Loss.
III. Fair Value
The Company determines the fair value of its financial instruments on the basis of the following
hierarchy...
a) Level 1 : The fair value of financial instruments quoted in active markets is based on their quoted
closing price at the balance sheet date. Examples include exchange traded commodity derivatives
and other financial instruments in equity and debt securities which are listed in a recognised stock
exchange.
b) Level 2 : The fair value of financial instruments that are not traded in active markets is determined by
using valuation techniques using observable market data. Such valuations techniques include
discounted cash flows, standard valuation models based on market parameters for interest rates,
yield curves or foreign exchange rates, dealer quotes for similar instruments and use of comparable
arm’s length transactions. For example, the fair value of forward exchange contracts, currency swaps
and interest rate swaps is determined by discounting estimated future cash flows using a risk-free
interest rate.
c) Level 3 : The fair value of financial instruments that are measured on the basis of entity specific
valuations using inputs that are not based on observable market data (unobservable inputs).
IV. Accounting for day 1 differences
If the fair value of the financial asset or financial liability at initial recognition differs from the transaction
price, this if it is not consideration for goods or services or a deemed capital contribution or deemed
distribution, is accounted as follows :
i) If the fair value is evidence by a quoted price in an active market for an identical asset or liability (ie
Level 1 input) or based on a valuation technique that uses data from observable market, the entire day
1 gain/loss is recorded immediately in the statement of profit and loss; or ii) in all other cases, the
difference between the fair value at initial recognition and transaction price is deferred. After initial
recognition, the deferred difference is recorded as gain or loss in the statement profit and loss only to
the extent that is arises from a change in a factor (including time) that market praticipants would take
into account when pricing the asset or liability.
In case difference represents :
i) deemed capital contribution - it is recorded as investment in subsidiary.
ii) deemed distribution - It is recorded in equity.
iii) deemed consideration for goods and services - it is recorded as an asset or liability. This amount is
amortised / accredited to the statement of profit and loss as per the substance of the arrangement
(generally straight line basis over the duration of the arrangement).
2.9 INVENTORIES
Inventories are stated at the lower of cost and net realizable value.
Cost of Raw Material is determined on a First In First Out (FIFO) basis.
Packing materials are valued at cost.
Finished goods are valued at cost or net realizable value whichever is lower. Cost comprises direct materials
and where applicable, direct labour costs, those overheads but excluding borrowing cost that have been
incurred in bringing the inventories to their present location and condition. Cost is arrived on weighted
average cost basis.
Work in Progress is valued at cost or net realizable value whichever is less. Cost comprises direct materials
and appropriate portion of direct labour costs, manufacturing overheads but excluding borrowing cost that
have been incurred in bringing the inventories to their present location and condition.
2.10 BORROWING COSTS
Borrowing Costs that are interest and other costs that the company incurs in connection with the borrowings
of funds and is measured with reference to the effective interest rate applicable to the respective borrowing.
Borrowing costs include interest cost measured at EIR and exchange difference arising from foreign currency
borrowings to the extent they are regarded as an adjustment to the interest cost.
Borrowing Costs that are attributable to the acquisition or construction of qualifying assets are capitalised
as part of the cost of such assets, wherever applicable, till the assets are ready for their intended use. Such
capitalisation is done only when it is probable that the asset will result in future economic benefits and the
costs can be measured reliably. Capitalisation of borrowing cost is suspended and charged to statement
when active development is interrupted.
Capitalisation of borrowing costs commences when all the following conditions are satisfied:
i Expenditure for the acquisition, construction or production of a qualifying asset is being incurred;
ii. Borrowing costs are being incurred; and
iii. Activities that are necessary to prepare the asset for its intended use are in progress.
A qualifying asset is one which necessarily takes substantial period to get ready for intended use. All other
borrowing costs are charged to revenue account.
2.11 ACCOUNTING FOR TAXES ON INCOME
a) Income Taxes
The income tax expense or credit for the period is the tax payable on the current period’s taxable income
based on the applicable income tax rate for each jurisdiction adjusted by changes in Deferred Tax Assets and
Liabilities attributable to temporary differences and to unused tax losses.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at
the end of the reporting period i.e. as per the provisions of the Income Tax Act, 1961, as amended from time
to time. Management periodically evaluates positions taken in tax returns with respect to situations in which
applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the
basis of amounts expected to be paid to the tax authorities.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to
the taxation authorities, based on the rates and tax laws enacted or substantively enacted, at the reporting
date in the country where the Company operates and generates taxable income. Current tax items are recognised
in correlation to the underlying transaction either in OCI or directly in equity.
Current tax assets and liabilities are offset only if, the Company : i) has legally enofrceable right to set off the
reocgnised amounts; and ii) Intends either to settle on a net basis, or to realise the asset and settle the
liability simultaenously.
b) Deffered Taxes
Deferred tax is recognised in respect of temporary differences between the carrying amounts of the assets
and liabilities for financial reporting purposes and the corresponding amounts used for taxation purpose.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary
differences only if it is probable that future taxable profits will be available against which they can be used.
Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer
probable that the related tax benefits will be realised; such reductions are reversed when the probability of
future taxable profits improves.
Unrecognised deferred tax assets are reassessed at each reporting date and recgonised to the extent that it
has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they
reverse, using tax rates enacted or substantially enacted at the reporting date.
Deferred Tax Assets and Liabilities are offset when there is a legally enforceable right to offset current tax
assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax
assets and tax liabilities are offset where the Company has a legally enforceable right to offset and intends
either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Current and Deferred Tax is recognised in the Statement of Profit and Loss, except to the extent that it relates
to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised
in other comprehensive income or directly in equity, respectively.
Any tax credit including MAT credit available is recognised as Deferred Tax to the extent that it is probable
that future taxable profit will be available against which the unused tax credits can be utilised. The said asset
is created by way of credit to the Statement of Profit and Loss and shown under the head deferred tax asset.
The carrying amount of Deferred Tax Assets is reviewed at each reporting date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be available to allow all or part of the Deferred Tax
Asset to be utilised. Unrecognised Deferred Tax Assets are re-assessed at each reporting date and are
recognised to the extent that it has become probable that future taxable profits will allow the deferred tax
asset to be recovered.
Deferred tax assets and liabilities are offset only if, the Company : i) has legally enofrceable right to set off
the reocgnised amounts; and ii) the deferred tax assets and the deferred tax liabilities relate to income taxes
levied by the same taxation authority on the same taxable entity.
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