3.4 Material Accounting policies Information
a) Current and non-current classification
All assets and liabilities have been classified as current or
non-current as per the Company's normal operating cycle
and other criteria set out in the Division II of Schedule III to
the Companies Act, 2013. Based on the nature of products
and the time between acquisition of assets for processing
and their realisation in cash and cash equivalents, the
Company has ascertained its operating cycle as 12 months
for the purpose of current and non-current classification of
assets and liabilities.
An asset is treated as current when:
- It is expected to be realised or intended to be sold or
consumed in normal operating cycle,
- It is held primarily for the purpose of trading,
- It is expected to be realised within 12 months after the
reporting period; or
- It is cash or cash equivalent unless restricted from
being exchanged or used to settle a liability for at least
twelve months after the reporting period.
The Company classifies all other assets as non-current.
A liability is treated as current when:
- It is expected to be settled in normal operating cycle,
- It is held primarily for the purpose of trading,
- It is due to be settled within twelve months after the
reporting period; or
- There is no unconditional right to defer the settlement
of the liability for at least 12 months after the reporting
period.
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as
non-current assets and liabilities respectively.
b) Property Plant and Equipment, Investment
Property and Depreciation/Amortisation
A. Items of Property, plant and equipment including
Capital-work in-progress are stated at cost, net
of accumulated depreciation and accumulated
impairment losses, if any. Cost comprises the purchase
price and any attributable cost of bringing the asset
to its working condition for its intended use. Such
cost includes the cost of replacing part of the plant
and equipment and borrowing costs for long term
construction projects if the recognition criteria are
met. Subsequent expenditure related to an item of
fixed asset is added to its book value only if it increases
the future benefits from the existing asset beyond its
previously assessed standard of performance. When
significant parts of plant and equipment are required
to be replaced at intervals, the Company depreciates
them separately based on their specific useful lives. All
other repair and maintenance costs are recognized in
statement of profit or loss as incurred. On transition
to INDAS for the first time, the Company adopted the
deemed cost approach mentioned in INDAS 101 -
First time adoption in respect of its Property, Plant and
Equipment.
B. Depreciation is provided on written down value based
on useful life of the assets as prescribed in Schedule II
to the Companies Act, 2013. Depreciation on additions
to assets or on sale/disposal of assets is calculated
pro-rata from the month of such addition, or upto the
month of such sale/disposal, as the case may be.
The residual values, useful lives and methods of depreciation
of property plant equipment are reviewed at each financial
year and adjusted prospectively, if appropriate.
c) Non-Current Asset classified as Held for Sale
Assets are classified as held for sale if their carrying amount
will be recovered principally through a sale transaction rather
than through continuing use and a sale is considered highly
probable. They are measured at the lower of their carrying
amount and fair value less costs to sell. Assets are not
depreciated or amortized while they are classified as held
for sale. Assets classified as held for sale are presented
separately from the other assets in the balance sheet.
d) Investments
i) Investment in Subsidiary
Investments in Subsidiary are carried at cost less accumulated
impairment losses, 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 associates, the difference
between net disposal proceeds and the carrying amounts
are recognized in the Statement of Profit and Loss.
ii) Other Investment
On initial recognition of an equity investment that is not held
for trading, the Company may irrevocably elect to present
subsequent changes in the investment's fair value in OCI
(designated as FVTOCI - equity investment). This election
is made on an investment-by-investment basis. Equity
investments at FVTOCI are subsequently measured at fair
value through OCI. Dividends are recognised as income in
profit or loss unless the dividend clearly represents a recovery
of part of the cost of the investment. Other net gains and
losses are recognised in OCI and are not reclassified to profit
or loss.
Investments other than the above are classified as FVTPL
and are subsequently measured at fair value. The net gains
and losses, including any dividend income, are recognised in
profit or loss.
e) Inventories
All inventories are stated at lower of 'Cost and Net
Realizable Value'.
i. Stores and spares, packing materials and raw materials
are valued at lower of cost and net realisable value and
for this purpose, cost is determined on First in First
Out (FIFO) basis. Cost includes cost of purchase and
other costs incurred in bringing the inventories to their
present location and condition. However, the aforesaid
items are not valued below cost if the finished products
in which they are to be incorporated are expected to be
sold at or above cost.
ii. Finished products and Work in Progress are valued
at lower of cost and net realisable value and for
this purpose. Cost of finished goods and work in
progress includes direct materials, direct labour and an
appropriate proportion of variable and fixed overhead
expenditure, the latter being allocated on the basis of
normal operating capacity.
iii. Traded goods are valued at lower of cost and net
realizable value. Cost is determined on a weighted
average basis.
Net realisable value is the estimated selling price in the
ordinary course of business, less estimated remaining
costs of completion and the estimated costs necessary
to make the sale.
f) Cash and Cash Equivalents
Cash and cash equivalent in the balance sheet comprise cash
at banks and on hand and short-term deposits with an original
maturity of three months or less, which are subject to an
insignificant risk of changes in value. For the purpose of the
statement of cash flows, cash and cash equivalents consist
of cash and short-term deposits, as defined above, net of
outstanding bank overdrafts, if any as they are considered an
integral part of the Company's cash management.
g) Foreign currency transactions
i. All transactions in foreign currency are recorded in the
reporting currency, based on closing rates of exchange
prevalent on the dates of the relevant transactions.
ii. Monetary assets and liabilities in foreign currency,
outstanding as on the Balance Sheet date, are
converted in reporting currency at the closing rates of
exchange prevailing on the said date. Resultant gain or
loss is recognized during the year in the Statement of
Profit and Loss.
iii. Non-monetary assets and liabilities denominated in
foreign currencies are carried at the exchange rate
prevalent on the date of the transaction.
iv. Exchange difference arising on the settlement of
monetary items at rates different from those at which
they were initially recorded during the year, or reported
in previous financial statements, are recognised as
income or expenses in the year in which they arise.
h) Provisions, contingent liabilities and contingent
assets
A provision is recognized when the Company has a present
obligation (legal or constructive) as a result of past event,
and it is probable that an outflow of resources embodying
economic benefits will be required to settle a reliably
assessable obligation. Provisions are determined.
based on best estimate required to settle each obligation at
each balance sheet date. If the effect of the time value of
money is material, provisions are discounted using a current
pre-tax rate that reflects, when appropriate, the risks specific
to the liability. When discounting is used, the increase in
the provision due to the passage of time is recognised as a
finance cost.
Contingent liabilities are disclosed in respect of possible
obligations that arise from past events, whose existence
would be confirmed by the occurrence or non-occurrence
of one or more uncertain future events not wholly within
the control of the Company. Contingent liabilities are also
present obligations where it is not probable that an outflow
of resources will be required, or the amount of the obligation
cannot be measured with sufficient reliability. Contingent
Liabilities are not recognized in the financial statements but
are disclosed separately.
Contingent assets are not recognised unless it becomes
virtually certain that an inflow of economic benefits will arise
i) Financial Assets
Recognition and initial measurement
Trade Receivables are initially recognised when they are
originated. All other financial assets are initially recognised
when the Company becomes party to the contractual
provisions of the instrument. All financial assets other than
those measured subsequently at fair value through profit
and loss, are recognised initially at fair value plus transaction
costs that are attributable to the acquisition of the financial
asset.
Classification and Subsequent measurement
For purposes of subsequent measurement, financial assets
are classified in following categories:
i. Financial Assets at Amortised Cost
A financial asset is measured at amortised cost if it is held
within a business model whose objective is to hold the asset
in order to collect contractual cash flows and the contractual
terms of the financial asset give rise on specified dates to
cash flows that are solely payments of principal and interest
on the principal amount outstanding.
After initial measurement, such financial assets are
subsequently measured at amortized cost using the
Effective Interest rate method (EIR). Amortized 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 amortization is included in finance income in the
statement of profit & loss. The losses arising from impairment
are recognized in the statement of profit and loss.
ii. Financial Assets Measured at Fair Value through Other
Comprehensive Income (FVOCI)
Financial assets are measured at fair value through Other
Comprehensive Income (OCI) if these financial assets are
held within a business model with an objective to hold these
assets in order to collect contractual cash flows or to sell
these financial assets and the contractual terms of the
financial asset give rise on specified dates to cash flows that
are solely payments of principal and interest on the principal
amount outstanding.
After initial recognition, these assets are subsequently
measured at Fair Value. Interest Income under Effective
Interest method, foreign exchange gains and losses and
impairment losses are recognized in the statement of profit
and Loss. Other net gains and losses are recognized in OCI.
iii. Financial asset not measured at amortised cost or at fair
value through OCI is carried at Fair Value through Profit and
Loss
iv. Equity Investments:
All Equity investments within the scope of Ind AS 109 are
measured at Fair Value. Such equity instruments which
are held for trading are classified as FVTPL. For all other
such equity instruments, the Company decides to classify
the same either as 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 instruments classified as FVOCI, all fair value
changes in the instrument excluding dividends are
recognized in OCI. Dividends on such equity instruments are
recognized in the statement of Profit or loss.
De-recognition of Financial Assets:
A financial asset (or, where applicable, a part of a financial
asset or part of a group of similar financial assets) is primarily
derecognised when:
-The rights to receive cash flows from the asset have expired,
or
The Company has transferred its rights to receive cash
flows from the asset or has assumed an obligation to pay
the received cash flows in full without material delay to a
third party under a 'pass-through' arrangement; and either
(a) the Company has transferred substantially all the risks
and rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all the risks and rewards
of the asset, but has transferred control of the asset.
On de-recognition, any gains or losses on all debt instruments
(other than debt instruments measured at FVOCI) and
equity instruments (measured at FVTPL) are recognised
in the statement of Profit and Loss. Gains and losses in
respect of debt instrument measured at FVOCI and that are
accumulated in OCI are reclassified to Profit and Loss on de¬
recognition. Gains or losses on equity instruments measured
at FVOCI that are recognised and accumulated in OCI are
not reclassified to Profit or Loss on derecognition.
j) Financial Liabilities
Financial liabilities and equity instruments issued by the
Company are classified according to the substance of the
contractual arrangements entered into and the definitions of
a financial liability and an equity instrument.
i) Recognition and Initial Measurement
Financial liabilities are initially recognized when the Company
becomes a party to the contractual provisions of the
instrument.
Financial Liability is initially measured at fair value plus,
for an item not at fair value through profit and loss, net
of transaction costs that are directly attributable to its
acquisition or issue.
ii) Classification and Subsequent Measurement
The measurement of financial liabilities depends on their
classification, as described below:
Financial liabilities at fair value through Profit or Loss
(FVTPL)
Financial liabilities at FVTPL include financial liabilities held
for trading and financial liabilities designated upon initial
recognition as at FVTPL. Financial Liabilities at FVTPL are
measured at fair value and changes therein, including any
interest expense, are recognised in Statement of Profit and
Loss.
Financial liabilities at amortised cost
After initial recognition, financial liabilities other than those
which are classified as FVTPL are subsequently measured
at amortised cost using the EIR method. Amortised cost is
calculated by taking into account any discount or premium
on acquisition and fees or costs that are an integral part of
the EIR. The EIR amortisation is included as finance costs in
the Statement of Profit and Loss.
iii) De-recognition of Financial Liabilities
Financial liabilities are de-recognised when the obligation
specified in the contract is discharged, cancelled or expired.
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 de-recognition
of the original liability and recognition of a new liability. The
difference in the respective carrying amounts is recognised
in the Statement of Profit and Loss.
k) 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.
l) Offsetting Financial Instruments
Financial assets and liabilities are offset, and the net amount
is reported in the Balance Sheet where there is a legally
enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis or realise the
asset and settle the liability simultaneously.
The legally enforceable right must not be contingent on
future events and must be enforceable in the normal course
of business and in the event of default, insolvency or
bankruptcy of the Company or the counterparty.
m) Impairment
a. financial assets
In accordance with Ind AS 109, the Company applies
Expected Credit Loss (ECL) model for measurement
and recognition of impairment loss on the financial asset
measured at amortized cost.
Loss allowances on trade receivables are measured following
the 'Simplified Approach' at an amount equal to the Lifetime
ECL at each reporting date. The Company uses a provision
matrix to determine impairment loss allowance on the
portfolio of trade receivables. The provision matrix is 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, the historical observed
default rates are updated and changes in the forward¬
looking estimates are analysed.
In respect of other financial asset, the loss allowance is
measured at 12-month ECL only, if there is no significant
deterioration in the credit risk since initial recognition of an
asset or asset is determined to have a low credit risk at the
reporting date.
b. Impairment of Non-financial assets
The Company assesses at each reporting date, whether there
is an indication that an asset may be impaired. If any indication
exists, or when annual impairment testing for an asset is
required, the Company estimates the asset's recoverable
amount. An asset's recoverable amount is the higher of an
asset's fair value less costs of disposal and its value in use.
Recoverable amount is determined for an individual asset,
unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of
assets. When the carrying amount of an asset exceeds its
recoverable amount, the asset is considered impaired and is
written down to its recoverable amount.
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. In
determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions
can be identified, an appropriate valuation model is used.
These calculations are corroborated by valuation multiples,
quoted share prices for publicly traded companies or other
available fair value indicators.
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