NOTE 1 MATERIAL ACCOUNTING POLICY
INFORMATION
This Note provides a list of the material Accounting
Policies adopted by the Company in the preparation
of these Financial Statements. These policies have
been consistently applied to all the years presented,
unless otherwise stated.
a) Basis of preparation:
i) Compliance with Ind AS:
The Financial Statements comply in all
material respects 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.
These Financial Statements have been prepared
under applicable Ind AS-Rules and Provisions
of Companies Act 2013
ii) Accrual basis of accounting
iii) Historical cost convention:
The Financial Statements have been
prepared on a historical cost basis except for
certain financial assets and liabilities that are
measured at fair value.
b) Foreign currency transactions:
i) Functional and presentation currency:
Items included in the Financial Statements of
the Company are measured using the currency
of the primary economic environment in
which the Company operates (‘functional
currency'). The Financial Statements of the
Company are presented in Indian currency ('),
which is also the functional and presentation
currency of the Company.
ii) Transactions and balances:
Foreign currency transactions are
translated into the functional currency
using the exchange rates at the dates of
the transactions. Foreign exchange gain/
(loss) resulting from the settlement of such
transactions and from the translation of
monetary assets and liabilities denominated
in foreign currencies at year end exchange
rates are generally recognised in profit or
loss except that they are deferred in equity
if they relate to qualifying cash flow hedges.
Foreign exchange differences regarded as an
adjustment to borrowing costs are presented
in the Statement of Profit and Loss, within
finance costs. All other foreign exchange
gain/| (loss) are presented in the Statement
of Profit and Loss on a net basis within other
income/ (expense). Non-monetary items that
are measured at fair value in a foreign currency
are translated using the exchange rates at
the date when the fair value was determined.
Translation differences on assets and liabilities
carried at fair value are reported as part of the
fair value gain/ (loss).
) Revenue recognition:
Measurement of revenue and recognition:
The Company recognises revenues from sale of
products measured at the amount of transaction
price (net of variable consideration), when it
satisfies its performance obligation at a point in
time which is when products are delivered to a
customer or to a carrier for export sales, which
is when control including risks and rewards and
title of ownership pass to the customer, and when
there are no longer any unfulfilled obligation. The
transaction price of goods sold is net of variable
consideration on account of various discounts
and schemes offered by the Company as part of
the contract.
Revenue from services is recognised in the
accounting period in which the services are
rendered.
Eligible export incentives are recognised in the
year in which the conditions precedents are met
and there is no significant uncertainty about the
collectability.
Discounts given include rebates, price reductions
and other incentives given to customers. The
Company bases its estimates on historical results,
taking into consideration the type of customer,
the type of transaction and the specifics of each
arrangement. No element of financing is deemed
present as sales are made with a credit term
which is consistent with market practice.
d) Income taxes:
The income tax expense or credit for the period
is the tax payable on the taxable income of the
current period based on the applicable income
tax rates adjusted by changes in deferred tax
assets and liabilities attributable to temporary
differences and 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. The
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.
Deferred income tax is provided in full, using the
liability method, on temporary differences arising
between the tax bases of assets and liabilities and
their carrying amounts. However, deferred tax
liabilities are not recognised if they arise from the
initial recognition of Goodwill. Deferred income
tax is also not accounted for if it arises from initial
recognition of an asset or liability in a transaction
other than a business combination that at the
time of the transaction affects neither accounting
profit nor taxable profit/ (tax loss). Deferred income
tax is determined using tax rates (and laws) that
have been enacted or substantially enacted by
the Balance Sheet date and are expected to
apply when the related deferred income tax asset
is realised or the deferred income tax liability
is settled. Deferred tax assets are recognised
for all deductible temporary differences and
unused tax losses only if it is probable that future
taxable amounts will be available to utilise those
temporary differences and losses. 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
entity 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 profit or
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.
e) Government grants:
i) Government grants are recognised at
their fair value where there is a reasonable
assurance that the grant will be received and
the Company will comply with all attached
conditions.
ii) Government grants relating to the purchase
of property, plant and equipment are included
in non-current liabilities as deferred income
and are credited to profit or loss in proportion
to depreciation over the expected lives of the
related assets and presented within other
income.
iii) Government grants relating to income are
deferred and recognised in the Statement
of Profit and Loss over the period necessary
to match them with the costs that they are
intended to compensate and presented
within other income.
f) Leases:
As a lessee:
Operating Lease: Leases in which a significant
portion of the risks and rewards of ownership
are not transferred to the Company as lessee are
classified as operating leases. Payments made
under operating leases (net of any incentives
received from the lessor) are charged to profit
or loss on a straight-line basis over the period of
the lease unless the payments are structured to
increase in line with expected general inflation to
compensate expected inflationary cost increases
for the lessor.
Finance Lease
Leases of property, plant and equipment where
the substantially all the risks and rewards are
transferred to the company are classified as
finance lease.
i) Right-of-Use Assets
The Company recognises right-of-use assets
at the commencement date of the lease (i.e.,
the date the underlying asset is available
for use). Right-of-use assets are measured
at cost, less any accumulated depreciation
and impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost
of right-of-use assets includes the amount
of lease liabilities recognised, initial direct
costs incurred, and lease payments made
at or before the commencement date less
any lease incentives received. Right-of-use
assets are depreciated on a straight-line basis
over the shorter of the lease term and the
estimated useful lives of the assets, as follows:
The right-of-use assets are also subject to
impairment.
ii) Lease Liabilities
At the commencement date of the lease,
the company recognises lease liabilities
measured at the present value of lease
payments to be made over the lease term.
The lease payments include fixed payments
(including in substance fixed payments)
less any lease incentives receivable, variable
lease payments that depend on an index
or a rate, and amounts expected to be paid
under residual value guarantees.The lease
payments also include the exercise price of
a purchase option reasonably certain to be
exercised by the company and payments of
penalties for terminating the lease, if the lease
term reflects the company exercising the
option to terminate. Variable lease payments
that do not depend on an index or a rate
are recognised as expenses (unless they are
incurred to produce inventories) in the period
in which the event or condition that triggers
the payment occurs.
As a lessor:
Lease income from operating leases where
the Company is a lessor is recognised as
income on a straight-line basis over the lease
term unless the receipts are structured to
increase in line with expected general inflation
to compensate for the expected inflationary
cost increases. The respective leased assets
are included in the Balance Sheet based on
their nature.
Leases of property, plant and equipment
where the Company as a lessor has
substantially transferred all the risks and
rewards are classified as finance lease. Finance
leases are capitalised at the inception of the
lease at the fair value of the leased property
or, if lower, the present value of the minimum
lease payments. The corresponding rent
receivables, net of interest income, are
included in other financial assets. Each
lease receipt is allocated between the asset
and interest income. The interest income is
recognised in the Statement of Profit and
Loss over the lease period so as to produce
a constant periodic rate of interest on the
remaining balance of the asset for each
period.
Under combined lease agreements, land
and building are assessed individually. Lease
rental attributable to the operating lease
are charged to Statement of Profit and
Loss as lease income whereas lease income
attributable to finance lease is recognised as
finance lease receivable and recognised on
the basis of effective interest rate.
g) Property, plant and equipment:
Freehold land is carried at historical cost. All
other items of property, plant and equipment
are stated at acquisition cost net of accumulated
depreciation and accumulated impairment
losses, if any.
Historical cost includes expenditure that is
directly attributable to the acquisition of the
items. Acquisition cost may also include transfers
from equity of any gains or losses on qualifying
cash flow hedges of foreign currency purchases of
property, plant and equipment.
Subsequent costs are included in the carrying
amount of asset or recognised as a separate asset,
as appropriate, only when it is probable that
future economic benefits associated with the
item will flow to the Company and the cost of the
item can be measured reliably. All other repairs
and maintenance expenses are charged to the
Statement of Profit and Loss during the period in
which they are incurred. Gains or losses arising on
retirement or disposal of assets are recognised in
the Statement of Profit and Loss.
Spare parts, stand-by equipment and servicing
equipment are recognised as property, plant and
equipment if they are held for use in the production
or supply of goods or services, for rental to others,
or for administrative purposes and are expected to
be used during more than one period.
Property, plant and equipment which are not
ready for intended use as on the date of Balance
Sheet are disclosed as ‘Capital work-in-progress'.
Depreciation methods, estimated useful lives and
residual value: Depreciation is provided on the
Straight Line Method to allocate the cost of assets,
net of their residual values, over their estimated
useful lives:
Land accounted under finance lease is amortized
on a straight-line basis over the period of lease.
The carrying amount of an asset is written down
immediately to its recoverable amount if the
carrying amount of the asset is greater than its
estimated recoverable amount.
h) Intangible assets:
Computer software includes enterprise resource
planning project and other cost relating to
such software which provides significant future
economic benefits. These costs comprise of
license fees and cost of system integration
services. Development expenditure qualifying
as an intangible asset, if any, is capitalised, to be
amortised over the economic life of the product/
patent. Computer software cost is amortised over
a period of 5 years using Straight Line Method.
i) Investment properties:
Property that is held for long-term rental yields or
for capital appreciation or both, and that is not in
use by the Company, is classified as investment
property. Land held for a currently undetermined
future use is also classified as an investment
property. Investment property is measured
initially at its acquisition cost, including related
transaction costs and where applicable borrowing
costs.
j) Impairment of assets:
The carrying amount of assets are reviewed
at each Balance Sheet date to assess if there
is any indication of impairment based on
internal/ external factors. An impairment loss on
such assessment will be recognised wherever
the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount
of the assets is net selling price or value in use,
whichever is higher. While assessing value in use,
the estimated future cash flows are discounted to
the present value by using weighted average cost
of capital. A previously recognised impairment
loss is further provided or reversed depending
on changes in the circumstances and to the
extent that carrying amount of the assets does
not exceed the carrying amount that will be
determined if no impairment loss had previously
been recognised.
k) Trade and other payables:
These amounts represent liabilities for goods and
services provided to the Company prior to the
end of financial year which are unpaid. Trade and
other payables are presented as current liabilities
unless payment is not due within 12 months after
the reporting period. They are recognised initially
at their fair value and subsequently measured at
amortised cost using the EIR method.
l) Inventories:
Raw materials, packing materials, purchased
finished goods, work-in-progress; manufactured
finished goods, fuel, stores and spares other than
specific spares for machinery are valued at cost
or net realisable value whichever is lower. Cost
is arrived at on moving weighted average basis.
Cost comprises all costs of purchase, costs of
conversion and other costs incurred in bringing
the inventory to the present location and
condition. Cost includes the reclassification from
equity of any gains or losses on qualifying cash
flow hedges relating to purchases of raw material
but excludes borrowing costs. Due allowances are
made for slow moving and obsolete inventories
based on estimates made by the Company.
Items such as spare parts, stand-by equipment
and servicing equipment which is not plant and
machinery gets classified as inventory.
m) Investments and other financial assets:
Classification:
The Company classifies its financial assets in the
following measurement categories:
Those to be measured subsequently at fair value
(either through Other Comprehensive Income, or
through profit or loss)
Those measured at amortised cost
The classification depends the business model of
the entity for managing financial assets and the
contractual terms of the cash flows.
For assets measured at fair value, gains and
losses will either be recorded in profit or loss or
Other Comprehensive Income. For investments
in debt instruments, this will depend on the
business model in which the investment is held.
For investments in equity instruments, this will
depend on whether the Company has made
an irrevocable selection at the time of initial
recognition to account for the equity investment
at fair value through Other Comprehensive
Income.
Initial recognition and measurement of Financial
Assets:
Financial assets are recognised when the
Company becomes a party to the contractual
provisions of the instrument. Financial assets
are recognised initially at fair value plus, in the
case of financial assets not recorded at fair value
through profit or loss, transaction costs that are
attributable to the acquisition of the financial
asset. Transaction costs of financial assets
carried at fair value through profit or loss are
expensed in the Statement of Profit and Loss.
However, trade receivables that do not contain a
significant financing component are measured
at transaction price.
Subsequent measurement:
After initial recognition, financial assets are
measured at:
i) Fair value {either through Other
Comprehensive Income (FVOCI) or through
profit or loss (FVPL)} or,
ii) Amortised cost
Debt instruments:
Subsequent measurement of debt instruments
depends on the business model of the
Company for managing the asset and the
cash flow characteristics of the asset. There
are 3 measurement categories into which the
Company classifies its debt instruments:
Measured at amortised cost:
Financial assets that are held within a business
model whose objective is to hold financial assets
in order to collect contractual cash flows that
are solely payments of principal and interest,
are subsequently measured at amortised cost
using the EIR method less impairment, if any,
the amortisation of EIR and loss arising from
impairment, if any is recognised in the Statement
of Profit and Loss.
Measured at fair value through Other
Comprehensive Income (OCI):
Financial assets that are held within a business
model whose objective is achieved by both, selling
financial assets and collecting contractual cash
flows that are solely payments of principal and
interest, are subsequently measured at fair value
through Other Comprehensive Income. Fair value
movements are recognised in the OCI. Interest
income measured using the EIR method and
impairment losses, if any are recognised in the
Statement of Profit and Loss. On de-recognition,
cumulative gain | (loss) previously recognised in
OCI is reclassified from the equity to other income
in the Statement of Profit and Loss.
Measured at fair value through profit or loss:
A financial asset not classified as either amortised
cost or FVOCI, is classified as FVPL. Such financial
assets are measured at fair value with all changes
in fair value, including interest income and
dividend income if any, recognised as other
income in the Statement of Profit and Loss.
Equity instruments:
The Company subsequently measures all
investments in equity instruments other than
subsidiary companies, associate company
and joint venture Company at fair value. The
Management of the Company has selected to
present fair value gains and losses on such equity
investments in Other Comprehensive Income,
and there is no subsequent reclassification of
these fair value gains and losses to the Statement
of Profit and Loss. Dividends from such
investments continue to be recognised in profit
or loss as other income when the right to receive
payment is established.
Changes in the fair value of financial assets at fair
value through profit or loss are recognised in the
Statement of Profit and Loss. Impairment losses
(and reversal of impairment losses) on equity
investments measured at FVOCI are not reported
separately from other changes in fair value.
Investments in subsidiary companies, associate
company and joint venture company:
Investments in subsidiary companies, associate
company and Joint Venture Company 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 subsidiary companies, associate company and
Joint Venture Company, the difference between
net disposal proceeds and the carrying amounts
are recognised in the Statement of Profit and
Loss.
Impairment of financial assets:
The Company assesses on a forward looking
basis the expected credit losses associated with
its assets carried at amortised cost and FVOCI
debt instruments. The impairment methodology
applied depends on whether there has been a
significant increase in credit risk. Note 36 details
how the Company determines whether there has
been a significant increase in credit risk.
For trade receivables only, the Company applies
the simplified approach permitted by Ind AS 109
Financial Instruments, which requires expected
lifetime losses to be recognised from initial
recognition of the receivables.
Expected credit loss are measured through a loss
allowance at an amount equal to the following:
(a) the 12-months expected credit losses
(expected credit losses that result from
default events on financial instrument that
are possible within 12 months after reporting
date); or
(b) Full lifetime expected credit losses (expected
credit losses that result from those default
events on the financial instrument).
The Company follows ‘simplified approach' for
recognition of impairment loss allowance on trade
receivable. Under the simplified approach, the
Company does not track changes in credit risk.
Rather, it recognizes impairment loss allowance
based on lifetime ECLs at each reporting date,
right from initial recognition.
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.
Individual receivables which are known to be
uncollectible are written off by reducing the
carrying amount of trade receivable and the
amount of the loss is recognised in the Statement
of Profit and Loss within other expenses.
Subsequent recoveries of amounts previously
written off are credited to other income.
De-recognition:
A financial asset is de-recognised only when the
Company
i) has transferred the rights to receive cash flows
from the financial asset or
ii) retains the contractual rights to receive the
cash flows of the financial asset, but assumes
a contractual obligation to pay the cash flows
to one or more recipients.
Where the entity has transferred an asset, the
Company evaluates whether it has transferred
substantially all risks and rewards of ownership
of the financial asset. In such cases, the financial
asset is de-recognised. Where the entity has not
transferred substantially all risks and rewards of
ownership of the financial asset, the financial
asset is not de-recognised.
Where the entity has neither transferred a
financial asset nor retains substantially all
risks and rewards of ownership of the financial
asset, the financial asset is de-recognised if the
Company has not retained control of the financial
asset. Where the
Company retains control of the financial asset, the
asset is continued to be recognised to the extent
of continuing involvement in the financial asset.
Income recognition:
Interest income from debt instruments is
recognised using the effective interest rate
method. The effective interest rate is the rate that
exactly discounts estimated future cash receipts
through the expected life of the financial asset
to the gross carrying amount of a financial asset.
When calculating the effective interest rate, the
Company estimates the expected cash flows
by considering all the contractual terms of the
financial instrument (for example, prepayment,
extension, call and similar options) but does not
consider the expected credit losses.
Dividends are recognised in the Statement of
Profit and Loss only when the right to receive
payment is established, it is probable that the
economic benefits associated with the dividend
will flow to the Company, and the amount of the
dividend can be measured reliably.
n) Financial liabilities:
i) Classification as debt or equity
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.
ii) Initial recognition and measurement
Financial liabilities are recognised when the
Company becomes a party to the contractual
provisions of the instrument. Financial
liabilities are initially measured at the fair
value.
iii) Subsequent measurement
Financial liabilities are subsequently measured
at amortised cost using the effective interest
rate method. Financial liabilities carried at
fair value through profit or loss are measured
at fair value with all changes in fair value
recognised in the Statement of Profit and
Loss.
iv) De-recognition
A financial liability is de-recognised when
the obligation specified in the contract is
discharged, cancelled or expires.
o) 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.
p) Borrowings:
Borrowings are initially recognised at fair value,
net of transaction costs incurred. Borrowings
are subsequently measured at amortised cost.
Any difference between the proceeds (net of
transaction costs) and the redemption amount is
recognised in profit or loss over the period of the
borrowings using the effective interest method.
Fees paid on the establishment of loan facilities
are recognised as transaction costs of the loan to
the extent that is probable that some or all of the
facility will be drawn down. In this case, the fee is
deferred until the draw down occurs.
Borrowings are removed from the Balance Sheet
when the obligation specified in the contract is
discharged, cancelled or expired. The difference
between the carrying amount of a financial
liability that has been extinguished or transferred
to another party and the consideration paid,
including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss
as other income | (expense).
Borrowings are classified as current liabilities if the
loan is payable on demand or within 12 months
after the reporting period and in all other cases its
classified as Non-current liabilities.
q) Borrowing costs:
General and specific borrowing costs that
are directly attributable to the acquisition,
construction or production of a qualifying asset
are capitalised during the period of time that is
required to complete and prepare the asset for
its intended use or sale. Qualifying assets are
assets that necessarily take a substantial period of
time to get ready for their intended use or sale.
Investment income earned on the temporary
investment of specific borrowings pending their
expenditure on qualifying assets is deducted from
the borrowing costs eligible for capitalisation.
Other borrowing costs are expensed in the period
in which they are incurred.
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