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 (INR), 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).
c) 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:
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.
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 receivabl e
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 42 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
has transferred the rights to receive cash flows
from the financial asset or
i) 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.
|