1.3. Material Accounting Policies
1.3.1. Property, Plant and Equipment
Property, Plant and Equipment (PPE) are stated at cost of acquisition or deemed cost on the date of transition less accumulated depreciation and impairment losses, if any. Cost of an asset comprises of cost of acquisition or construction and includes, where applicable, inward freight, non-recoverable duties and taxes, installation expenses, professional fees, borrowing costs, initial estimates of the cost of dismantling, cost of replacing parts of the Property, Plant and Equipment's and other costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the intended manner and purposes. Capital Spare parts which are integral part of the plant and equipment are capitalized. When significant parts of plant and equipment are required to be replaced at intervals, the same are capitalized and old component is derecognized.
Capital work in progress includes machinery to be installed, construction and erection materials, borrowing costs, unallocated pre-operative and other expenditures directly attributable towards construction and erection of the assets.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Otherwise, these are added to and depreciated over the useful life of the main assets.
Costs incurred after initial capitalization are included in the asset carrying amount only when it is probable that future economic benefit will flow to the company and can be measured reliably.
The present value of the expected cost for the decommissioning of an asset after its use, if any, is included in the cost of the respective asset if the recognition criteria for the provisions are met.
Assets to be disposed off are reported at the lower of the carrying value or the fair value less cost to sell.
Depreciation methods, estimated useful life and residual value:
> Depreciation on PPE commences when the assets are ready for their intended use.
> Depreciation has been provided (a) as per the useful life specified under Schedule II to the Act on assets installed/ acquired up to 31st March 1990 on written down value method and in respect of additions thereafter on straight line method; (b) in case of certain items of Plant and Equipment where useful life ranging from 5 to 30 years has been considered based on technical assessment, which is different from the useful life prescribed under Schedule II of the Act.
> Certain Plant and Equipment have been considered as continuous process plant as defined under Schedule II to the Act based on technical evaluation.
> Subsequent costs are depreciated over the remaining life of the Property, Plant and Equipment.
> Depreciation on incremental cost of arising on account of exchange difference is amortized on straight line method over the remaining life of the Plant and Equipment.
Based on above, the estimated useful lives of assets for the current period are as follows:
Depreciation methods, useful lives and residual values are reviewed, and adjusted as appropriate, at each reporting date.
1.3.2. Other Intangible Assets
Other Intangible assets are stated at cost comprising of purchase price inclusive of duties and taxes, where applicable, less accumulated amount of amortization and impairment losses (if any). Such assets are amortized over the useful life using straight line method and assessed for impairment whenever there is an indication of the same. When Computer software is not an integral part of a related item of the computer hardware, the software is treated as an intangible asset.
Accordingly, cost of computer software packages has been amortized over a period of 3 to 5 years on straight line basis.
1.3.3. Derecognition of Tangible and Other Intangible Assets
An item of PPE and Other Intangible Assets is de-recognised upon disposal or when no future economic benefits are expected to arise from its use or disposal. Gain or loss arising from the disposal or retirement of an item is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognized in the Statement of Profit and Loss.
1.3.4. Leases
1.3.4.1. Determining whether an arrangement contains a lease
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement convey a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
1.3.4.2. Company as lessor
a) Finance Lease
Leases which effectively transfer to the lessee substantially all the risks and benefits incidental to ownership of the leased item are classified and accounted for as finance lease. Lease rental receipts are apportioned between the finance income and capital repayment based on the implicit rate of return. Contingent rents are recognized as revenue in the period in which they are earned.
b) Operating Lease
Leases in which the Company does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease except where scheduled increase in rent compensates the Company with expected inflationary costs.
1.3.4.3. Company as Lessee
The Company's lease asset classes primarily comprise of lease for land and building. The Company assesses whether a contract contains a lease, at inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether: (i) the contract
involves the use of an identified asset (ii) the Company has substantially all of the economic benefits from use of the asset through the period of the lease and (iii) the Company has the right to direct the use of the asset.
The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets as below:
1.3.4.4. Right of Use Assets
The Company, as a lessee, recognizes the 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 loss, if any, and adjusted for any remeasurement of lease liabilities. The cost of right of use assets includes the amount of lease liabilities recognized, 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 underlying assets.
If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right of use assets is also subject to impairment. Refer to the accounting policies in section 'Impairment of Non-Financial Assets'
1.3.4.5. Lease Liabilities
At the commencement date of the lease, the Company recognizes 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 any.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is re-measured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
1.3.4.6. Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered to below value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
"Lease liability”and "Right of Use Asset”have been separately presented in the Balance Sheet and lease payments have been classified as financing cash flows.
1.3.5. Impairment of Tangible and Other Intangible Assets
Tangible and Other Intangible assets are reviewed at each reporting date for impairment. In case events and circumstances indicate any impairment, recoverable amount of assets is determined. An impairment loss is recognized in the statement of profit and loss, whenever the carrying amount of assets either belonging to Cash Generating Unit (CGU) or otherwise exceeds recoverable amount. The recoverable amount is the higher of assets fair value less cost of disposal and its value in use.
In assessing value in use, the estimated future cash flows from the use of the assets are discounted to their present value at an appropriate rate.
Impairment losses recognized earlier may no longer exist or may have come down. Based on such assessment at each reporting period the impairment loss is reversed and recognized in the Statement of Profit and Loss. In such cases the carrying amount of the asset is increased to the lower of its recoverable amount and the carrying amount that has been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.
1.3.6. Financial Instruments A. Financial assets
I. Initial recognition and measurement
The financial assets include investments, trade receivables, loans and advances, cash and cash equivalents, bank balances other than cash and cash equivalents, derivative financial instruments, and other financial assets.
Financial assets (unless it is a trade receivable without a significant financing component) are initially measured at fair value. Transaction costs directly attributable to the acquisition or issue of financial assets (other than financial assets at fair value through profit or loss) are added to or are deducted from the fair value of the financial assets as appropriate on initial recognition. However, trade receivables that do not contain a significant financing component are measured at transaction price.
II. Subsequent measurement
For the purpose of subsequent measurement, financial assets are classified in the following categories:
(i) at amortized cost,
(ii) at fair value through other comprehensive income (FVTOCI), or
(iii) at fair value through profit or loss (FVTPL).
(a) Financial assets at amortized cost
A 'financial asset' is measured at the amortized cost if the following two conditions are met:
(i) The asset is held within a business model whose objective is to hold the asset for collecting contractual cash flows, and
(ii) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Amortized cost is determined using the Effective Interest Rate ("EIR”) method. Discount or premium on acquisition and fees or costs forms an integral part of the EIR.
(b) Financial assets at fair value through other comprehensive income (FVTOCI)
Financial assets are measured at fair value through other comprehensive income if these financial assets are held both for collection of contractual cash flows and for selling the financial assets, and contractual terms of the financial assets give rise to cash flows representing solely payments of principal and interest.
(c) Financial assets at fair value through profit or loss (FVTPL)
Financial assets that are not classified in any of the categories above are classified at fair value through profit or loss.
(d) Equity investments
Equity investments in the scope of Ind AS 109 are measured at fair value except for investments in associates, which are carried at cost.
The Company may make an irrevocable election to present in OCI subsequent changes in the fair value. The Company makes such election on an instrument-by-instrument basis. The classification is made on initial recognition and is irrevocable.
If Company decides to classify an equity instrument at fair value through other comprehensive income (FVTOCI), then all fair value changes on the instrument are recognised in other comprehensive income. However, dividends on equity instruments on fair value through other comprehensive income (FVTOCI) is recognised in profit or loss.
In addition, profit or loss arising on sale is also taken to other comprehensive income. The amount accumulated in this respect is transferred within the Equity on derecognition.
III. Impairment of Financial Assets
The Company recognizes loss allowances using the Expected Credit Loss ("ECL") model for financial assets measured at amortized cost. The Company recognizes lifetime expected credit losses for trade receivables. Loss allowance equal to lifetime expected credit losses are recognized if the credit risk of the financial asset has significantly increased since initial recognition.
IV. De-recognition
The Company derecognizes a financial asset only when the contractual rights to the cash flows from the asset expires or transfers the financial asset and substantially all the risks and rewards of ownership of the asset.
B. Financial liabilities
I. Initial recognition and measurement
The financial liabilities include trade and other payables, loans and borrowings, including book overdrafts, derivative financial instruments, etc.
Financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial liabilities (other than financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial liabilities, as appropriate, on initial recognition.
II. Subsequent measurement
For subsequent measurement, financial liabilities are classified into two categories:
(i) Financial liabilities at amortized cost, and
(ii) Derivative instruments at fair value through profit or loss (FVTPL). i. Financial liabilities at amortized cost
After initial recognition, financial liabilities are subsequently measured at amortized cost using the EIR method. When the financial liabilities are derecognized, gains and losses are recognised in profit or loss. Discount or premium on acquisition and fees or costs forms an integral part of the EIR.
III. De-recognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
1.3.7. Inventories
> Inventories (Other than Scrap) are valued at lower of the cost or estimated net realizable value after providing for obsolescence if any. Cost of inventories is ascertained on 'weighted average' basis. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost.
> Cost in respect of raw materials and stores and spares includes expenses incidental to procurement of the same. The cost in respect of finished goods and those under progress represents prime cost and includes appropriate portion of overheads and taxes if any.
> The company's own cullet's are valued at net realizable value.
1.3.8. Foreign Currency Transactions and translations
Transactions in foreign currencies are translated into the functional currency at the exchange rates prevailing on the date of the transactions. Foreign currency monetary assets and liabilities at the year-end are translated at the exchange rates prevailing on reporting date. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of initial transaction. Foreign exchange gain/ loss to the extent considered as an adjustment to interest cost are considered as part of borrowing cost. The loss or gain thereon and also on the exchange differences on settlement of the foreign currency transactions during the year are recognized as income or expense in the statement of profit and loss account.
The Company has been applying paragraph 46A of AS 11 under Indian GAAP whereby exchange differences arising on translation/ settlement of long-term foreign currency monetary items pertaining to the acquisition of a depreciable asset are adjusted to the cost of the asset and depreciated over the remaining life of the asset. Ind AS 101 gives an option whereby a first time adopter can continue its Indian GAAP policy for the aforesaid accounting for exchange differences arising from translation of long-term foreign currency monetary items. The Company has adopted the aforesaid option under Ind AS 101.
1.3.9. Equity Share Capital
An equity instrument is a contract that evidences residual interest in the assets of the company after deducting all of its liabilities. Par value of the equity shares is recorded as share capital and the amount received in excess of par value is classified as Securities Premium.
Costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax effects.
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