2 MATERIAL ACCOUNTING POLICIES
The material accounting policies applied by the Company in the preparation of its Ind AS financial statements
are listed below. Such accounting policies have been applied consistently to all the periods presented in these
financial statements, unless otherwise stated.
2.1 Basis of preparation of financial statements
A Statement of compliance
These financial statements of the Company are prepared and presented in accordance with Indian
Accounting Standards (“Ind AS”) notified under the Companies (Indian Accounting Standards) Rules,
2015, as amended and other relevant provision of the Act as amended from time to time and presentation
requirements of Division II of Schedule Ill to the Companies Act, 2013, (Ind AS compliant Schedule Ill), as
applicable to the financial statements. The Company has prepared the financial statements on the basis
that it will continue to operate as a going concern.
B Functional and presentation currency
The financial statements are presented in Indian Rupees crores which is the currency of the primary
economic environment in which the Company operates, rounded off to two decimal places, except where
otherwise indicated.
C Basis of measurement
The financial statements have been prepared under the historical cost convention and on an accrual basis,
except for certain financial instruments (refer accounting policy regarding financial instruments), which are
measured at fair value at the end of each reporting period, as explained in the accounting policies below.
Historical cost is generally based on the fair value of the consideration given in exchange for goods and
services as at the date of respective transactions.
2.2 Use of estimates
The preparation of the financial statements in conformity with Ind AS requires management to make estimates,
judgments and assumptions. These estimates, judgments and assumptions affect the application of accounting
policies and the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at
the date of the financial statements and reported amounts of revenues and expenses during the year. Application
of accounting policies that require critical accounting estimates involving complex and subjective judgments and
the use of assumptions in these financial statements have been disclosed in Note 2.3. Accounting estimates
could change from period to period. Actual results could differ from those estimates. Appropriate changes in
estimates are made as management becomes aware of changes in circumstances surrounding the estimates.
Changes in estimates are reflected in the financial statements in the period in which changes are made and, if
material, their effects are disclosed in the notes to the financial statements.
2.3 Critical accounting estimates, assumptions and judgements
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised and future periods affected. The Company based
its assumptions and estimates on parameters available when the financial statements were prepared. Existing
circumstances and assumptions about future developments, however, may change due to market changes
or circumstances arising that are beyond the control of the Company. Such changes are reflected in the
assumptions when they occur.
Significant judgements and estimates relating to the carrying values of assets and liabilities include, determination
of estimated projected cost and revenue in long term contracts, determination of term of lease contracts, fair
value measurement, impairment of goodwill, provision for employee benefits and other provisions, recoverability
of deferred tax assets and commitments and contingencies.
2.3.1 Estimates and assumptions
a. Property, plant and equipment
Property, plant and equipment represent a significant proportion of the asset base of the Company. The
charge in respect of periodic depreciation is derived after determining an estimate of an asset's expected
useful life and the expected residual value at the end of its life. The useful lives and residual values
of Company's assets are determined by management at the time the asset is acquired and reviewed
periodically, including at each financial year end. The lives are based on historical experience with similar
assets as well as anticipation of future events, which may impact their life, such as changes in technology.
b. Provision for employee benefits
The cost of the defined benefit gratuity plan and the present value of the gratuity obligation are determined
using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from
actual developments in the future. These include the determination of the discount rate, future salary
increases and mortality rates. Due to the complexities involved in the valuation and its long-term nature,
a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are
reviewed at each reporting date. The parameter most subject to change is the discount rate. In determining
the appropriate discount rate for plans operated in India, the management considers the interest rates of
government bonds in currencies consistent with the currencies of the post-employment benefit obligation.
The mortality rate is based on publicly available mortality tables. Those mortality tables tend to change
only at interval in response to demographic changes. Future salary increases and gratuity increases are
based on expected future inflation rate and past trends. Further details about gratuity obligations are given
in Note 31.
c. Provision for litigations and contingencies
The provision for litigations and contingencies are determined based on evaluation made by the management
of the present obligation arising from past events the settlement of which is expected to result in outflow
of resources embodying economic benefits, which involves judgements around estimating the ultimate
outcome of such past events and measurement of the obligation amount. Due to the judgements involved
in such estimations the provisions are sensitive to the actual outcome in future periods.
d. Project revenue and costs
The Company uses the percentage-of-completion method in accounting for its revenue from execution of
contracts for projects and services. Use of the percentage-of-completion method requires the Company
to estimate the efforts or costs expended to date as a proportion of the total efforts or costs to be
expended. Efforts or costs including the Company's performance that depicts the transfer of control to
the customer have been used to measure progress towards completion as there is a direct relationship
between input and productivity. Provisions for estimated losses, if any, on uncompleted contracts are
recorded in the period in which such losses become probable based on the expected contract estimates
at the reporting date.
Further, the percentage-of-completion method places considerable importance on accurate estimates
to the extent of progress towards completion and may involve estimates on the scope of deliveries and
services required for fulfilling the contractually defined obligations. These significant estimates include
total contract costs, total contract revenues, contract risks, including technical, political and regulatory
risks, and other judgments. This requires the Company to estimate various costs to capture such risks,
including liquidated damages and warranties. The Company re-assesses these estimates on periodic basis
and makes appropriate revisions accordingly.
e. Provision
Significant estimates are involved in the determination of provisions related to liquidated damages,
onerous contracts and warranty provision. The Company records a provision for onerous sales contracts
when current estimates of total contract costs exceed expected contract revenue. Warranty provision is
determined based on the historical trend of warranty expense for the same types of goods for which the
warranty is currently being determined, after adjusting for unusual factors related to the goods that were
sold or based on specific warranty clause in an agreement. Such estimates are reviewed annually for
any material changes in assumptions and likelihood of occurrence. The provision for warranty, liquidated
damages and onerous contracts is based on the best estimate required to settle the present obligation at
the end of reporting period.
f. Impairment of non-financial assets
Impairment exists when the carrying value of an asset or cash generating unit (CGU) exceeds its recoverable
amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less
costs of disposal calculation is based on available data from binding sales transactions, conducted at
arm's length, for similar assets or observable market prices less incremental costs for disposing of the
asset. The value in use calculation is based on a Discounted Cash Flow (DCF) model. The cash flows are
derived from the budget and do not include restructuring activities that the Company is not yet committed
to or significant future investments that will enhance the asset's performance of the CGU being tested.
The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected
future cash-inflows and the growth rate used for extrapolation purposes.
g. Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the balance sheet cannot be
measured based on quoted prices in active markets, their fair value is measured using appropriate valuation
techniques. The inputs for these valuations are taken from observable sources where possible, but where
this is not feasible, a degree of judgement is required in establishing fair values. Judgements include
considerations of various inputs including liquidity risk, credit risk, volatility etc. Changes in assumptions/
judgements about these factors could effect the reported fair value of financial instruments.
h. Taxes
The Company uses estimates and judgements based on the relevant rulings in the areas of allocation
of revenue, costs, allowances and disallowances which is exercised while determining the provision for
income tax. Uncertainties exist with respect to the interpretation of tax regulations, changes in tax laws,
and the amount and timing of future taxable income. Given the wide range of business relationships
differences arising between the actual results and the assumptions made, or future changes to such
assumptions, could necessitate future adjustments to tax income and expense already recorded. The
Company establishes provisions, based on reasonable estimates. The amount of such provisions is based
on various factors, such as experience of previous assessments and interpretations of tax regulations by
the Company.
i. Impairment allowance for trade receivables
The Company uses a provision matrix to calculate Expected Credit Losses (‘ECL') for trade receivables.
The provision rates are based on days past due for groupings of various customer segments that have
similar loss patterns (i.e., by geography, customer type, rating and coverage by letters of credit and other
forms of credit insurance). The provision matrix is initially based on the Company's historical observed
default rates. At every reporting date, the historical observed default rates are updated and changes in
the forward-looking estimates are analysed. The amount of ECLs is sensitive to changes in circumstances
and of forecast economic conditions.
j. Leases: whether an arrangement contains a lease
The Company determines the lease term as the agreed tenure of the lease, together with any periods
covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered
by an option to terminate the lease, if it is reasonably certain not to be exercised. After the commencement
date, the Company reassesses the lease term if there is a significant event or change in circumstances that
is within its control and affects its ability to exercise or not to exercise the option to renew or to terminate
(e.g., construction of significant leasehold improvements or significant customisation to the leased asset).
2.4 Current and non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification.
An asset is treated as current when it is:
• Expected to be realised or intended to be sold or consumed in normal operating cycle;
• Held primarily for the purpose of trading;
• Expected to be realised within twelve months after the reporting period; or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve
months after the reporting period.
All other assets are classified as non-current.
All assets and liabilities have been classified as current or non- current as per the Company's operating cycle
and other criteria set out in Schedule Ill to the Companies Act, 2013. Based on the nature of products and
the time between the acquisition of assets for processing and their realization 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, except for long-term contracts. The projects business comprises long-term
contracts which have an operating cycle exceeding one year. For classification of current assets and liabilities
related to projects business, the Company uses the duration of the individual life cycle of the contract as its
operating cycle.
A liability is 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
• It does not have right to defer the settlement of the liability for at least twelve months after the reporting period;
The Company classifies all other liabilities as non-current;
Advance tax paid is classified as non-current assets
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
2.5 Foreign Currency
Functional currency
The functional currency of the Company is the Indian Rupee.
Transactions and translations
Initial recognition transactions in foreign currencies are recorded by the Company at their respective functional
currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot
rates of exchange at the reporting date. The gains or losses resulting from such translations are recognised in
the statement of profit and loss.
Non-monetary assets and non-monetary liabilities denominated in a foreign currency and measured at fair
value are translated at the exchange rate prevailing at the date when the fair value was measured. Non¬
monetary assets and non-monetary liabilities denominated in a foreign currency and measured at historical
cost are translated at the exchange rate prevailing at the date of the transaction.
Transaction gains or losses realized upon settlement of foreign currency transactions are included in determining
net profit for the period in which the transaction is settled. Revenue, expense and cash flow items denominated
in foreign currencies are translated into the relevant functional currencies using the exchange rate prevailing
at the date of the transaction.
2.6 Revenue Recognition
Revenue from contracts with customers is recognised when control of the goods or services are transferred
to the customer at an amount that reflects the consideration to which the Company expects to be entitled in
exchange for those goods or services. Revenue is recognised to the extent that it is probable that the economic
benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is
being made. Revenue is measured to the amount of transaction price (net of variable consideration) allocated
to that performance obligation and excluding taxes or duties collected on behalf of the government. The
Company has concluded that it is the principal in all of its revenue arrangements since it is the primary obligor
in all the revenue arrangements as it has pricing latitude and is also exposed to inventory and credit risks.
The Company considers whether there are other promises in the contract that are separate performance
obligations to which a portion of the transaction price needs to be allocated if any. In determining the transaction
price for the sale of goods, the Company considers the effects of variable consideration, the existence of
significant financing components, noncash consideration, and consideration payable to the customer (if any).
Revenue are stated exclusive of goods and service tax and net of trade and quantity discount.
Liquidated damages / penalties are provided for as per the contract terms wherever there is a delayed delivery
attributable to the Company.
Revenue from the sale of goods
Revenues are recognised at a point in time when control of the goods is transferred to the buyer, usually on
delivery of the goods or on customer acceptance. Revenue from the sale of goods is measured to the amount of
transaction price received or receivable, net of variable consideration, returns and allowances, trade discounts
and volume rebates.
Revenue from execution of contracts for projects and services
Revenues are recognised on the percentage of completion method, in proportion that the contract costs
incurred for work performed up to the reporting date bear to the estimated total contract costs. Full provision
is made for any loss in the year in which it is first foreseen. Contract revenue earned in excess of billing has
been reflected under “Other current assets” and billing in excess of contract revenue has been reflected under
“Other current liabilities” in the balance sheet. Contract assets and liabilities are netted off at contract level. The
amount of retention money held by the customers pending completion of performance is disclosed as part of
contract asset and is reclassified as trade receivables when it has unconditional right to consideration. A right
to consideration is unconditional if only the passage of time is required before payment of that consideration
is due.
Revenue from sale of services
Revenue from services rendered over a period of time, such as annual maintenance contracts, are recognised
on straight line basis over the period of the performance obligation.
Income from development services and other services
Revenue from the development services is recognised as per the contract terms and when accrued. When the
contract outcome cannot be measured reliably, revenue is recognised only to the extent that the expenses
incurred are eligible to be recovered.
Commission income
Commission income is recognised as per contract terms and when accrued.
Export benefits
Export incentives receivable are accrued for, when the right to receive the credit is established and there is no
significant uncertainty regarding the realisability of the incentive.
Other income
Interest income is recognised on time proportion basis.
Fair value gain on financial instruments is recognised using the effective interest method.
2.7 Income tax
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the statement
of profit and Loss except to the extent that it relates to items recognised directly in equity, or in other
comprehensive income.
2.7.1 Current tax
Current income tax for current and prior periods is recognised at the amount expected to be paid to or recovered
from the tax authorities, using the tax rates and tax laws that have been enacted. Current income tax assets
and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities.
The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted,
at the reporting date in the countries where the Company operates and generates taxable income.
Management periodically evaluates positions taken in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation and considers whether it is probable that a taxation
authority will accept an uncertain tax treatment. The Company shall reflect the effect of uncertainty for each
uncertain tax treatment by using either most likely method or expected value method, depending on which
method predicts better resolution of the treatment.
The Company offsets tax assets and tax liabilities, where it has a legally enforceable right to set off the
recognised amounts and where it intends either to settle on a net basis, or to realize the asset and settle the
liability simultaneously.
2.7.2 Deferred tax
Deferred tax assets and liabilities are recognised for all temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets are recognised
to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences, and the carry forward of unused tax credits and unused tax losses can be utilised. Also, 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 benefit will be realized. Deferred tax assets and liabilities are measured using tax rates and tax
laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect of changes in tax rates on deferred tax assets and liabilities is recognised as income or expense in the
period that includes the enactment or the substantive enactment date. The Company offsets tax assets and
tax liabilities, where it has a legally enforceable right to set off the recognised amounts and where it intends
either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
2.8 Property, plant and equipment
Recognition and measurement
Freehold land is carried at historical cost, all other item of property, plant and equipment is measured at cost,
net of accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that
are directly attributable to the acquisition of the asset. 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. When significant parts of property, plant and equipment are required to be replaced at intervals, the
Company depreciates them separately based on their specific useful lives. Likewise, when a major inspection is
performed, its cost is recognised in the carrying amount of the property, plant and equipment as a replacement
if the recognition criteria are satisfied.
All other repair and maintenance costs are recognised in statement of profit and Loss as incurred. The Company
identifies and determines cost of each component/ part of property, plant and equipment separately, if the
component/ part has a cost which is significant to the total cost of the property, plant and equipment and has
useful life that is materially different from that of the remaining asset. These components are depreciated over
their useful lives; the remaining asset is depreciated over the life of the principal asset.
Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date
is classified as capital advances and cost of assets not ready for use at the balance sheet date are disclosed
under capital work- in- progress is stated at cost less accumulated impairment Loss.
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 benefits associated with the item will flow to the Company and
the cost of the item can be measured reliably. The carrying amount of any component accounted for as a
separate assets are derecognised when replaced. All other repairs and maintenance are charged to statement
of profit and loss during the reporting period in which they are incurred.
Depreciation
The Company depreciates property, plant and equipment over their estimated useful lives using the straight¬
line method. Leasehold assets are depreciated lower of lease period or life of the assets. The estimated useful
lives of assets are as follows:
Depreciation methods, useful lives and residual values are reviewed periodically, at each reporting date. Further,
freehold land are carried at historical cost and is not depreciated.
De-recognition
An item of property, plant and equipment and any significant part initially recognised is derecognised upon
disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying
amount of the asset) is included in the statement of profit and loss when the asset is derecognised.
Capital work-in-progress includes the cost of property, plant and equipment that are not ready for intended
use at Balance Sheet date.
Advances paid towards the acquisition of property, plant and equipment outstanding at end of each reporting
period is classified as capital advances under “Other non-current assets”.
2.9 Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses.
Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related
expenditure is reflected in the statement of profit and loss in the period in which the expenditure is incurred.
Amortisation
Amortisation is recognised in the statement of profit and loss on a straight line basis over the estimated useful
lives of the intangible assets.
Goodwill on business acquisition is not amortized but tested for impairment.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be impaired. The amortisation period and the
amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each
reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic
benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate,
and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite
lives is recognised in the statement of profit and loss unless such expenditure forms part of carrying value of
another asset.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either
individually or at the cash-generating unit level. The assessment of indefinite life is reviewed at each financial
year end to determine whether the indefinite life continues to be supportable. If not, the change in useful life
from indefinite to finite is made on a prospective basis.
De-recognition
Intangible assets are de-recognised either on their disposal or where no future economic benefits are expected
from their use. Gains or losses arising from de-recognition of an intangible asset are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement
of profit and loss when the asset is derecognised.
2.10 Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Company as a lessee
The Company applies a single recognition and measurement approach for all leases, except for short-term
leases and leases of low-value assets. The Company recognises lease liabilities to make lease payments and
right-of-use assets representing the right to use the underlying assets.
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.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in section 2.18 (b)
Impairment of non-financial assets.
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.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is not readily determinable. 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 remeasured 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.
Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight¬
line basis over the lease term.
2.11 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily
takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of
the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist
of interest and other costs that an entity incurs in connection with the borrowing of funds.
2.12 Inventories
Inventories consist of raw materials, work-in-progress, finished goods, stock-in-trade and stores and spares.
Inventories are measured at the lower of cost and net realisable value. However, materials and other items
held for use in the production of inventories are not written down below cost if the finished goods in which
they will be incorporated are expected to be sold at or above cost.
The cost of various categories of inventories is arrived at as follows:
Stores, spares, raw materials, components and stock-in-trade - at rates determined on the moving weighted
average method.
Goods in Transit - at actual cost.
Work-in-progress and finished goods - at full absorption cost method which includes direct materials, direct
labour and manufacturing overheads. Cost is determined on weighted average method.
Cost includes expenditures incurred in acquiring the inventories, production or conversion costs and other costs
incurred in bringing them to their existing location and condition.
Provision for obsolescence is made wherever necessary.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make the sale.
The factors that the Company considers in determining the provision for slow moving, obsolete and other
non-saleable inventory include estimated shelf life, planned product discontinuances, price changes, ageing
of inventory and introduction of competitive new products, to the extent each of these factors impact the
Company's business and markets. The Company considers all these factors and adjusts the inventory provision
to reflect its actual experience on a periodic basis.
2.13 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.
2.13.1 Initial recognition
The Company recognises financial assets and financial liabilities when it becomes a party to the contractual
provisions of the instrument. All financial assets and liabilities are recognised at fair value on initial recognition,
except for trade receivables which are initially recognised at transaction price. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial liabilities, that are not at fair value through
profit or loss, are added to the fair value on initial recognition.
2.13.2 Subsequent measurement
a. Non-derivative financial instruments
(i) Financial assets carried at amortised cost
A financial asset is subsequently measured at amortised cost if it is held within a business where the
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.
(ii) Financial assets at fair value through other comprehensive income
A financial asset is subsequently measured at fair value through other comprehensive income if it is
held within a business where the objective is achieved by both collecting contractual cash flows and
selling 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.
The Company has made an irrevocable election for its investments which are classified as equity
instruments to present the subsequent changes in fair value in other comprehensive income based
on its business model. Further, in cases where the Company has made an irrevocable election based
on its business model, for its investments which are classified as equity instruments, the subsequent
changes in fair value are recognised in other comprehensive income.
(iii) Financial assets at fair value through profit or loss
A financial asset which is not classified in any of the above categories are subsequently fair valued through
profit or Loss.
(iv) Financial liabilities
Financial liabilities are subsequently carried at amortized cost using the effective interest method, For
trade and other payables maturing within one year from the balance sheet date, the carrying amounts
approximate fair value due to the short maturity of these instruments.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial instrument and
of allocating interest income or expense over the relevant period. The effective interest rate is the rate that
exactly discounts future cash receipts or payments through the expected life of the financial instrument,
or where appropriate, a shorter period.
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.
Equity Instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after
deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct
issue costs.
Financial liabilities
Financial liabilities are initially measured at fair value, net of transaction costs, and are subsequently
measured at amortised cost, using the effective interest rate method where the time value of money is
significant. Interest bearing bank loans, overdrafts are initially measured at fair value and are subsequently
measured at amortised cost using the effective interest rate method. Any difference between the proceeds
(net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of
the borrowings in the statement of profit and Loss.
For trade and other payables maturing within one year from the balance sheet date, the carrying amounts
approximate fair value due to the short maturity of these instruments.
Off-setting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if
there is a currently enforceable legal right to offset the recognised amounts and there is an intention to
settle on a net basis, to realise the assets and settle the liabilities simultaneously.
(v) Derecognition
A financial asset 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.
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 the maximum amount of consideration that the
Company could be required to repay.
A financial liability is primarily derecognised when:
• The obligation under the liability is discharged or cancelled or expires, or
• The 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 a new liability. The difference
in the respective carrying amounts is recognised in the statement of profit and loss.
b. Derivative financial instruments
The Company holds derivative financial instruments such as foreign exchange forward and option contracts
including commodity contracts to mitigate the risk of changes in exchange rates on foreign currency
exposures and fluctuation in commodity prices. The counterparty for these contracts is generally a bank.
Financial assets or financial liabilities, at fair value through profit or loss.
This category has derivative financial assets or liabilities which are not designated as hedges.
Although the Company believes that these derivatives constitute hedges from an economic perspective,
they may not qualify for hedge accounting under Ind AS 109, Financial Instruments. Any derivative that
is either not designated a hedge, or is so designated but is ineffective as per Ind AS 109, is categorized
as a financial asset or financial liability, at fair value through profit or loss.
Derivatives not designated as hedges are recognised initially at fair value and attributable transaction costs
are recognised in the statement of profit and loss when incurred. Subsequent to initial recognition, these
derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are
included in other income / expenses. Assets/ liabilities in this category are presented as current assets/
current liabilities if they are either held for trading or are expected to be realised within 12 months after
the balance sheet date.
Certain commercial contracts may grant rights to the Company or the counterparties, or contain other
provisions that are considered to be derivatives. Such embedded derivatives are assessed at inception of
the contract and depending on their characteristics, accounted for as separate derivative instruments and
shown at their fair value in the balance sheet with changes in their fair value recognised through profit
or loss.
2.14 Fair value measurement of financial instruments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value measurement is based on
the presumption that the transaction to sell the asset or transfer the liability takes place either:
a) In the principal market for the asset or liability, or
b) In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company.
Fair value hierarchy:
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the
fair value measurement as a whole:
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement
is directly or indirectly observable
Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company
determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation
(based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each
reporting period.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the
basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as
explained above.
In determining the fair value of its financial instruments, the Company uses a variety of methods and assumptions
that are based on market conditions and risks existing at each reporting date. The methods used to determine
fair value includes discounted cash flow analysis, available quoted market prices and dealer quotes. All methods
of assessing fair value result from general approximation of value and the same may differ from the actual
realised value.
2.15 Statement of cash flows
Cash flows are reported using the indirect method, whereby profit for the period is adjusted for the effects
of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or
payments and item of income or expenses associated with investing or financing cash flows. The cash flows
from operating, investing and financing activities of the Company are segregated.
2.16 Finance costs
Borrowing costs are recognised in the statement of profit and loss using the effective interest method. The
associated cash flows are classified as financing activities in the statement of cash flows.
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