3. Material accounting policies
a) Property, plant and equipment - Owned assets
• All items of Property, plant and equipment are measured at cost less accumulated depreciation and impairment
losses, if any. Cost of Property, plant and equipment comprises of purchase price, non-refundable taxes and duties
and any directly attributable cost of bringing each asset to its working condition for the intended use. Financing costs
relating to borrowed funds attributable to the acquisition of qualifying property, plant and equipment i.e.asset that
necessarily takes a substantial period of time to get ready for its intended use, upto the completion of construction
or acquisition of such property, plant and equipment are included in the gross book value of the asset. If significant
parts of an item of property, plant and equipment have different useful lives, then they are accounted for as separate
items (major components) of Property, plant and equipment.
• 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 asset is
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.
• Gains or losses arising on disposal of property, plant and equipment are recognised in the Statement of Profit and Loss.
• Capital work-in-progress includes the cost of property, plant and equipment that are not ready to use at the balance
sheet date.
• Advances paid towards the acquisition of property, plant and equipment outstanding at each balance sheet date is
classified as capital advances under “Other Non-Current Assets”.
b) Goodwill and Other Intangible assets
• Intangible assets purchased are initially measured at cost. The cost of an intangible asset comprises its purchase price
including duties and taxes and any costs directly attributable to making the asset ready for their intended use.
• Intangible assets acquired in a business combination are recognised at fair value at the acquisition date.
• Following, initial recognition, intangible assets with finite lives are carried at cost less accumulated amortisation and
accumulated impairment losses, if any.
• Goodwill acquired in a business combination is recognised at fair value at the acquisition date. Subsequently, it is
carried at cost less accumulated impairment losses, if any.
• 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.
• Gains or losses arising on disposal of Intangible assets are recognised in the Statement of Profit and Loss.
c) Depreciation and amortisation:
Property, plant and equipment
Depreciation Rates in respect of Property, plant and equipment depreciated as per useful lives followed by the Company
and prescribed in Schedule II are as follows:
Depreciation on additions/deletions to property, plant and equipment is provided prorata from the month of addition/
before the month of deletion.
Assets costing ^50,000 or less are fully depreciated in the year of purchase.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each
financial year end and adjusted prospectively.
Accelerated Depreciation is charged in case of assets forming part of a restructuring project basis planned remaining
useful life of assets.
Freehold land is not depreciated.
Leasehold improvements are amortised over the period of lease.
Intangible Assets
• ERP software is amortised over a period of 60 months commencing from the month in which software is put to use.
• Specialised software is amortised over a period of 36 months commencing from the month in which such expenditure
is incurred.
• Non-compete fees paid are amortised over the period of restriction, viz 5 years.
• Customer List is amortised over a period of 7 years.
• Goodwill is not amortised but is tested for impairment annually.
d) Financial instruments
Financial assets
Financial assets are recognised when the Company becomes a party to the contractual provisions of the instrument. On
initial recognition, a financial asset is recognised at fair value, in case of financial assets which are recognised at fair value
through profit and loss (FVTPL), its transaction cost is recognised in the Statement of Profit and Loss. In other cases, the
transaction cost is attributed to the acquisition value of the financial asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in:
• Financial asset at amortised cost
• Financial asset at fair value through profit or loss (FVTPL)
• Financial asset at fair value through other comprehensive income (FVTOCI)
Financial assets are not reclassified subsequent to their recognition, except if and in the period the Company changes its
business model for managing financial assets.
Financial asset at amortised cost
An instrument is measured at the amortised cost if (i) the asset is held within a business model whose objective is to
hold assets 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 (SPPI) on the principal amount outstanding. Amortised cost
is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part
of the Effective Interest Rate (EIR). The EIR amortisation is included in finance income in the profit or loss. The losses
arising from impairment are recognised in the statement of profit and loss. This category generally applies to trade and
other receivables. All financial assets not classified as measured at amortised cost or FVOCI are measured at FVTPL.
On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements
to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting
mismatch that would otherwise arise.
Financial asset (Debt Instruments) at fair value through profit or loss
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorisation
as at amortised cost or as FVTOCI, is classified as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognised in the
statement of Profit and loss.
Impairment of financial assets
Expected credit losses (ECL) are recognised for all financial assets subsequent to initial recognition other than financials
assets in FVTPL category. ECL is the difference between all contractual cash flows that are due to the Company in
accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted
at the original EIR.
For financial assets other than trade receivables, as per Ind AS 109, the Company recognises 12 month expected credit
losses for all originated or acquired financial assets if at the reporting date the credit risk of the financial asset has not
increased significantly since its initial recognition. The expected credit losses are measured as lifetime expected credit
losses if the credit risk on financial asset increases significantly since its initial recognition. The Company's trade receivables
do not contain significant financing component and loss allowance on trade receivables is measured at an amount equal
to lifetime expected losses i.e. expected cash shortfall. The impairment losses and reversals are recognised in Statement
of Profit and Loss.
At each reporting date, the Company assesses whether financial assets carried at amortised cost and debt instruments at
FVOCI are credit-impaired. A financial asset is ‘credit-impaired' when one or more events that have a detrimental impact
on the estimated future cash flows of the financial asset have occurred.
Financial liabilities
Initial recognition and measurement
Financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument.
Financial liabilities are classified, at initial recognition at fair value through profit or loss, net of directly attributable
transaction costs.
Subsequent measurement
Financial liabilities are subsequently measured at amortised cost using the EIR 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.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the
EIR method. Gains and losses are recognised in the Statement of Profit and Loss when the liabilities are derecognised as
well as through the EIR amortisation process.
Derecognition
A financial asset / financial liability (or, where applicable, a part of a financial asset or financial liability or part of a group
of similar financial assets or financial liability) 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.
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither
transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the
Company continues to recognise the transferred asset to the extent of the Company's continuing involvement. In that
case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured
on a basis that reflects the rights and obligations that the Company has retained.
Offsetting 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.
e) Derivative financial instruments
The Company uses derivative financial instruments to hedge its foreign currency.
Derivatives are measured at fair value. The treatment of changes in the value of derivative depends on their use as
explained below:
(i) Cash flow hedges: Derivatives are held to hedge the uncertainty in timing or amount of future forecast cash flows.
Such derivatives are classified as being part of cash flow hedge relationships. For an effective hedge, gains and losses
from changes in the fair value of derivatives are recognised in other comprehensive income. Any ineffective elements
of the hedge are recognised in the Statement of profit and loss. If the hedged cash flow relates to a non-financial asset,
the amount accumulated in equity is subsequently included within the carrying value of that asset. For other cash
flow hedges, amounts accumulated in other comprehensive income are taken to the statement of profit and loss at
the same time as the related cash flow. When a derivative no longer qualifies for hedge accounting, any cumulative
gain or loss remains in equity until the related cash flow occurs. When the cash flow takes place, the cumulative
gain or loss is taken to the statement of profit and loss. If the hedged cash flow is no longer expected to occur, the
cumulative gain or loss is taken to the statement of profit and loss immediately.
(ii) Derivatives for which hedge accounting is not applied: Derivative financial instruments for which hedge accounting
is not applied are initially recognised at fair value on the date on which a derivative contract is entered and are
subsequently measured at FVTPL.
f) Fair value measurement
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:
• In the principal market for the asset or liability or
• 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.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interest.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
The Company recognises transfers between levels of the fair value hierarchy at the end of the reporting period during
which the change has occurred.
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.
g) Foreign Currency Transactions
• The Company's financial statements are presented in INR which is also the functional currency. Transactions
denominated in foreign currency are recorded at the exchange rate prevailing at the month end rate. Exchange
differences arising on foreign exchange transactions settled during the year are recognised in the Statement of Profit
and Loss for the year.
• Monetary assets and liabilities in foreign currency, which are outstanding as at the year-end are translated at the year
end at the closing exchange rate and the resultant exchange differences are recognised in the Statement of Profit
and Loss.
• Non-monetary foreign currency items are carried at historical cost, determined using exchange rate at the date of
initial recognition.
h) Inventories
• Inventories are valued at lower of cost and net realisable value. Cost is determined on the Weighted Average
Cost Method.
• Raw materials, Components, Stores and Spares held for use in 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.
• The cost of manufactured Inventories and Work-In-Process is the direct cost of manufacture plus appropriate
allocated overheads.
• The net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of
completion and estimated costs necessary to make the sale.
• The comparison of cost and net realisable value is made on an item by item basis.
• Assessment of net realisable value is made at each subsequent reporting date. When the circumstances that previously
caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in
net realisable value because of changed economic circumstances, the amount so written-down is adjusted in terms
of policy as stated above. Appropriate adjustments are made to the carrying value of damaged, slow moving and
obsolete inventories based on management's current best estimate.
i) Revenue Recognition
According to Ind AS 115, revenue is measured at the amount of consideration the Company expects to receive in exchange
for the goods or services when control of the products or services and the benefits obtainable from them are transferred
to the customer. Revenue is recognised using the following five step model specified in Ind AS 115:
Step 1: Identify contracts with customers.
Step 2: Identify performance obligations contained in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligation.
Step 5: Recognise revenue when a performance obligation is satisfied.
The performance obligations arising from sale of products with the Company's customers are satisfied at a point in time.
Payment terms are generally agreed upon individually with customers. Sales of products are recognised when control of
the products has transferred based on the agreed terms. Revenue is net of sales returns and allowances, discounts, volume
rebates and any taxes or duties collected on behalf of government such as goods and service tax, etc.
Sale of services are recognised on satisfaction of performance obligation towards rendering of such services.
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company
performs by transferring goods or services to a customer before the customer pays consideration or before payment is
due, a contract asset is recognised for the earned consideration that is conditional.
A contract liability is the Company's obligation to transfer goods or services to a customer, for which the Company has
already received consideration from customers.
If a customer pays consideration before the Company transfers goods or services to the customer, a contract liability is
recognised when the payment is made, or the payment is due (whichever is earlier). Contract liabilities are recognised as
revenue when the Company performs under the contract.
Certain contracts of sale include volume rebates that give rise to variable consideration. This includes establishing an
accrual at year end, particularly in arrangements with varying terms which are based on annual contracts or shorter-
term arrangements.
Dividend & Interest Income
Dividend income is recognised when the Company's right to receive the payment is established by the reporting date.
Interest income is recognized using the effective interest rate (EIR) method.
j) Retirement and Other Employee benefits
(i) Short-term employee benefits
All short term employee benefits such as salaries, incentives, medical benefits which are expected to be settled wholly
within 12 months after the end of the period in which the employee renders the related services which entitles him to
avail such benefits are recognised on an undiscounted basis and charged to the Statement of Profit and Loss account.
(ii) Retirement Benefits
a. Defined Contribution Plans:
The Company has defined contribution plans for post-employment benefits in the form of provident fund,
employees' state insurance, labour welfare fund, superannuation scheme etc. which is administered through
Government of India. Provident fund is classified as defined contribution plans as the Company has no further
obligation beyond making the contributions. The company's contributions to defined contribution plans are
charged to the Statement of Profit and Loss as and when employee renders related service.
b. Defined Benefit Plans:
The Company's gratuity benefit scheme is a defined benefit plan. The Company's net obligation in respect of the
defined benefit schemes are calculated by estimating the amount of future benefit that employees have earned
in return for their service in the current and prior periods; that benefit is discounted to determine its present
value, and the fair value of any plan assets is deducted.
The present value of the obligation under such defined benefit plans are determined based on actuarial valuation
using the Projected Unit Credit Method, which recognises each period of service as giving rise to additional unit
of employee benefit entitlement and measures each unit separately to build up the final obligation.
The obligation is measured at the present value of the estimated future cash flows. The discount rates used for
determining the present value of the obligation under defined benefit plans are based on the market yields on
Government securities as at the balance sheet date.
All defined benefit plans obligations are determined based on valuations, as at the Balance Sheet date, made by
independent actuary using the projected unit credit method. The classification of the Company's net obligation
into current and non-current is as per the actuarial valuation report.
Remeasurements, comprising of actuarial gains and losses and the return on plan assets (excluding amounts
included in net interest on the net defined benefit liability), are recognised immediately in the balance sheet with
a corresponding charge or credit to OCI in the period in which they occur. Re-measurements are not reclassified
to profit or loss in subsequent periods. Net interest is calculated by applying the discount rate to the net defined
benefit liability or asset.
c. Pension plan:
The liability towards pension is based on actuarial valuation carried out by an independent Actuary using
Projected unit credit Method. Principal assumptions are in line with those used for Gratuity, as applicable.
(iii) Long-term employee benefits
a. Compensated absences:
Compensated absences which are not expected to occur within twelve months after the end of the period in
which the employee renders the related services are considered as long-term employee benefit for measurement
purposes and are determined on the basis of valuations, as at balance sheet date, carried out by an independent
actuary using Projected Unit Credit Method, The benefit is discounted to determine its present value, and the
fair value of any related assets is deducted. Actuarial gains and losses comprise experience adjustments and the
effects of changes in actuarial assumptions and are recognised immediately in the Statement of Profit and Loss.
The Company presents the leave encashment as a current liability in the balance sheet, to the extent it does not
have an unconditional right to defer its settlement for 12 months after the reporting date.
b. Long service awards:
Long Service awards are other long-term benefits scheme. The present value of the obligation under this long¬
term benefit is determined based on actuarial valuation using Projected Unit Credit Method.
c. Voluntary Retirement Scheme (VRS):
Voluntary retirement benefits arising from restructuring, are recognised in the statement of profit and loss. The
Company recognises VRS benefits at the earlier of the following dates: (a) when the Company can no longer
withdraw the offer of those benefits; or (b) when the Company recognises costs for a restructuring that is within
the scope of Ind AS 37: Provisions, Contingent Liabilities and Contingent Assets and involves the payment
of termination benefits. Benefits falling due more than 12 months after the end of the reporting period are
discounted to their present value.
k) Taxation
Income tax expense for the year comprises of current tax and deferred tax. It is recognised in the Statement of Profit
and Loss except to the extent it relates to an item to a business combination or to an item which is recognised directly in
equity or in other comprehensive income.
Current tax
The amount of current tax reflects the best estimate of the tax amount expected to be paid or received after considering
the uncertainty, if any, related to income taxes. The tax rates and tax laws used to compute the amount are those that are
enacted or substantively enacted, at the reporting date.
Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes provisions where appropriate.
Current tax assets and current tax liabilities are offset only if there is legally enforceable right to set off the recognised
amounts, and it is intended to realise the asset and settle the liability on a net basis or simultaneously.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amount of assets and liabilities for
financial reporting purposes and the corresponding amounts used for taxation purposes.
Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all
deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets
are recognised to the extent that it is probable that future taxable profit will be available against which they can be used.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has
become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is
realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the
reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other
comprehensive income or in equity). Deferred tax items are recognised in correlation to the underlying transaction either
in OCI or directly in equity.
Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities; and the deferred tax assets and the deferred tax liabilities relate to income taxes
levied by the same taxation authority.
Uncertain Tax position
The Company periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes provisions where appropriate. The provision is estimated based
on one of two methods, the expected value method (the sum of the probability weighted amounts in a range of possible
outcomes) or the single most likely amount method, depending on which is expected to better predict the resolution of
the uncertainty.
l) Leases
The Company's lease asset classes primarily consist of leases for Land and Buildings and Plant & Machinery. The Company
assesses whether a contract is or 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.
At the date of commencement of the lease, the Company recognises a right-of-use asset (“ROU”) and a corresponding
lease liability for all lease arrangements in which it is a lessee, except for leases with a term of twelve months or less (short
term leases) and leases of low value assets. For these short term and leases of low value assets, the Company recognises
the lease payments as an operating expense on a straight-line basis over the term of the lease.
The ROU assets are initially recognised at cost, which comprises the initial amount of the lease liability adjusted for
any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any lease
incentives. They are subsequently measured at cost less accumulated depreciation and impairment losses, if any. ROU
assets are depreciated from the commencement date on a straight-line basis over the shorter of the lease term and useful
life of the underlying asset.
The lease liability is initially measured at the present value of the future lease payments. The lease payments are discounted
using the interest rate implicit in the lease or, if not readily determinable, using the incremental borrowing rates. The lease
liability is subsequently remeasured by increasing the carrying amount to reflect interest on the lease liability, reducing
the carrying amount to reflect the lease payments made.
A lease liability is remeasured upon the occurrence of certain events such as a change in the lease term or a change in an
index or rate used to determine lease payments. The remeasurement normally also adjusts the leased assets.
Lease liability and ROU asset have been separately presented in the Balance Sheet and lease payments have been classified
as financing cash flows.
m) Impairment of non-financial assets
The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based
on internal / external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is the greater of the asset's fair value less cost of disposal and value in use.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and risks specific to the assets. After impairment,
depreciation is provided on their revised carrying amount of the asset over its remaining useful life.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognized in the Statement of Profit and Loss. Impairment losses recognized in respect of CGUs are
reduced from the carrying amounts of the assets of the CGU. An impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognized.
n) Government Grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached
conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic
basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates
to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.
When the Company receives grants of non-monetary assets, the asset and the grant are recorded at fair value amounts
and released to profit or loss over the expected useful life in a pattern of consumption of the benefit of the underlying
asset i.e. by equal annual instalments.
Income from export incentives is recognised on accrual basis to the extent the ultimate realisation is reasonably certain.
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