3 Material accounting policies
3.1 Segment reporting
In accordance with the requirements of Ind AS 108 - "Segment Reporting", the Company is primarily engaged in the
business of manufacturing and selling of industrial air compressors of various capacities and providing related services
(Air solutions) and has no other primary reportable segments. The Company's Chief Operating Decision Maker (CODM)
reviews the performance of the Company as a whole as there are no operations other than Air solutions segment.
Consequently, there is only one segment and hence no separate business segment disclosures have been presented as
such information is available in the financial statements.
3.2 Foreign exchange transactions and translations
Transactions in foreign currencies are recorded at prevailing rate at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the
exchange rate at the reporting date. Nonmonetary assets and liabilities that are measured at fair value in a foreign
currency are translated into the functional currency at the exchange rate when the fair value was determined. Non¬
monetary items that are measured based on historical cost in a foreign currency are translated at the exchange rate at
the date of the transaction. Foreign currency differences are generally recognised in the statement of profit and loss.
3.3 Revenue recognition
Revenue is recognized upon transfer of control of promised goods or services to customers in an amount that reflects
the consideration the Company expects to receive in exchange for those goods or services.
(a) Sale of goods
Revenue from the sale of products is recognised at the point in time when control is transferred to the customer.
Revenue is measured based on the transaction price, which is the consideration, net of returns, trade allowances,
rebates and liquidated damages etc. as specified in the contract with the customer. Additionally, revenue excludes
taxes collected from customers, which are subsequently remitted to governmental authorities.
(b) Sale of services
Installation and commissioning revenue is recognised in the period in which the services are rendered. Service
revenue from annual maintenance contract are recognised on time proportion basis over the period of contract.
Revenue from services are disclosed exclusive of tax.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets
are classified as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive
cash, and only passage of time is required, as per contractual terms. Other contract assets are classified as other
assets.
Unearned and deferred revenue ("contract liability") is recognised when there is billings in excess of revenues.
Advances received for goods and services are reported as liabilities until all conditions for revenue recognition are
met.
(c) Business support and auxiliary services:
The Company provides business support and auxiliary services to certain fellow subsidiaries. Revenue from such
services is recognised in the period in which the services are rendered. The recognition is based on the terms of the
contract with the respective customers, which is on a cost-plus basis.
(d) Government grants - Export incentives:
Grants from the government are recognised where there is a reasonable assurance that the grant will be received
and the Company will comply with all attached conditions. Government grants relating to income are deferred and
recognised in the profit or loss over the period necessary to match them with the costs that they are intended to
compensate and presented within other operating revenue.
(e) Interest income from deposits with banks is recognised on a time proportion basis taking into account the amount
outstanding and the interest rate applicable.
(f) Use of significant judgements in revenue recognition
- The Company's contracts with customers could include promises to transfer multiple goods / services to a
customer. The Company assesses the goods promised in a contract and identifies distinct performance
obligations in the contract. Identification of distinct performance obligation involves judgement to determine
the deliverables and the ability of the customer to benefit independently from such deliverables.
- The Company uses judgement to determine an appropriate standalone selling price for a performance
obligation. The Company allocates the transaction price to each performance obligation on the basis of the
relative stand-alone selling price of each distinct good or service promised in the contract.
The Company has determined that the revenues as disclosed in Note 16 are disaggregated into categories that
depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
3.4 Income tax
The income tax expense or credit for the period is the tax payable on the current period's taxable income based on
the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary
differences and to unused tax losses, if any.
The current income tax charge is calculated on the basis of the tax laws enacted at the end of the reporting period.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes provisions, where appropriate, on the basis of amounts expected to
be paid to the tax authorities.
Current tax assets and tax liabilities are offset where the Company has a legally enforceable right to offset and intends
either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Deferred income tax is provided in full, using the balance sheet approach, on temporary differences or timing differences
arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred
income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the
reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income
tax liability is settled.
Deferred tax assets are recognised for all deductible temporary differences and unused tax losses, if any, only if it is
probable that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the same taxation authority.
Current and deferred tax are recognised in statement of profit and loss, except to the extent that it relates to items
recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively.
3.5 Leases
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.
As a lessee:
The Company accounts for each lease component within the contract as a lease separately from non-lease components
of the contract and allocates the consideration in the contract to each lease component on the basis of the relative
stand-alone price of the lease component and the aggregate stand-alone price of the non-lease components.
The Company recognises right-of-use asset representing its right to use the underlying asset for the lease term
at the lease commencement date. The cost of the right-of-use asset measured at inception shall comprise of the
amount of the initial measurement of the lease liability adjusted for any lease payments made at or before the
commencement date less any lease incentives received, plus any initial direct costs incurred and an estimate of costs
to be incurred by the lessee in dismantling and removing the underlying asset or restoring the underlying asset or site
on which it is located. The right-of-use assets is subsequently measured at cost less any accumulated depreciation,
accumulated impairment losses, if any and adjusted for any remeasurement of the lease liability. The right-of-use assets
is depreciated using the straight-line method from the commencement date over the shorter of lease term or useful
life of right-of-use asset. The estimated useful lives of right-of-use assets are determined on the same basis as those
of property, plant and equipment. Right-of-use assets are tested for impairment whenever there is any indication that
their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the statement of profit and loss.
The Company measures the lease liability at the present value of the lease payments that are not paid at the
commencement date of the lease. The lease payments are discounted using the interest rate implicit in the lease,
if that rate can be readily determined. If that rate cannot be readily determined, the Company uses incremental
borrowing rate. For leases with reasonably similar characteristics, the Company, on a lease by lease basis, may
adopt either the incremental borrowing rate specific to the lease or the incremental borrowing rate for the portfolio
as a whole. The lease payments shall include fixed payments, variable lease payments, residual value guarantees,
exercise price of a purchase option where the Company is reasonably certain to exercise that option and payments
of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the
lease. 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 and remeasuring the carrying
amount to reflect any reassessment or lease modifications or to reflect revised in-substance fixed lease payments.
The Company recognises the amount of the remeasurement of lease liability as an adjustment to the right-of-use
asset. Where the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in
the measurement of the lease liability, the Company recognises any remaining amount of the re-measurement in
statement of profit and loss.
The Company has elected not to recognise right-of-use assets and lease liabilities for short-term leases that have a lease
term of 12 months or less and leases of low-value assets. The Company recognises the lease payments associated with
these leases as an expense over the lease term.
As a lessor:
Lease income from operating leases where the Company is a lessor is recognised as income on a straight-line basis
over the lease term unless the receipts are structured to increase in line with expected general inflation to compensate
for the Company's expected inflationary cost increases. The respective leased assets are included in the balance sheet
based on their nature.
3.6 Impairment of non-financial assets
Assessment is done whenever there is an event or change in circumstances as to where there is any indication that an
asset (tangible and intangible) may be impaired. For the purpose of assessing impairment, the smallest identifiable
group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from
other assets or groups of asset, is considered as a cash generating unit. If any such indication exists, an estimate of the
recoverable amount of the asset/ cash generating unit is made. Assets whose carrying value exceeds their recoverable
amount are written down to the recoverable amount. The recoverable amount is the higher of an asset's fair value less
cost of disposal and value in use. Value in use is the present value of estimated future cash flows expected to arise from
the continuing use of an asset and from its disposal at the end of its useful life. Assessment is also done at each balance
sheet date as to whether there is any indication that an impairment loss recognised for an asset in prior accounting
periods may no longer exist or may have decreased. Non financial assets that suffered an impairment are reviewed for
possible reversal of the impairment at the end of each reporting period.
3.7 Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, other
short-term, highly liquid investments with original maturities of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of change in value.
Statement of cash flows:
Cash flows are reported using the indirect method, whereby profit / (loss) before extraordinary items and tax is adjusted
for the effects of transactions of non-cash / non-operating nature. The cash flows from operating, investing and
financing activities of the Company are segregated based on the available information.
3.8 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost of raw materials comprises cost of purchases.
The cost of finished goods and work in progress includes raw materials, direct labour, other direct costs and appropriate
portion of variable and fixed overhead expenditure, computed on normal capacity. Costs are assigned to individual
items of inventory on a first-in first-out basis. Cost of inventories also include all others costs incurred in bringing
the inventories to their present location and condition. Costs of purchased inventory are determined after deducting
rebates, discounts and refundable duties and taxes. Net realisable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
3.9 Other financial assets
(i) Initial recognition and measurement
At initial recognition, the Company measures a financial asset at its fair value (other than the trade receivables
which are intially measured at transaction price) plus, in the case of a financial asset not at fair value through profit
or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of
financial assets carried at fair value through profit or loss are expensed in statement of profit and loss.
Debt instruments that are held for collection of contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortised cost. A gain or loss on a debt investment that is
subsequently measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss
when the asset is derecognised or impaired. Interest income from these financial assets is included in finance
income using the effective interest rate method.
(ii) Classification
The Company classifies its financial assets in the following measurement categories:
(a) those to be measured subsequently at fair value [either through other comprehensive income (FVOCI), or
through profit or loss (FVTPL)], and
(b) those measured at amortised cost.
The classification depends on the Company's business model for managing the financial assets and the contractual
terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive
income.
(iii) Impairment of financial assets
The Company assesses on a forward looking basis the expected credit losses associated with its assets carried at
amortised cost. The impairment methodology applied depends on whether there has been a significant increase
in credit risk. Note 30 details how the Company determines whether there has been a significant increase in credit
risk.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using effective
interest method, less provision for impairment.
(iv) Derecognition of financial assets
A financial asset is derecognised only when the Company has transferred the rights to receive cash flows from
the financial asset or retains the contractual rights to receive the cash flows of the financial asset, but assumes a
contractual obligation to pay the cash flows to one or more recipients.
Where the Company has transferred an asset, it evaluates whether it has transferred substantially all risks and
rewards of ownership of the financial asset. In such cases, the financial asset is derecognised. Where the Company
has not transferred substantially all risks and rewards of ownership of the financial asset, the financial asset is not
derecognised.
3.10 Offsetting financial instruments
Financial assets and liabilities are offset and the net amount is reported in the balance sheet where there is a legally
enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset
and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must
be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company
or the counterparty.
3.11 Property, plant and equipment
Items of property, plant and equipment are stated at historical cost less accumulated depreciation. Historical cost
includes expenditure that is directly attributable to the acquisition of the assets.
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. All other repairs and maintenance are charged to the statement of profit and loss
during the reporting period in which they are incurred.
(a) Depreciation methods, estimated useful life and residual value:
Depreciation is calculated using the straight-line method to allocate their cost, net of their residual values, over
their estimated useful life as follows:
The useful life has been determined based on technical evaluation done by the internal expert which are different
than those specified by Schedule II to the Act, in order to reflect the actual usage of the assets. The residual
values are not more than 5% of the original cost of the asset.
The assets' residual values and useful life are reviewed, and adjusted if appropriate, at the end of each reporting
period. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These are included in the statement profit and loss within other gains/
(losses).
(b) Research and development:
Expenditure on development is capitalised as intangible asset and depreciated in accordance with depreciation
policy of the Company. Expenditure incurred during the research phase is expensed as incurred.
Development expenditure incurred on an individual project is recognised as an intangible asset when all of the
following criteria are met:
- It is technically feasible to complete the intangible asset so that it will be available for use or sale.
- There is an intention to complete the asset.
- There is an ability to use or sell the asset.
- The asset will generate future economic benefits.
- Adequate resources are available to complete the development and to use or sell the asset.
- The expenditure attributable to the intangible asset during development can be measured reliably.
Amortisation of the asset begins when development is complete and the asset is available for use and it is
amortised on straight line method over the estimated useful life. Expenditure that cannot be distinguished
between research phase and development phase is expensed as incurred.
3.12 Intangible assets
Operating software is capitalised along with the related assets. Other computer software is stated at acquisition cost,
net of accumulated amortisation and accumulated impairment losses, if any, and are amortised on a straight line basis
over their estimated useful life. Costs associated with maintaining software programmes are recognised as an expense
as incurred.
The Company amortises intangible assets (Computer software) with a finite useful life using the straight-line method
over 3-5 years and the useful life is reviewed at end of each reporting period, and adjusted if appropriate. The
amortisation method and the estimated useful life of intangible assets are reviewed at each reporting period.
3.13 Trade and other payables
These amounts represent liabilities for goods and services provided to the Company prior to the end of financial year,
which are unpaid. The amounts are unsecured and are usually paid within 90 days of recognition. Trade and other
payables are presented as current liabilities unless payment is not due within 12 months after the reporting period.
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