2. Material accounting policies
This note provides material accounting policies adopted
and applied in the preparation of these financial
statements. These policies have been consistently
applied to all the years presented, unless otherwise
stated.
(a) Basis of preparation
(i) Statement of compliance
The financial statements have been prepared
in accordance with Indian Accounting
Standards (Ind AS) as per the Companies
(Indian Accounting Standards) Rules, 2015
notified under Section 133 of Companies Act,
2013 ("the Act") and other relevant provisions
of the Act. The financial statements of the
Company are presented in Indian Rupee and
all values are rounded to the nearest million,
except per share data and unless stated
otherwise.
(ii) Historical cost convention
The financial statements have been prepared
on a historical cost convention on accrual basis
except for the following material items those
have been measured at fair value as required
by relevant Ind AS:
- Certain financial assets and liabilities
measured at fair value (refer accounting
policy regarding financial instruments);
- Defined benefit plans and other long-term
employee benefits;
- Share-based expense transactions;
- Investment in equity instruments.
(b) Current versus 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;
• It is held primarily for the purpose of trading;
• It is expected to be realised within twelve
months after the reporting period; or
• It is cash or cash equivalent unless restricted
from being exchanged or used to settle a
liability for at least twelve months after the
reporting period.
The Company classifies all other assets as non¬
current.
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
• There is no unconditional 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.
Deferred tax assets and liabilities are classified as
non-current assets and liabilities respectively.
The operating cycle is the time between the
acquisition of assets for processing and their
realisation in cash and cash equivalents. The
Company has identified twelve months as its
operating cycle for the purpose of current-non¬
current classification of assets and liabilities.
(c) Property, plant and equipment (PPE) and
intangible assets
(i) Property, plant and equipment
Freehold land is carried at cost. All other items
of property, plant and equipment are stated
at cost, which includes capitalized finance costs,
less accumulated depreciation and any
accumulated impairment loss. Cost includes
expenditure that is directly attributable to the
acquisition of the items. The cost of an item of
a PPE comprises its purchase price including
import duty, and other non-refundable taxes
or levies and any directly attributable cost of
bringing the asset to its working condition of
its intended use. Any trade discounts and
rebates are deducted in arriving at the
purchase price.
Expenditure incurred on start-up and
commissioning of the project and/ or
substantial expansion, including the
expenditure incurred on trial runs (net of trial
run receipts, if any) up to the date of
commencement of commercial production are
capitalised. Subsequent costs are included in
the asset's carrying amount or recognised as a
separate asset, as the 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 profit
or loss during the reporting period in which
they are incurred.
Advances paid towards acquisition of property,
plant and equipment outstanding at each
Balance Sheet date, are shown under other
non-current assets and cost of assets not ready
for intended use before the year end, are
shown as capital work-in-progress.
(ii) Intangible assets
Intangible assets that are acquired (including
implementation of software system) and in
process research and development are
measured initially at cost.
After initial recognition, an intangible asset is
carried at its cost less accumulated
amortisation and any accumulated impairment
loss. Subsequent expenditure is capitalized
only when it increases the future economic
benefits from the specific asset to which it
related.
Expenditure on intangible assets eligible for
capitalisation are carried as Intangible assets
under development where such assets are not
yet ready for their intended use.
(iii) Depreciation and amortisation methods,
estimated useful lives and residual value
Depreciation is provided on straight line basis
on the original cost/ acquisition cost of assets
or other amounts substituted for cost of fixed
assets as per the useful life specified in Part 'C'
of Schedule II of the Act, read with notification
dated 29 August, 2014 of the Ministry of
Corporate Affairs, except for the following
classes of fixed assets which are depreciated
based on the internal technical assessment of
the management as under:
Depreciation on assets added/ disposed off
during the year has been provided on pro-rata
basis with reference to the date/month of
addition/ disposal.
Leasehold lands, which qualify as finance lease
is amortised over the lease period on straight
line basis.
Software systems are being amortised over a
period of five years or its useful life whichever
is shorter.
Depreciation and amortisation methods, useful
lives and residual values are reviewed at the
end of each reporting period and adjusted, if
appropriate.
(iv) De-recognition
A property, plant and equipment and
intangible assets is derecognised on disposal
or when no future economic benefits are
expected from its use and disposal. Losses
arising from retirement and gains or losses
arising from disposal of a tangible 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.
(d) Discontinued operations and non-current assets
held for sale
Discontinued operation is a component of the
Company that has been disposed of or classified
as held for sale and represents a major line of
business.
Non-current assets are classified as held for sale if
it is highly probable that they will be recovered
primarily through sale rather than through
continuing use.
Such assets are generally measured at the lower of
their carrying amount and fair value less cost to
sell. Losses on initial classification as held for sale
and subsequent gains and losses on re¬
measurement are recognised in the Statement of
Profit and Loss.
Once classified as held for sale, property, plant and
equipment and intangible assets are no longer
depreciated or amortised.
(e) Impairment of non-financial assets
Goodwill and intangible assets that have an
indefinite useful life are not subject to amortisation
and are tested annually for impairment or more
frequently if events or changes in circumstances
indicate that they might be impaired. The
Company's non-financial assets other than
inventories and deferred tax assets are reviewed
at each reporting date to determine whether there
is any indication of impairment. If any such
indication exists then the asset's recoverable
amount is estimated.
For impairment testing, assets that do not generate
independent cash inflows are grouped together
into cash-generating units (CGUs) represents the
smallest group of assets that generates cash inflows
that are largely independent of the cash inflows of
other assets or CGUs.
The recoverable amount of a CGU is the higher of
its value in use and its fair value less cost to sell.
Value in use is based on the estimated future cash
flows, discounted to their present value using a
discount rate that reflects current market
assessments of the time value of money and the
risks specific to the CGU.
An impairment loss is recognised if the carrying
amount of an asset or CGU exceeds its estimated
recoverable amount. Impairment loss recognised
in respect of a CGU is allocated first to reduce the
carrying amounts of the other assets of the CGU
(or group of CGUs) on a pro rata basis.
An impairment loss in respect of assets for which
impairment loss has been recognised in prior
periods, the Company reviews at reporting date
whether there is any indication that the loss has
decreased or no longer exists. An impairment loss
is reversed if there has been a change in the
estimates used to determine the recoverable
amount. Such a reversal is made 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 amortization, if
no impairment loss had been recognised.
(f) Financial instrument
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.
Financial assets
Initial recognition and measurement
All financial assets are recognised initially at fair
value plus, in the case of financial assets not
recorded at fair value through profit or loss,
transaction costs that are attributable to the
acquisition of the financial asset. Purchases or sales
of financial assets that require delivery of assets
within a time frame established by regulation or
convention in the market place (regular way trades)
are recognised on the trade date, i.e. the date the
Company commits to purchase or sale the asset.
However, trade receivables that do not contain a
significant financing component are measured at
transaction price.
Subsequent measurement
For purposes of subsequent measurement, financial
assets are classified in four categories:
• Debt instruments at amortised cost
• Debt instruments at fair value through other
comprehensive income (FVOCI)
• Debts instruments, derivatives and equity
instruments at fair value through profit or loss
(FVPL)
• Equity instruments measured at fair value
through other comprehensive income (FVOCI)
Debt instruments at amortised cost
A "debt instrument" is measured at the amortised
cost if both the following conditions are met:
a) The asset is held within a business model
whose objective is to hold assets for collecting
contractual cash flows, and
b) Contractual terms of the asset give rise on
specific dates to cash flows that are solely
payments of principal and interest (SPPI) on
the principal amount outstanding.
After initial measurement, such financial assets are
subsequently measured at amortised cost using the
effective interest rate (EIR) method. Amortised cost
is calculated by taking in to account any discount
or premium on acquisition and fees or costs that
are an integral part of the EIR. The EIR amortisation
is included in other income in the Statement of
Profit and Loss. The losses arising from impairment
are recognised in the Statement of Profit and Loss.
This category generally applies to trade and other
receivables.
Debt instrument at FVOCI
A 'debt instrument' is classified as at the FVOCI in
both of the following criteria are met:
a) The objective of the business model is achieved
both by collecting contractual cash flows and
selling the financial assets, and
b) The asset's contractual cash flows represent
SPPI.
Debt instruments included with in the FVOCI
category are measured initially as well as at each
reporting date at fair value. Fair value movements
are recognised in the other comprehensive income
(OCI). On de-recognition of the asset, cumulative
gain or loss previously recognised in OCI is
reclassified to the Statement of Profit and Loss.
Interest earned whilst holding FVOCI debt
instrument is reported as interest income using the
EIR method.
Debt instrument at FVPL
FVPL is a residual category for debt instruments.
Any debt instrument, which does not meet the
criteria for categorisation as at amortised cost or
as FVOCI, is classified as at FVPL.
In addition, the Company may elect to designate a
debt instrument, which otherwise meets amortised
cost or FVOCI criteria, as at FVPL. However, such
election is allowed only if doing so reduces or
eliminates a measurement or recognition
inconsistency (referred to as 'accounting
mismatch').
Debt instruments included within the FVPL category
are measured at fair value with all changes
recognised in the Statement of Profit and Loss.
Equity investments
For the purpose of subsequent measurement,
equity instruments are classified in two categories:
- Equity instruments at fair value through profit
or loss (FVPL)
- Equity instruments at fair value through other
comprehensive income (FVOCI)
All equity investments in scope of Ind AS 109 are
measured at fair value. The Company may make
an irrevocable election to present in other
comprehensive income subsequent changes in the
fair value. The Company makes such election on
an instrument by instrument basis. The classification
is made on initial recognition and is irrevocable.
If the Company decides to classify an equity
instrument as at FVOCI then all fair value changes
on the instrument as at FVOCI, then all fair value
changes on the instrument, excluding dividends,
are recognised in the OCI. There is no recycling of
the amounts from OCI to the Statement of Profit
and Loss, even on sale of investment. However, the
Company may transfer the cumulative gain or loss
within equity.
Equity instruments included within the FVPL
category are measured at fair value with all changes
recognised in the Statement of Profit and Loss.
Impairment of Financial assets
The Company recognises loss allowance using the
expected credit loss (ECL) model for the financial
assets which are not fair valued through profit or
loss. Loss allowance for trade receivables with no
significant financing component is measured at an
amount to lifetime ECL. For all financial assets with
contractual cash flows other than trade receivable,
ECLs are measured at an amount equal to the 12-
month ECL, unless there has been a significant
increase in credit risk from initial recognition in
which case those are measured at lifetime ECL. The
amount of ECLs (or reversal), that is required to
adjust the loss allowance at the reporting date to
the amount that is required to be recognised as an
impairment gain or loss in the Statement of Profit
and Loss.
De-recognition
A financial asset (or, where applicable, a part of a
financial asset or part of Company of similar
financial assets) is primarily derecognised (i.e.
removed from the Company's Balance Sheet) 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
do 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, 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.
Financial liabilities
Financial liabilities are classified as measured at
amortised cost or FVPL. A financial liability is
classified as at FVPL if it is classified as held-for-
trading, or it is a derivative or it is designated as
such on initial recognition. Financial liabilities at
FVPL are measured at fair value and net gains and
losses, including any interest expense, are
recognised in Statement of Profit and Loss. Other
financial liabilities are subsequently measured at
amortised cost using the effective interest method.
Interest expense and foreign exchange gains and
losses are recognised in Statement of Profit and
Loss. Any gain or loss on de-recognition is also
recognised in Statement of Profit and Loss.
De-recognition
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled or expires. When an 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 de¬
recognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
Statements of Profit and Loss.
Compound financial instruments
The liability component of a compound financial
instrument is recognised initially at fair value of a
similar liability that does not have an equity
component. The equity component is recognised
initially as the difference between the fair value of
the compound financial instrument as a whole and
the fair value of the liability component. Any directly
attributable transaction costs are allocated to the
liability and the equity components, if material, in
proportion to their initial carrying amounts.
Subsequent to the initial recognition, the liability
component of a compound financial instrument is
measured at amortised cost using the effective
interest rate method. The equity component of a
compound financial instrument is not re-measured
subsequent to initial recognition except on
conversion or expiry.
Derivative financial instruments and hedging
activities
Derivatives are only used for economic hedging
purposes and not as speculative investments.
However, where derivatives do not meet the hedge
accounting criteria, they are classified as 'held for
trading' for accounting purposes and are accounted
for at FVPL. They are presented as current assets
or liabilities to the extent they are expected to be
settled within 12 months after the end of the
reporting period.
Derivatives are initially recognized at fair value on
the date a derivative contract is entered into and
are subsequently re- measured to their fair value
at the end of each reporting period. The accounting
for subsequent changes in fair value depends on
whether the derivative is designated as a hedging
instrument, and if so, the nature of the item being
hedged.
The Company designates their derivatives as
hedges of commodity price risk and related foreign
exchange risk associated with the cash flows of
assets and liabilities and highly probable forecast
transactions (cash flow hedges). The Company
documents at the inception of the hedging
transaction the economic relationship between
hedging instruments and hedged items including
whether the hedging instrument is expected to
offset changes in cash flows of hedged items. The
Company documents its risk management
objective and strategy for undertaking various
hedge transactions at the inception of each hedge
relationship. The full fair value of a hedging
derivative is classified as a non-current asset or
liability when the remaining maturity of the hedged
item is more than 12 months; it is classified as a
current asset or liability when the remaining
maturity of the hedged item is less than 12 months.
Cash flow hedges that qualify for hedge
accounting
The effective portion of changes in the fair value
of derivatives that are designated and qualify as
cash flow hedges is recognized in cash flow hedging
reserve within equity. The gain or loss relating to
the ineffective portion is recognized immediately
in profit or loss, within other gains/(losses).
When forward contracts are used to hedge forecast
transactions, the Company designate the full
change in fair value of the forward contract as the
hedging instrument. The gains and losses relating
to the effective portion of the change in fair value
of the entire forward contract are recognized in
the cash flow hedging reserve within equity.
Amounts accumulated in equity are reclassified to
profit or loss in the periods when the hedged item
affects profit or loss (for example, when the forecast
purchase that is hedged takes place).
When the hedged forecast transaction results in
the recognition of a non-financial asset (for
example inventory), the amounts accumulated in
equity are transferred to profit or loss as follows:
With respect to gain or loss relating to the effective
portion of the forward contracts, the deferred
hedging gains and losses are included within the
initial cost of the asset. The deferred amounts are
ultimately recognized in profit or loss as the hedged
item affects profit or loss (for example, through cost
of sales).
When a hedging instrument expires, or is sold or
terminated, or when a hedge no longer meets the
criteria for hedge accounting, any cumulative
deferred gain or loss and deferred costs of hedging
in equity at that time remains in equity until the
forecast transaction occurs. When the forecast
transaction is no longer expected to occur, the
cumulative gain or loss and deferred costs of
hedging that were reported in equity are
immediately reclassified to profit or loss within
other gains/(losses).
If the hedge ratio for risk management purposes is
no longer optimal but the risk management
objective remains unchanged and the hedge
continues to qualify for hedge accounting, the
hedge relationship will be rebalanced by adjusting
either the volume of the hedging instrument or the
volume of the hedged item so that the hedge ratio
aligns with the ratio used for risk management
purposes. Any hedge ineffectiveness is calculated
and accounted for in profit or loss at the time of
the hedge relationship rebalancing.
Derivatives that are not designated as hedges
The Company enters certain derivative contracts
to hedge risks which are not designated as hedges.
Such contracts are accounted for at fair value
through profit or loss and are included in statement
of profit and loss.
Embedded derivatives
Derivatives embedded in a host contract that is an
asset within the scope of Ind AS 109 are not
separated. Financial assets with embedded
derivatives are considered in their entirety when
determining whether their cash flows are solely
payment of principal and interest.
Derivatives embedded in all other host contract are
separated only if the economic characteristics and
risks of the embedded derivative are not closely
related to the economic characteristics and risks
of the host and are measured at fair value through
profit or loss. Embedded derivatives closely related
to the host contracts are not separated.
Offsetting
Financial assets and financial liabilities are off set
and the net amount presented in Balance Sheet
when, and only when, the Company currently has
a legally enforceable right to set off the amounts
and is intends either to settle them on a net basis
or to realise the asset and settle the liability
simultaneously.
(g) Inventories
Inventories are valued at lower of cost and net
realizable value except scrap, which is valued at net
estimated realizable value.
Cost includes all direct costs, cost of conversion
and appropriate portion of variable and fixed
production overheads and such other costs
incurred as to bring the inventory to its present
location and condition inclusive of any tax wherever
applicable.
Net realizable value is the estimated selling price
in the ordinary course of business, less the
estimated costs of completion/ reprocessing and
the estimated cost necessary to make the sale.
The net realizable value of work-in-progress is
determined with reference to the selling price of
related finished products. Raw materials and other
supplies held for use in the production of finished
goods are not written down below cost except in
cases where material prices have declined and it's
estimated that the cost of finished goods will
exceed their net realizable value.
(h) Cash and cash equivalents
Cash and cash equivalents comprise cash at banks
and on hand and short term deposits with an
original maturity of three months or less, which are
subject to an insignificant risk of changes in value.
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