NOTE 2 - MATERIAL ACCOUNTING POLICIES

2.1 Basis of preparation

The standalone financial statements of the Company have been prepared in accordance with Indian Accounting
Standards ('Ind AS') as per the Companies (Indian Accounting Standards) Rules, 2015,as amended from time to
time, notified under section 133 of the Companies Act, 2013 ('Act') and other relevant provision of the Act. The
Standalone financial statements have been prepared on a historical cost basis, except for certain financial assets,
post employment benefits obligations and employee stock options outstanding which have been measured at
fair value. (Refer accounting policy regarding financial instruments).

The Standalone financial statements are presented in INR and all values are rounded to the nearest lacs, except
when otherwise indicated.

2.2 Summary of material accounting policies

a. 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

• 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.

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.

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.

b. Foreign currencies

The Company's financial statements are presented in INR, which is also the company's functional currency.
Transactions and balances

Transactions in foreign currencies are initially recorded by the Company at their functional currency spot rates
at the date the transaction first qualifies for recognition. However, for practical reasons, the Company uses an
average rate if the average approximates the actual rate at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at
the reporting date.

Exchange differences arising on settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the
exchange rates at the dates of the initial transactions.

c. Fair value measurement

The Company measures financial instruments (Refer Note 2.2(o)), classified as subsequently measured at fair
value through profit or loss, at fair value at each balance sheet date. 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. 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.

d. Revenue recognition

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

d. Revenue recognition (Contd.)

at the transaction price of the consideration received or receivable, taking into account contractually defined
terms of payment 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. However
Goods and Service tax (GST) is not received by the Company on its own account. Rather, it is tax collected by
the seller on behalf of the government. Accordingly, it is excluded from revenue.

The specific recognition criteria described below must also be met before revenue is recognised.

Sale of goods

Revenue from the sale of goods towards satisfaction of a performance obligation is measured at the amount
of transaction price (net of variable consideration) allocated to that performance obligation. Revenue from
sale of goods is recognized when control of goods are transferred to the buyer which is generally at the time
of dispatch or delivery depending on terms with customers. The transaction price of goods sold and services
rendered is net of variable consideration on account of various discounts and schemes offered by the Company
as part of the contract. No element of financing is deemed present as the sales are made with normal credit
terms consistent with market practice.

Accumulated experience is used to accrue for the discounts considering the terms of the underlying schemes
and agreements with the customers.

The Company recognizes revenues on the sale of products, net of returns, discounts, amounts collected on
behalf of third parties (such as GST).

Sale of Services

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue
associated with the transaction is recognised on completion of the transaction provided no significant
uncertainty exists regarding the amount of the consideration that will be derived from rendering the service.
Service revenue are net of GST.

d. (i) Interest income

For all debt instruments measured at amortised cost, interest income is recorded using the effective
interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over
the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying
amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective
interest rate, the Company estimates the expected cash flows by considering all the contractual terms
of the financial instrument (for example, prepayment, extension, call and similar options) but does not
consider the expected credit losses. Interest income is included in other income in the statement of profit
and loss.

e. 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.

f. Taxes

Current income tax

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 country where the Company operates and generates taxable
income.

Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either
in other comprehensive income or in equity). Current tax items are recognised in correlation to the underlying
transaction either in OCI or directly in equity. 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.

Deferred tax

Deferred tax is provided on temporary differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in
a transaction that is not a business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss

• In respect of taxable temporary differences associated with investments in subsidiaries, when the timing
of the reversal of the temporary differences can be controlled and it is probable that the temporary
differences will not reverse in the foreseeable future.

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
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, except :

• When the deferred tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable profit or loss.

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.

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 if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same
taxation authority.

f. Taxes (Contd.)

Goods and service tax paid on acquisition of assets or on incurring expenses

Expenses and assets are recognised net of the amount of Goods and service taxes paid, except:

• When the tax incurred on a purchase of assets or services is not recoverable from the taxation authority,
in which case, the tax paid is recognised as part of the cost of acquisition of the asset or as part of the
expense item, as applicable

• When receivables and payables are stated with the amount of tax included

The net amount of tax recoverable from, or payable to, the taxation authority is included as part of receivables
or payables in the balance sheet.

MAT

Minimum Alternative Tax (MAT) credit, which is equal to the excess of MAT (calculated in accordance with
provisions of Section 115JB of the Income tax Act, 1961) over normal income-tax is recognized as an item in
deferred tax asset by crediting the Statement of Profit and Loss only when and to the extent there is convincing
evidence that the Company will be able to avail the said credit against normal tax payable during the period of
fifteen succeeding assessment years.

g. Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment
losses, if any. When significant part of plant and equipment are required to be replaced at intervals, the
Company depreciates them separately based on their specific useful lives. All other repair and maintenance
cost are recognised in profit or loss as incurred.

The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if 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 cost of a self-constructed item of property, plant and equipment comprises the cost of materials and direct
labour, any other costs directly attributable to bringing the item to working condition for its intended use, and
estimated costs of dismantling and removing the item and restoring the site on which it is located The cost of
property , plant and equipment at 1 April 2016 , the Company's date of transition to IND AS , was determined
with "reference to its carrying value recognized as per the previous GAAP (deemed cost), as at date of transition
to" Ind AS.

Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with
the expenditure will flow to the Company and the cost of the item can be measured reliably.

Depreciation is calculated on a straight-line basis, pro rata to the period of use, based on estimated useful lives
of the assets as follows:

* The useful lives of these assets are taken as per management estimates.

Freehold land is not depreciated and is recognised at cost less impairment , if any.

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 income statement when the asset is derecognised.

The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at
each financial year end and adjusted prospectively, if appropriate.

Capital work-in-progress comprises cost of Property, Plant and Equipments that are not yet ready for their
intended use at the year end.

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".

h. Intangible assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets
acquired in a business combination is their fair value at the date of acquisition. 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 profit or loss in the period in which the expenditure is incurred.

Intangible assets with finite lives are amortised over the useful economic life on straight line basis 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 from derecognition 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 or loss
when the asset is derecognised.

Goodwill

Goodwill represents the excess of the consideration paid to acquire a business over underlying fair value of the
identified net assets acquired. Goodwill is carried at cost less accumulated impairment losses, if any. Goodwill is
deemed to have an indefinite useful life and is tested for impairment annually.

i. Leases

The Company applies a single recognition and measurement approach for all leases, The Company also has
certain leases of machinery with lease terms of 12 months or less and leases of office equipment with low value.
The Company applies the 'short-term lease' and 'lease of low-value assets' recognition exemptions for these
leases. The Company recognises lease liabilities to make lease payments and right-of-use assets representing
the right to use the underlying assets.

The lease liabilities were discounted using the incremental borrowing rate (same as company average borrowing
rate).

The Company also applied the available practical expedients wherein it:

• Used a single discount rate to a portfolio of leases with reasonably similar characteristics

• Relied on its assessment of whether leases are onerous immediately before the date of initial application
Applied the short-term leases exemptions to leases with lease term that ends within 12 months of the date
of initial application

• Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial
application

• Used hindsight in determining the lease term where the contract contained options to extend or terminate
the lease

i) 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, as follows:

• Building 3 to 15 years

• Land 60 to 999 years

If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects
the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
Right-of-use assets related to leased properties that do not meet the definition of investment property are
presented as property, plant and equipment.

The right-of-use assets are also subject to impairment. Refer to the accounting policies in note 2.2(l)
Impairment of non-financial assets.

ii) 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/renew. 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.

ii) Lease liabilities (Contd.)

In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the
lease commencement date because 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.

iii) Short-term leases and leases of low-value assets

The Company applies the short-term lease recognition exemption to its short-term leases of machinery
and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date
and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption
to leases of office equipment that are considered to be low value. 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.

Company as a lessor

Leases in which the Company does not transfer substantially all the risks and rewards incidental to
ownership of an asset are classified as operating leases. Rental income arising is accounted for on a
straight-line basis over the lease terms and is included in revenue in the statement of profit or loss due to
its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added
to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental
income.

Contingent rents are recognised as revenue in the period in which they are earned.

j. Inventories

Inventories are valued at the lower of cost and net realisable value.

Costs incurred in bringing each product to its present location and condition are accounted for as follows:

• Raw materials: Cost includes cost of purchase and other costs incurred in bringing the inventories to their
present location and condition. Cost is determined on weighted average basis.

• Finished goods and work in progress: Cost includes cost of direct materials and labour and a proportion of
manufacturing overheads based on the normal operating capacity, but excluding borrowing costs. Cost is
determined on weighted average basis.

• Traded goods: Cost includes cost of purchase and other costs incurred in bringing the inventories to their
present location and condition. Cost is determined on weighted average basis.

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.

Raw materials, components and other supplies held for use in the production of finished products are not
written down below cost except in cases when a decline in the price of materials indicates that the cost of the
finished products shall exceed the net realisable value.

Provision is made for cost of obsolescence and other anticipated losses, whenever considered necessary.

k. Impairment of non-financial assets

The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If
any indication exists, or when annual impairment testing for an asset is required, the Company estimates the
asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's

k. Impairment of non-financial assets (Contd.)

(CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual
asset, unless the asset does not generate cash inflows that are largely independent of those from other assets
or Company's assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset
is considered impaired and is written down to its recoverable amount.

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 the risks specific to the
asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no
such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated
by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

The Company bases its impairment calculation on detailed budgets and forecast calculations, which are
prepared separately for each of the Company's CGUs to which the individual assets are allocated. These budgets
and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is
calculated and applied to project future cash flows after the fifth year. To estimate cash flow projections beyond
periods cover rate can be justified. In any case, this growth rate does not exceed the long-term average growth
rate for the products, industries, or country or countries in which the entity operates, or for the market in which
the asset is used.

Impairment losses including impairment on inventories, are recognised in the statement of profit and loss.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an
indication that previously recognised impairment losses no longer exist or have decreased. If such indication
exists, the Company estimates the asset's or CGU's recoverable amount. A previously recognised impairment
loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable
amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount
of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such
reversal is recognised in the statement of profit or loss unless the asset is carried at a revalued amount, in which
case, the reversal is treated as a revaluation increase.

Goodwill is tested for impairment annually on reporting date and when circumstances indicate that the carrying
value may be impaired.

I mpairment is determined for goodwill by assessing the recoverable amount of each CGU (or Company of
CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount,
an impairment loss is recognised. Impairment losses relating to goodwill cannot be reversed in future periods.