1. Material accounting policies1.1 Basis of preparation
These financial statements have been prepared in
accordance with the Indian Accounting Standards
(referred to as Ind AS) as prescribed under section 133
of the Companies Act, 2013 read with companies (Indian
Accounting Standards) Rules as amended from time
to time.
The financial statements of the Company are consistently
prepared and presented under historical cost convention
on an accrual basis in accordance with Ind AS except
following financial assets and financial liabilities that are
measured at fair values:
The Company’s functional currency and presentation
currency is Indian National Rupees ('). All amounts
disclosed in the financial statements and notes have
been rounded off to the nearest Lakhs, except otherwise
indicated.
The Company presents its assets and liabilities in the balance
sheet based on current/non-current classification.
An asset is treated as current when it is:
a) expected to be realized or intended to be sold or
consumed in normal operating cycle;
b) held primarily for the purpose of trading;
c) expected to be realized within twelve months after the
reporting period; or
d) 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 treated as current when it is:
a) expected to be settled in normal operating cycle;
b) held primarily for the purpose of trading;
c) due to be settled within twelve months after the reporting
period; or
d) there is no unconditional right to defer the settlement of
the liability for at least twelve months after the reporting
period.
All other liabilities are classified as non-current.
Based on the nature of products and the time between the
acquisition of assets for processing and their realization in
cash and cash equivalents, the Company has ascertained its
operating cycle being a period within twelve months for the
purpose of current and non-current classification of assets
and liabilities. The statement of cash flows has been prepared
under indirect method.
1.2 Use of judgments, estimates and assumptions
The preparation of the Company’s financial statements
required management to make judgments, estimates
and assumptions that affect the reported amount
of revenues, expenses, assets & liabilities and the
accompanying disclosures and the disclosures
of contingent liabilities. Uncertainty about these
assumptions and estimates could result in outcomes
that require a material adjustment in the future periods
in the carrying amount of assets or liabilities affected.
In accounting policies, management has made
judgments in respect of evaluation of recoverability of
deferred tax assets, which has the most significant effect
on the amounts recognized in the financial statements.
The following are the key assumptions concerning the
future and other key sources of estimation uncertainty
at the end of the reporting period that may have a
significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within:
a) Useful life of property, plant & equipment and
intangible assets: The Company has estimated
useful life of the property, plant & equipment as
specified in Schedule II to the Companies Act, 2013
or such other modified useful life as disclosed
in para 1.4. However, the actual useful life for
individual equipments could turn out to be different,
there could be technology changes, breakdown,
and unexpected failure leading to impairment or
complete discard. Alternately, the equipment may
continue to provide useful service well beyond the
useful life assumed.
b) Lease: The Company evaluates if an arrangement
qualifies to be a lease as per the requirement of Ind
AS 116. Identification of a lease requires significant
judgement. The Company uses significant
judgement in assessing the lease term (including
anticipated renewals) and the applicable discount
rate.
The Company determines the lease term as the
non-cancellable period of lease, together with both
periods covered by an option to extend the lease
if the Company is reasonably certain to exercise
that option and periods covered by an option to
terminate the lease if the Company is reasonably
certain not to exercise that option. In exercising
whether the Company is reasonably certain to
exercise an option to extend a lease or to exercise
an option to terminate the lease, it considers all
relevant facts and circumstances that create
economic incentive for the Company to exercise the
option to extend the lease or to exercise the option
to terminate the lease. The Company revises lease
term, if there is change in non-cancellable period of
lease. The discount rate used is generally based on
incremental borrowing rate.
c) Fair value measurement of financial instruments:
When the fair value of financial assets and financial
liabilities cannot be measured based on quoted
process in active market, the fair value is measured
using valuation techniques including book value and
the Discounted Cash Flow (DCF) model. The inputs
to these models are taken from observable markets
where possible, but where this is not possible, a
degree of judgment is required in establishing fair
values.
d) Taxes: Taxes have been paid/ provided, exemptions
availed, allowances considered etc. are based on the
extant laws and the Company’s interpretation of the
same based on the legal advice received wherever
required. These could differ in the view taken by
the authorities, clarifications issued subsequently
by the government and courts, amendments to
statutes by the government etc.
e) Defined benefit plans: The cost of defined benefit
plans and other post-employment benefit plans
and the present value of such obligations are
determined using actuarial valuations. An actuarial
valuation involves making various assumptions
that may differ from actual developments in the
future.
f) Provisions: The Company makes provisions for
leave encashment and gratuity based on report
received from the independent actuary. These
valuation reports use complex valuation models
using not only the inputs provided by the Company
but also various other economic variables.
Considerable judgment is involved in the process.
g) Contingencies: A provision is recognized when
an enterprise has a present obligation as a result
of past event and it is probable that an outflow of
resources will be required to settle the obligation in
respect of which a reliable estimate can be made.
Provisions are measured at the present value of
management’s best estimate of the expenditure
required to settle the present obligations at the end
of the reporting period. However, the actual liability
could be considerably different.
1.3 Property, plant and equipment
Freehold land is carried at historical cost. All other
property, plant and equipment are stated at cost, net
of recoverable taxes, trade discounts and rebates less
accumulated depreciation and impairment loss, if any.
The cost of tangible assets comprises its purchase price,
borrowing cost, any costs directly attributable to bringing
the asset into the location and condition necessary for
it to be capable of operating in the manner intended by
management, initial estimation of any decommissioning
obligations and finance cost.
On transition to Ind AS, the fair value as on 1st April, 2016
in respect of class of asset comprising land & building
and plant & machinery has been taken as carrying
cost and subsequently the Company follows fair value
in respect of land, building and plant and machinery
and cost model in respect of other property, plant and
equipment. When significant parts of the property,
plant and equipment are required to be replaced at
intervals, the Company derecognizes the replaced part
and recognizes the new part with its own associated
useful life and depreciated accordingly. Likewise, when
a major inspection is performed, its cost is recognized
in the carrying amount of the plant and equipment as a
replacement if the recognition criteria are satisfied. All
other repair and maintenance costs are recognized in the
statement of profit and loss as incurred.
Cost of software directly identified with hardware is
recognized along with the cost of hardware.
Stores and spares which meet the definition of property,
plant and equipment and satisfy recognition criteria
of Ind AS 16 are capitalized as property, plant and
equipment.
An item of property, plant and equipment and any
significant part initially recognized is derecognized
upon disposal or when no future economic benefits are
expected from its use. Any gain or loss arising on de¬
recognition of the asset is included in the statement of
profit and loss when the asset is derecognized.
Capital work-in-progress includes cost of property, plant
and equipment which are not ready for their intended
use.
The residual values and useful lives of property, plant
and equipment are reviewed at each financial year end
and changes, if any, are accounted prospectively.
Depreciation on the property, plant and equipment is
provided over the useful life of assets as specified in
Schedule II to the Companies Act, 2013 using straight
line method other than in case of rolling mill, where
useful life based on management estimate has been
taken twenty years. Property, plant and equipment which
are added/disposed of during the year, depreciation is
provided on pro rata basis with reference to the month of
addition/deletion.
1.4 Impairment of non-financial assets
At each balance sheet date, the Company assesses
whether there is an indication that an asset may be
impaired and also whether there is an indication of
reversal of impairment loss recognized in the previous
periods. If any indication exists or when annual
impairment testing for an asset is required, the Company
determines the recoverable amount and impairment
loss is recognized when the carrying amount of an asset
exceeds its recoverable amount.
An asset’s recoverable amount is the higher of an asset
or Cash-Generating Unit’s (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 groups of 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 the 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.
1.5 Investment in equity instruments
All investment in equity instrument classified under
financial assets are initially measured at fair value. The
Company may on initial application irrevocably elect to
measure the same either at Fair Value through Other
Comprehensive Income (FVTOCI) or Fair Value through
Profit and Loss (FVTPL).
The Company makes such election on an instrument
by instrument basis. Fair value change on an equity
instrument is recognized as 'other income’ in statement
of profit & loss unless the Company has elected to
measure such instrument at FVTOCI. Fair value changes
excluding dividend on an equity instrument measured
at FVTOCI are recognized in OCI. Amount recognized in
Other Comprehensive Income (OCI) are not subsequently
reclassified to statement of Profit & loss. Dividend income
on investment in equity instrument are recognized as
'Other Income’ in statement of profit and loss.
1.6 Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise
cash at banks and on hand and short-term deposits with
an original maturity of three months or less, which are
subject to insignificant risk of changes in value.
For the purpose of statement of cash flows, cash and
cash equivalents consist of cash and short-term deposits
as defined above, net of outstanding bank overdrafts as
they are considered as an integral part of the Company’s
cash management.
Bank balances other than above
Deposits with banks maturity for more than 3 months
but less than 12 months and Deposits with banks
as a margin money for guarantees issued by the
banks, deposits kept as security deposits for statutory
authorities are accounted as bank balances other than
cash and cash equivalents.
Cash flow statement
Cash flows are reported using the indirect method,
whereby profit for the period is adjusted for the effects
of transactions of a non-cash nature, any deferrals or
accruals of past or future operating cash receipts or
payments and item of income or expenses associated
with investing or financing cash flows. The cash flows
from operating, investing and financing activities of the
Company are segregated.
1.7 InventoriesInventories are valued as under:
Raw materials, packing materials, stores and spares are
valued at lower of cost (on a weighted average basis)
and net realizable value.
Stock in process is valued at lower of cost (on a weighted
average basis) and net realizable value.
Finished goods (including in transit) are valued at cost
(on a weighted average basis) or net realizable value
whichever is lower. Cost for this purpose includes direct
materials, direct labor, utilities, other variable direct cost
and manufacturing overheads, based on the normal
operating capacity and depreciation.
1.8 Financial instruments
A financial instrument is any contract that gives rise to
a financial asset of one entity and a financial liability or
equity instruments of another entity.
Investments and other financial assets
(i) Classification
The Company classifies its financial assets in the
following measurement categories:
• those to be measured subsequently at fair
value (either through Other Comprehensive
Income or through profit or loss) and
• those measured at amortized cost.
The classification depends on the entity’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. For investments
in debt instruments, this will depend on the
business model in which the investment is held.
The Company has designated certain long-term
unquoted equity investments at fair value through
other comprehensive income (FVTOCI), using the
irrevocable option available under Ind AS 109 at
initial recognition. This option, once exercised,
cannot be changed later. Subsequent gains or
losses are recognized in OCI and not reclassified to
profit or loss on disposal.
The Company reclassifies debt investments when
and only when its business model for managing
those assets changes.
(ii) Measurement
At initial recognition, the Company measures
financial assets at its fair value plus, in the case of
a financial assets not at fair value through profit or
loss, transaction costs that are directly attributable
to the acquisition of the financial assets. Transaction
costs of financial assets carried at fair value
through profit or loss are expensed in Statement of
Profit and Loss. However, trade receivables that do
not contain a significant financing component are
measured at transaction price.
Debt instruments
Subsequent measurement of debt instruments
depends on the Company’s business model
for managing the asset and the cash flow
characteristics of the asset. There are three
measurement categories into which the Company
classifies its debt instruments:
Amortized cost
Assets that are held for collection of contractual
cash flows where those cash flows represent solely
payments of principal and interest are measured at
amortized cost. A gain or loss on a debt investment
that is subsequently measured at amortized cost
is recognized in profit or loss when the asset is
derecognized or impaired. Interest income from
these financial assets is included in other income
using the effective interest rate method.
Fair value through Other Comprehensive Income
(FVTOCI)
Assets that are held for collection of contractual
cash flows and for selling the financial assets, where
the assets cash flows represent solely payments
of principal and interest, are measured at FVTOCI
except for the recognition of impairment gains
or losses, interest revenue and foreign exchange
gains and losses which are recognized in profit and
loss. When the financial asset is derecognized, the
cumulative gain or loss previously recognized in
OCI is reclassified from equity to profit or loss and
recognized in other gains/ (losses). Interest income
from these financial assets is included in other
income using the effective interest rate method.
Fair Value through Profit or Loss (FVTPL)
Assets that do not meet the criteria for amortized
cost or FVTOCI are measured at FVTPL. A gain
or loss on a debt investment that is subsequently
measured at fair value through profit or loss is
recognized in Statement of Profit and Loss in the
period in which it arises. Interest income from these
financial assets is included in other income.
A. Impairment of financial assets
In accordance with Ind-AS 109, the Company applies
Expected Credit Loss (ECL) model for measurement and
recognition of impairment loss.
The Company follows 'simplified approach’ for
recognition of impairment loss allowance on trade
receivables. The application of simplified approach does
not require the Company to track changes in credit risk.
Rather, it recognizes impairment loss allowance based
on lifetime ECLs at each reporting date, on the basis of
provisional matrix.
B. Financial liabilities
(i) Classification:
The Company classifies all financial liabilities as
subsequently measured at amortized cost, except
for financial liabilities at FVTPL. Such liabilities,
including derivatives that are liabilities, shall be
subsequently measured at fair value.
(ii) Initial recognition and measurement:
All financial liabilities are recognized initially at
fair value, in the case of loans, borrowings and
payables, net of directly attributable transaction
costs. Financial liabilities include trade and other
payables, loans and borrowings including bank
overdrafts and derivative financial instruments.
(iii) Subsequent measurement:
All financial liabilities are re-measured at FVTPL
include financial liabilities held for trading
and financial liabilities designated upon initial
recognition as at fair value through statement of
profit and loss. Financial liabilities are classified as
held for trading if they are incurred for the purpose
of repurchasing in the near term.
(iv) Loans and borrowings:
Interest bearing loans and borrowings are
subsequently measured at amortized cost using
EIR method. Gains and losses are recognized in
statement of profit and loss when the liabilities are
derecognized as well as through EIR amortization
process. The EIR amortization is included as
finance cost in the statement of profit and loss.
(v) De-recognition of financial liabilities:
A financial liability is derecognized when the
obligation under the liability is discharged or
canceled 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 recognized in the
statement of profit and loss.
(vi) Derivative financial instruments:
The Company uses derivative financial instruments
such as forward currency contracts and options
to hedge its foreign currency risks. Such derivative
financial instruments are initially recognized at fair
value on the date on which a derivative contract is
entered into and are subsequently re-measured at
fair value. The gain or loss in the fair values is taken
to statement of profit and loss at the end of every
period. Profit or loss on cancellations/renewals of
forward contracts and options are recognized as
income or expense during the period.
C. 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
recognized amounts and there is an intention to settle on
a net basis to realize the assets and settle the liabilities
simultaneously.
1.9 Fair value measurement
The Company measures certain financial assets and
financial liabilities including derivatives and defined
benefit plans at fair value.
Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the
liability takes place either:
a) In the principal market for the asset or liability; or
b) In the absence of a principal market, in the most
advantageous market for the asset or liability
The 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 best economic interest.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorized
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 recognized in the
financial statements on a recurring basis, the Company
determines whether transfers have occurred between
levels in the hierarchy by re-assessing categorization
(based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each
reporting period.
External valuers are involved for valuation of long term
unquoted investments in equity instrument other than
subsidiary. The management decides, after discussions
with the company external valuers, which valuation
techniques and inputs to use.
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