3. Material Accounting Policies Information
The principal accounting policies applied in the preparation of the financial statements are set out
below. These policies have been consistently applied to all the years presented, unless otherwise
stated
a) Property, Plant and Equipment (PPE)
Property, plant and equipment including bearer assets are carried at historical cost of acquisition or
deemed cost less accumulated depreciation and accumulated impairment loss, if any. Historical
cost includes its purchase price, including import duties and non-refundable purchase taxes after
deducting trade discounts and rebates and any cost directly attributable to bringing the asset to
the location and condition necessary for it to be capable of operating in the manner intended by
management. Subsequent expenditure related to an asset is added to its book value 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 the replaced part is
derecognized. All repairs and maintenance are charged to the Statement of Profit and Loss during
the financial year in which these are incurred.
The company's lease Land has been separately shown under PPE as Right of Use (ROU) Assets.
Capital Work-in-progress includes developmental expenses, equipment to be installed,
construction and erection materials etc. Such costs are added to related PPE and are classified to
the appropriate categories when completed and ready for intended use.
b) Capital work-in-progress:
Expenditure related to and incurred on implementation of new/ expansion-cum-modernisation
projects is included under capital work-in-progress until the relevant assets are ready for its
intended use. All other expenditure (including trial run / test run expenditures) during construction
/ erection period (net of income) are shown as part of pre-operative expenditure pending allocation
/ capitalization and the same is allocated to the respective asset on completion of its construction/
erection.
c) Intangible assets
Software costs are included in the balance sheet as intangible assets when it is probable
that associated future economic benefits would flow to the Company. In this case they are
measured initially at purchase cost and then amortized on a straight-line basis over their
estimated useful lives. All other costs on patents, trademarks and software are expensed
in the statement of profit and loss as and when incurred.
Expenditure on research activities is recognized as an expense in the period in which it is
incurred. Costs incurred on individual development projects are recognized as intangible
assets from the date when all of the following conditions are met:
a. Completion of the development is technically feasible.
b. It is the intention to complete the intangible asset and use or sell it.
c. Ability to use or sell the intangible asset.
d. It is clear that the intangible asset will generate probable future economic benefits.
e. Adequate technical, financial and other resources to complete the development and
to use or sell the intangible asset are available.
f. It is possible to reliably measure the expenditure attributable to the intangible asset
during its development.
Recognition of costs as an asset is ceased when the project is complete and available for
its intended use, or if these criteria are no longer applicable.
Where development activities do not meet the conditions for recognition as an asset, any
associated expenditure is treated as an expense in the period in which it is incurred.
Subsequent to initial recognition, intangible assets with definite useful lives are reported
at cost or deemed cost applied on transition to Ind AS, less accumulated amortization
and accumulated impairment losses.
Cost of computer software packages including directly attributable cost, if any, acquired
for internal use, is allocated / amortized over a period of 3 years (being estimated useful
life thereof) on Straight line method.
d) Leases
The Company's lease asset classes primarily consist of Lease hold land. The Company
assesses whether a contract contains a lease, at inception of a contract. A contract is, or
contains, a lease if the contract conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. To assess whether a contract conveys
the right to control the use of an identified asset, the Company assesses whether: (i) the
contract involves the use of an identified asset (ii) the Company has substantially all of the
economic benefits from use of the asset through the period of the lease and (iii) the
Company has the right to direct the use of the asset.
At the date of commencement of the lease, the Company recognizes a right-of-use asset
(“ROU”) and a corresponding lease liability for all lease arrangements, except for leases
with a term of twelve months or less (short-term leases) and low value leases. For these
short-term and low value leases, the Company recognizes the lease payments as an
operating expense on a straight-line basis over the term of the lease.
Certain lease arrangements include the options to extend or terminate the lease before the end of
the lease term. ROU assets and lease liabilities include these options considered for arriving at
ROU and lease liability when it is reasonably certain that they will be exercised.
The lease liability is initially measured at amortized cost at the present value of the future lease
payments. The lease payments are discounted using the interest rate implicit in the lease or, if not
readily determinable, using the incremental borrowing rates of these leases. Lease liabilities are re¬
measured with a corresponding adjustment to the related right of use asset if the Company
changes its assessment, whether it will exercise an extension or a termination option.
The right-of-use assets are initially recognized at cost, which comprises the initial amount of the
lease liability adjusted for any lease payments made at or prior to the commencement date of the
lease plus any initial direct costs less any lease incentives. They are subsequently measured at
cost less accumulated depreciation and impairment losses.
The company has taken land on long term lease. There are no commitment towards monthly/
yearly lease payments accordingly lease liability and its corresponding disclosures does not arise.
Right-of-use assets are depreciated from the commencement date on a straight-line basis over the
shorter of the lease term and useful life of the underlying asset. Right of use assets are evaluated for
recoverability whenever events or changes in circumstances indicate that their carrying amounts
may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the
higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset
basis unless the asset does not generate cash flows that are largely independent of those from
other assets. In such cases, the recoverable amount is determined for the Cash Generating Unit
(CGU) to which the asset belongs.
e) Depreciation and amortization of property, plant and equipment and intangible assets
Depreciation or amortization is provided so as to write off, on a straight-line basis, the cost/deemed
cost of property, plant and equipment and intangible assets, including those held under finance
leases to their residual value. These charges are commenced from the dates the assets are
available for their intended use and are spread over their estimated useful economic lives or, in the
case of leased assets, over the lease period, if shorter. The estimated useful lives of assets, residual
values and depreciation method are reviewed regularly and, when necessary, revised.
Depreciation on assets under construction commences only when the assets are ready for their
intended use. The estimated useful lives for main categories of property, plant and equipment and
intangible assets are:
Land and building held for use in the production or for administrative purposes are stated in the
balance sheet at cost less accumulated depreciation and accumulated impairment losses.
Freehold land is not depreciated.
Right-of-use assets (ROU) are depreciated from the commencement date on a straight¬
line basis over the shorter of the lease term and useful life of the underlying asset.
Capital work in progress includes machinery to be installed, construction and erection
materials and unallocated pre-operative expenditure consisting of costs directly
attributable to bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management.
The cost of replacing part of an item of property, plant and equipment or subsequent
expenditure on Property, Plant and Equipment arising on account of capital improvement
or other factors are accounted for as separate components. The costs of the day-to-day
servicing of property, plant and equipment are recognized in the income statement when
incurred. Assets to be disposed of are reported at the lower of the carrying value or the fair
value less cost to sell
Assets values up to '5,000 are fully depreciated in the year of acquisition..
Depreciation methods, useful lives and residual values are reviewed, and adjusted as
appropriate, at each reporting date.
f) Impairment
At each balance sheet date, the Company reviews the carrying value of its property, plant
and equipment and intangible assets to determine whether there is any indication that the
carrying value of those assets may not be recoverable through continuing use. If any such
indication exists, the recoverable amount of the asset is reviewed in order to determine the
extent of impairment loss, if any. Where the asset does not generate cash flows that are
independent from other assets, the Company estimates the recoverable amount of the
cash generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In
assessing value in use, the estimated future cash flows are discounted to their present
value using a pre-taxdiscount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the estimates of future cash
flows have not been adjusted. An impairment loss is recognized in the statement of profit
and loss as and when the carrying value of an asset exceeds its recoverable amount.
Where an impairment loss subsequently reverses, the carrying value of the asset (or cash
generating unit) is increased to the revised estimate of its recoverable amount so that the
increased carrying value does not exceed the carrying value that would have been
determined had no impairment loss been recognized or the asset (or cash generating
unit) in prior years. A reversal of an impairment loss is recognized in the statement of profit
and loss immediately.
g) De-recognition of Tangible and Intangible Assets
An item of PPE/Intangible Assets is de-recognized upon disposal or when no future
economic benefits are expected to arise from its use or disposal. Gain or loss arising on
the disposal or retirement of an item of PPE is determined as the difference between the
sale proceeds and the carrying amount of the asset and is recognized in the Statement of
Profit and Loss.
h) Impairment of Tangible and Intangible Assets
Tangible, Intangible assets and ROU Assets are reviewed at each balance sheet date for
impairment. In case events and circumstances indicate any impairment, recoverable amount of
assets is determined. An impairment loss is recognized in the statement of profit and loss, whenever
the carrying amount of assets either belonging to Cash Generating Unit (CGU) or otherwise exceeds
recoverable amount. The recoverable amount is the higher of assets' fair value less cost to disposal
and its value in use. In assessing value in use, the estimated future cash flows from the use of the
assets are discounted to their present value at appropriate rate. Impairment losses recognized
earlier may no longer exist or may have come down. Based on such assessment at each reporting
period the impairment loss is reversed and recognized in the Statement of Profit and Loss. In such
cases the carrying amount of the asset is increased to the lower of its recoverable amount and the
carrying amount that have been determined, net of depreciation, had no impairment loss been
recognized for the asset in prior years that reflects current market assessments of the time value of
money and the risk specific to the asset.
i) Non-current assets held for sale:
The Company classifies non-current assets as held for sale if their carrying amounts will be
recovered principally through a sale rather than through continuing use. This condition is regarded
as met only when the asset is available
for immediate sale in its present condition subject only to terms that are usual and customary for
sales of such asset and its sale is highly probable. Also, such assets are classified as held for sale
only if the management expects to complete the sale within one year from the date of classification.
Non-current assets classified as held for sale are measured at the lower of their carrying amount and
the fair value less cost to sell, except for financial assets which are measured as per Ind AS 109
’’Financial Instruments”. Non-current assets are not depreciated or amortised
j) Financial Instruments
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.
i. Non- Derivative Financial Instruments
a. Initial Recognition
The Company recognizes financial assets and financial liabilities when it becomes a party to the
contractual provisions of the instrument. All financial assets and liabilities are recognized at fair value
on initial recognition. Trade Receivables are initially recognised at transaction price where that do
not contain any significant portion of financing component.
Transaction costs that are directly attributable to the acquisition or release of financial assets and
financial liabilities respectively, which are not at fair value through profit or loss, are added to the fair
value of underlying financial assets and liabilities on initial recognition. Trade receivables and trade
payables that do not contain a significant financing component are initially measured at their
transaction price.
b. Subsequent Measurement
Financial assets carried at amortised cost
A financial asset is subsequently measured at amortised cost which is held with objective to hold the
asset in order to collect contractual cash flows and the contractual terms of the financial asset give
rise on specified dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
c. Financial assets at fair value through other comprehensive income
A financial asset is subsequently measured at fair value through other comprehensive income which
is held with objective to achieve both collecting contractual cash flows and selling financial assets
and the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
d. Financial assets at fair value through profit or loss
A financial asset which is not classified in any of the above categories are subsequently fair valued
through profit or loss. The Company has elected to measure its investments which are classified as
equity instruments (other than investment in shares of Subsidiaries, Joint Ventures and Associates)
at fair value through profit and loss account.
e. Impairment of financial assets
The Company recognizes loss allowances using the expected credit loss (ECL) model for the
financial assets which are not fair valued through profit or loss. For impairment purposes significant
financial assets are tested on an individual basis, other financial assets are assessed collectively in
groups that share similar credit risk characteristics.
The Company recognises lifetime expected losses for all trade receivables. For all other financial
assets, expected credit losses are measured at an amount equal to the 12 month expected credit
losses or at an amount equal to the lifetime expected credit losses if the credit risk on the financial
asset has increased significantly since initial recognition. Any adjustment required to align the loss
allowance with the expected credit losses at the reporting date, whether an increase or a reversal, is
recognized as an impairment gain or loss in profit or loss.
The Company follows 'simplified approach' for the recognition of impairment loss allowance on
trade and other receivables. The application of simplified approach does not require the Company
to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime
ECLs at each reporting date, right from its initial recognition.
The Company uses a provision matrix to determine impairment loss allowance on portfolio of its
trade receivables. The provision matrix is based on its historically observed default rates over the
expected life of the receivables and is adjusted for forward-looking estimates. At every reporting
date, the historical observed default rates are updated and changes in the forward-looking
estimates are analysed.
f. Financial liabilities at amortised cost
Financial liabilities are subsequently carried at amortized cost using the effective interest method.
Financial liabilities at fair value through profit and loss includes financial liability held for trading and
financial liability designated upon initial recognition as at fair value through profit and loss.
ii. Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet
if there is a currently enforceable legal right to offset the recognised amounts and there is an
intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
iii. Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After
initial recognition, no reclassification is made for financial assets which are equity instruments and
financial liabilities. For financial assets which are debt instruments, a reclassification is made only if
there is a change in the business model for managing those assets. Changes to the business model
are expected to be infrequent. The company's senior management determines change in the
business model as a result of external or internal changes which are significant to the Company's
operations. Such changes are evident to external parties. A change in the business model occurs
when the company either begins or ceases to perform an activity that is significant to its operations. If
the company reclassifies financial assets, it applies the reclassification prospectively from the
reclassification date which is the first day of the immediately next reporting period following the
change in business model. The company does not restate any previously recognised gains, losses
(including impairment gains or losses) or interest.
iv. Derivatives and Hedge Accounting
The company enters into derivative financial instruments such as foreign exchange forward
contracts to mitigate the risk of changes in foreign exchange rates in respect of financial instruments
and forecasted cash flows denominated in certain foreign currencies. The Company uses hedging
instruments which provide principles on the use of such financial derivatives consistent with the risk
management strategy of the Company. The hedge instruments are designated and documented as
hedges and effectiveness of hedge instruments is assessed and measured at inception and on an
ongoing basis to reduce the risk associated with the exposure being hedged.
Any derivative that is either not designated as a hedge, or is so designated but is ineffective as per
Ind AS 109 “Financial Instruments”, is categorized as a financial asset/liability, at fair value through
profit or loss. Transaction costs attributable to the same are also recognized in statement of profit
and loss.
Derivative instruments are initially recognized at their fair values on the date on which a derivative
contract is entered into and are subsequently re-measured at fair value on each reporting date.
Changes in the fair value of the derivative hedging instrument designated as a fair value hedge are
recognized in the statement of profit and loss. Changes in the fair value of the derivative hedging
instrument designated as a cash flow hedge are recognized in other comprehensive income and
presented within equity as cash flow hedging reserve to the extent that the hedge is effective.
Hedging instrument which no longer meets the criteria for hedge accounting, expires or is sold,
terminated or exercised, then hedge accounting is discontinued prospectively. Any gain or loss
recognised in other comprehensive income and accumulated in equity remains therein till that time
and thereafter to the extent hedge accounting being discontinued is recognised in Statement of
Profit and Loss. When a forecasted transaction is no longer expected to occur, the cumulative gain
or loss accumulated in equity is transferred to the statement of profit and loss
v. De-recognition of financial instruments
The Company derecognizes a financial asset or a group of financial assets when the contractual
rights to the cash flows from the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another party.
On de-recognition of a financial asset, the difference between the asset's carrying amounts and the
sum of the consideration received and receivable are recognized in statement of profit and loss.
On de-recognition of assets measured at FVTOCI the cumulative gain or loss previously recognised
in other comprehensive income is reclassified from equity to statement of profit and loss as a
reclassification adjustment.
Financial liabilities are derecognized if the Company's obligations specified in the contract expire or
are discharged or cancelled. The difference between the carrying amount of the financial liability
derecognized and the consideration paid and payable is recognized in statement of profit and loss.
k) Cash and cash equivalents
All highly liquid financial instruments, which are readily convertible into determinable amounts of
cash and which are subject to an insignificant risk of change in value and are having original
maturities of three months or less from the date of purchase, are considered as cash equivalents.
Cash and cash equivalents includes balances with banks which are unrestricted for withdrawal and
usage.
l) Inventories
i. Inventories are valued at lower of the cost or net realizable value. Cost of inventories is
ascertained on 'weighted average' basis. Materials and her supplies held for use in the
production of inventories are not written down below cost if the finished products in which
they will be incorporated are expected to be sold at or above cost.
ii. Cost in respect of raw materials and stores and spares includes expenses incidental to
procurement of the same. Cost of finished goods and those under progress represents raw
material cost plus costs of conversion, comprising labour costs and an attributable
proportion of manufacturing overheads based on normal levels of activity. proportion of
manufacturing overheads based on normal levels of activity.
iii. Cost in respect of work in progress represents cost incurred up to the stage of completion.
iv. By-Products are valued at net realizable value
v. Net realizable 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.
m) Foreign Currency Transactions
Transactions in foreign currencies are translated into the functional currency at the exchange rates
prevailing on the date of the transactions. Foreign currency monetary assets and liabilities at the
year-end are translated at the year-end exchange rates. Non-monetary items which are carried in
terms of historical cost denominated in a foreign currency are reported using the exchange rate at
the date of transaction. The loss or gain thereon and also on the exchange differences on settlement
of the foreign currency transactions during the year are recognized as income or expense in the
profit and loss account. Foreign exchange gain/loss to the extent considered as an adjustment to
Interest Cost are considered as part of borrowing cost.
n) Equity Share Capital
An equity instrument is a contract that evidences residual interest in the assets of the company after
deducting all of its liabilities. Par value of the equity shares is recorded as share capital and the
amount received in excess of par value is classified as Securities Premium. Costs directly
attributable to the issue of ordinary shares are recognized as a deduction from equity, net of any tax
effects
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