28. SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation
This note provides a list of the significant accounting policies adopted in the preparation of these financial
statements. These policies have been consistently applied to all the years presented, unless otherwise
stated.
(i) Compliance with IndAS
The financial statements comply in all material aspects with Indian Accounting Standards (Ind AS)
notified under Section 133 of the Companies Act, 2013 (the Act) read with Companies (Indian Accounting
Standards) Rules, 2015, 2016 & 2017 and other relevant provisions of the Act.
(ii) Historical cost convention
The financial statements have been prepared on a historical cost basis, except for the following:
• Certain financial assets and liabilities (including derivative instruments) and contingent
consideration that is measured at fair value;
• Assets held for sale - measured at fair value less cost to sell; and
• Defined benefit plans - plan assets measured at fair value;
Significant Accounting Estimates and Judgments
Estimates, assumptions concerning the future and judgments are made in the preparation of the financial
statements. They affect the application of the Company's accounting policies, reporting amounts of assets,
liabilities, income and expense and disclosures made. Although these estimates are based on
management's best knowledge of current events and actions, actual result may differ from those
estimates.
The critical accounting estimates and assumptions used and areas involving a high degree of judgments
are described below:
Use of estimation and assumptions
In the process of applying the entity's accounting policies, management had made the following
estimation and assumptions that have the significant effect on the amounts recognised in the financial
statements.
Income tax
The company recognizes tax liabilities based upon self-assessment as per the tax laws. When the final tax
outcome of these matters is different from the amounts that were initially recognised, such differences
will impact the income tax and deferred tax provisions in the period in which such final determination is
made.
Property, plant and equipment& Intangible Assets
Key estimates related to long-lived assets (property, plant and equipment and intangible assets) include
useful lives, recoverability of carrying values and the existence of any retirement obligations. As a result
of future decisions, such estimates could be significantly modified. The estimated useful lives of long-lived
assets is applied as per the Schedule II of Companies Act, 2013 and estimated based upon our historical
experience, engineering estimates and industry information. These estimates include an assumption
regarding periodic maintenance and an appropriate level of annual capital expenditures to maintain the
assets.
Employee Benefits- Measurement of Defined Benefit Obligation
Management assesses post-employment and other employee benefit obligations using the projected unit
credit method based on actuarial assumptions which represent management's best estimates of the
variables that will determine the ultimate cost of providing post-employment and other employee
benefits.
Critical judgments made in applying accounting policies
Impairments in Subsidiaries
When a subsidiary is in net equity deficit and has suffered operating losses, a test is made whether the
investment in the investee has suffered any impairment, in accordance with the stated accounting policy.
This determination requires significant judgment. An estimate is made of the future profitability of the
investee, and the financial health of and near-term business outlook for the investee, including factors
such as industry and sector performance, and financing and operational cash flows.
The company assesses whether plant & equipment and intangible assets have any indication of
impairment in accordance with the accounting policy. The recoverable amounts of plant &equipment and
intangible asset have been determined based on value-in-use calculations. These calculations require the
use of judgment and estimates.
Expected credit loss
Expected credit losses of the company are based on an evaluation of the collectability of receivables. A
considerable amount of judgment is required in assessing the ultimate realization of these receivables,
including their current creditworthiness, past collection history of each customer and ongoing dealings
with them. If the financial conditions of the counterparties with which the Company contracted were to
deteriorate, resulting in an impairment of their ability to make payments, additional expected credit loss
may be required.
I. Property, Plant and Equipment
All items of property, plant and equipment are initially recorded at cost. The cost of an item of plant and
equipment is 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.
Cost includes its purchase price (after deducting trade discounts and rebates), import duties & non¬
refundable purchase taxes, if any costs directly attributable to bringing the asset to the location &
condition necessary for it to be capable of operating in the manner intended by management, borrowing
costs on qualifying assets and asset retirement costs. When parts of an item of property, plant and
equipment have different useful lives, they are accounted for as separate items (major components) of
property, plant and equipment.
The activities necessary to prepare an asset for its intended use or sale extend to more than just physical
construction of the asset. It may also include technical (DPR, environmental, planning, Land acquisition
and geological study) and administrative work such as obtaining approvals before the commencement of
physical construction.
The cost of replacing a part of an item of property, plant and equipment is capitalized if it is probable that
the future economic benefits of the part will flow to the Company and that its cost can be measured
reliably. The carrying amount of the replaced part is derecognized.
Costs of day to day repairs and maintenance costs are recognized into the statement of profit and loss
account as incurred.
Subsequent to recognition, property, plant and equipment are measured at cost less accumulated
depreciation and any accumulated impairment losses.
The carrying values of property, plant and equipment are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not be recoverable.
The residual values, estimated useful lives and depreciation method are reviewed at each financial year-
end, and adjusted prospectively, if appropriate.
An item of plant and equipment is derecognized 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 is recognised in
the profit or loss in the year the asset is derecognized.
Assets under installation or under construction as at the Balance Sheet date are shown as Capital Work in
Progress.
Depreciation
Depreciation is provided on Straight Line Method, as per the provisions of schedule II of the Companies
Act, 2013 or based on useful life estimated on the technical assessment. Asset class wise useful lives in
years are as under:
Plant and Machinery 1 to 25
Buildings 8 to 60
Computers and equipment 3 to 6
Furniture & fixtures 10 to 15
Vehicles 8 to 10
Office equipment 5 to 15
Fully depreciated plant and equipment are retained in the financial statements until they are no longer in
use.
In respect of additions / deletions to the fixed assets / leasehold improvements, depreciation is charged
from the date the asset is ready to use / up to the date of deletion.
Depreciation on adjustments to the historical cost of the assets on account of reinstatement of long term
borrowings in foreign currency, if any, is provided prospectively over the residual useful life of the asset.
Intangible assets are recognised when it is probable that the future economic benefits that are
attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably. The
company amortizes Computer software using the straight-line method.
Financial Assets
Financial assets comprise of investments in equity and debt securities, trade receivables, cash and cash
equivalents and other financial assets.
Initial recognition:
All financial assets are recognised initially at fair value. Purchases or sales of financial asset 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 that the company commits to purchase
or sell the assets.
Subsequen t Measurem en t:
(i) Financial assets measured at amortised cost:
Financial assets held within a business model whose objective is to hold financial assets in order to collect
contractual cash flows and the contractual terms of the financial assets give rise on specified dates to cash
flows that are solely payments of principal and interest on the principal amount outstanding are
measured at amortised cost using effective interest rate (EIR) method. The EIR amortization is recognised
as finance income in the Statement of Profit and Loss.
The Company while applying above criteria has classified the following at amortised cost:
a) Trade receivable
b) Cash and cash equivalents
c) Other Financial Asset
(ii) Financial assets at fair value through other comprehensive income (FVTOCI):
Financial assets held within a business model whose objective is to hold financial assets in order to collect
contractual cash flows, selling the financial assets and the contractual terms of the financial assets give
rise on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding are measured at FVTOCI.
Fair Value movements in financial assets at FVTOCI are recognised in other comprehensive income.
Equity instruments held for trading are classified as at fair value through profit or loss (FVTPL). For other
equity instruments the company classifies the same as at FVTOCI. The classification is made on initial
recognition and is irrevocable. Fair value changes on equity investments at FVTOCI, excluding dividends
are recognised in other comprehensive income (OCI).
(iii) Financial assets at fair value through profit or loss (FVTPL)
Financial assets are measured at fair value through profit or loss if it does not meet the criteria for
classification as measured at amortised cost or at fair value through other comprehensive income. All fair
value changes are recognised in the statement of profit and loss.
(iv) Investment in subsidiaries, joint ventures & associates are carried at cost in the separate financial
statements.
Impairment of Financial Assets;
Financial assets are tested for impairment based on the expected credit losses.
(i) Trade Receivables
An impairment analysis is performed at each reporting date. The expected credit losses over life time of
the asset are estimated by adopting the simplified approach using a provision matrix which is based on
historical loss rates reflecting current condition and forecasts of future economic conditions. In this
approach assets are grouped on the basis of similar credit characteristics such as industry, customer
segment, past due status and other factors which are relevant to estimate the expected cash loss from
these assets.
(ii) Other financial assets
Other financial assets are tested for impairment based on significant change in credit risk since initial
recognition and impairment is measured based on probability of default over the life time when there is
significant increase in credit risk.
De-recognition of financial assets
A financial asset is derecognized only when:
• The company has transferred the rights to receive cash flows from the financial asset or
• The contractual right to receive cash flows from financial asset is expired or
• Retains the contractual rights to receive the cash flows of the financial asset, but assumes a
contractual obligation to pay the cash flows to one or more recipients.
Where the entity has transferred an asset and transferred substantially all risks and rewards of
ownership of the financial asset, in such cases the financial asset is derecognized. Where the entity has
neither transferred a financial asset nor retains substantially all risks and rewards of ownership of the
financial asset, the financial asset is also derecognized if the company has not retained control of the
financial asset.
III. Impairment of Non-Financial Assets
At each reporting date, the Company assesses whether there is any indication that an asset may be
impaired. Where an indicator of impairment exists, the company makes a formal estimate of recoverable
amount. Where the carrying amount of an asset exceeds its recoverable amount the asset is considered
impaired and is written down to its recoverable amount.
Recoverable amount is the greater of fair value less costs to sell and value in use. It 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, in which case, the recoverable amount is determined for the cash¬
generating unit to which the asset belongs.
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.
IV. Inventories
Raw materials, consumables, stores and spares and finished goods are valued at lower of cost and net
realizable value. Cost is determined on weighted average cost method.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs
of completion and estimated costs necessary to make the sale.
V. Cash and Cash equivalents
Cash and cash equivalents comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less. Deposits with banks subsequently measured at amortized cost
and short term investments are measured at fair value through Profit & Loss account.
VI. Share Capital
Equity shares are classified as equity.
VII. Financial Liabilities
Initial recognition and measurement
Financial liabilities are recognized when, and only when, the Company becomes a party to the contractual
provisions of the financial instrument. The company determines the classification of its financial liabilities
at initial recognition.
All financial liabilities are recognized initially at fair value plus any directly attributable transaction costs,
such as loan processing fees and issue expenses.
Subsequent measurement - at amortized cost
After initial recognition, financial liabilities are subsequently measured at amortized cost using the
effective interest method. Gains and losses are recognized in profit or loss when the liabilities are de
recognized, and through the amortization process.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or
expired. 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 a derecognition of the original liability and the recognition of a new liability,
and the difference in the respective carrying amounts is recognised in profit or loss.
VIII. Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as
part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur.
Borrowing costs consist of interest, exchange differences arising from foreign currency borrowings to the
extent they are regarded as an adjustment to the interest cost and other costs that an entity incurs in
connection with the borrowing of funds.
Investment income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.
IX. Employee Benefits
Employee benefits are charged to the statement of Profit and Loss for the year and for the projects under
construction stage are capitalised as other direct cost in the Capital Work in Progress / Intangible asset
under development.
Retirement benefits in the form of Provident Fund are a defined contribution scheme and the
contributions are recognized, when the contributions to the respective funds are due. There are no other
obligations other than the contribution payable to the respective funds.
Gratuity liability is defined benefit obligations and is provided for on the basis of an actuarial valuation on
projected unit credit method made at the end of each financial year. Re-measurement in case of defined
benefit plans gains and losses arising from experience adjustments and changes in actuarial assumptions
are recognized in the period in which they occur, directly in other comprehensive income and they are
included in retained earnings in the statement of changes in equity in the balance sheet.
Compensated absences are provided for on the basis of an actuarial valuation on projected unit credit
method made at the end of each financial year. Re-measurement as a result of experience adjustments
and changes in actuarial assumptions are recognised in profit or loss.
The amount of Non-current and Current portions of employee benefits is classified as per the actuarial
valuation at the end of each financial year.
X. Stock Option Plan (2008):
The Company instituted the Kavveri ESOS 2008 Plan for all eligible employees in pursuance of the special
resolution approved by the shareholders by Postal ballot on 23rd April 2008. The Kavveri ESOS 2008 Plan
covers all employees of the company and its subsidiaries and Directors (excluding Promoter Directors) of
the Company and its subsidiaries (collectively, “eligible employees”). Under the Scheme, the
Compensation Committee of the Board ('the Committee') shall administer the Scheme and grant stock
options to eligible directors and employees of the Company and its Subsidiaries. The Committee shall
determine the employees eligible for receiving the options, the number of options to be granted, the
exercise price, the vesting period and exercise period. Vesting of employee stock options granted occurs
in tranches as under:
Period Vesting proportion
At the end of one year from the date of grant 20%
At the end of two years from the date of grant 30%
At the end of three years from the date of grant 50%
The exercise price for the purpose of exercise of options will be at Rs.10/- per share i.e. at par.The
employee stock options granted shall be capable of being exercised within a period of 5 years from the
date of vesting options or such lesser period as may be decided by the Compensation Committee from
time to time.
Under the Scheme 3,07,200 stock options out of the total of 5,00,000 stock options reserved for grant of
options having an exercise price equal to the par value of the underlying equity shares on the date of
grant (i.e. Rs. 10 per option) are outstanding as at the balance sheet date.
As the number of shares that an individual employee is entitled to receive and the price of the options are
known at the grant date, the scheme is considered as a fixed grant.
In the case of termination of employment, all non-vested options would stand cancelled. Options that
have been vested but have not been exercised can be exercised within the time prescribed under each
option agreement by the Committee or if no time limit is prescribed, within 30 days of the date of
employment termination, failing which they would stand cancelled.
The Company follows intrinsic method of accounting based on which the compensation cost is recognized
in the Statement of Profit and Loss.
XI. Income Taxes
Income tax expense is comprised of current and deferred taxes. Current and deferred tax is recognized in
net income except to the extent that it relates to a business combination, or items recognized directly in
equity or in other comprehensive income.
Current income taxes for the current period, including any adjustments to tax payable in respect of
previous years, are recognized and measured at the amount expected to be recovered from or payable to
the taxation authorities based on the tax rates that are enacted or substantively enacted by the end of the
reporting period.
Deferred income tax assets and liabilities are recognized for temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases using the tax
rates that are expected to apply in the period in which the deferred tax asset or liability is expected to
settle, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or
from the initial recognition (other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable income nor the accounting income. Deferred tax assets are
generally recognized for all deductible temporary differences to the extent that it is probable that taxable
income will be available against which they can be utilized. Deferred tax assets are reviewed at each
reporting date and reduced accordingly to the extent that it is no longer probable that they can be
utilized.
In the situations where the Company is entitled to a tax holiday under the Income-tax Act, 1961 enacted
in India or tax laws prevailing in the respective tax jurisdictions where it operates, no deferred tax (asset
or liability) is recognized in respect of temporary differences which reverse during the tax holiday period,
to the extent the company's gross total income is subject to the deduction during the tax holiday period.
Deferred tax in respect of temporary differences which reverse after the tax holiday period is recognized
in the year in which the temporary differences originate. However, the Company restricts recognition of
deferred tax assets to the extent that it has become reasonably certain, that sufficient future taxable
income will be available against which such deferred tax assets can be realized. For recognition of
deferred taxes, the temporary differences which originate first are considered to reverse first.
Deferred tax assets and liabilities are offset when there is legally enforceable right of offset current tax
assets and liabilities when the deferred tax balances relate to the same taxation authority. Current tax
asset and liabilities are offset where the entity has legally enforceable right to offset and intends either to
settle on a net basis, or to realize the asset and settle the liability simultaneously.
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