Note 2: Material Accounting Policies
2.1 Statement of Compliance
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, 2015 as amended from
time to time and other Accounting Principles generally
accepted in India.
2.2 Basis of Preparation
These Standalone Financial Statements of the company
are prepared in accordance with Indian Accounting
Standards (Ind AS), under the historical cost convention
on the accrual basis as per the provisions of the Companies
Act, 2013 (“the Act”), except for certain financial
instruments which are measured at fair values at the end
of each reporting period. Historical cost is generally based
on the fair value of the consideration given in exchange
for goods and services. 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.
Current and Non- Current Classification
The Company presents assets and liabilities in the balance
sheet based on current/non-current classification.
An asset is classified as current when it satisfies any of
the following criteria:
• It is expected to be realised in, or is intended for sale
or consumption in, the Company's normal operating
cycle and it is held primarily for the purpose of being
traded;
• It is expected to be realised within 12 months after
the reporting date; or
• It is cash or cash equivalent unless it is restricted from
being exchanged or used to settle a liability for at
least 12 months after the reporting date.
• All other assets are classified as non-current.
A liability is classified as current when it satisfies any of
the following criteria:
• It is expected to be settled in the Company's normal
operating cycle;
• It is held primarily for the purpose of being traded
• It is due to be settled within 12 months after the
reporting date; or the Company does not have an
unconditional right to defer settlement of the liability
for at least 12 months after the reporting date.
Terms of a liability that could, at the option of the
counterparty, result in its settlement by the issue of
equity instruments do not affect its classification.
• All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non¬
current only.
Accounting policies have been consistently applied
except where a newly issued accounting standard is
initially adopted or a revision to an existing accounting
standard requires a change in the accounting policy
hitherto in use.
The Standalone Financial Statements have been
presented in Indian Rupees (INR), which is the
Company's functional currency.
2.3 Use of Estimates and Judgements
The preparation of these Financial Statements in
conformity with the recognition and measurement
principles of Ind AS requires the management of the
Company to make estimates and assumptions that
affect the reported balances of assets and liabilities,
disclosures relating to contingent liabilities as at the date
of the Financial Statements and the reported amounts of
income and expense of the periods presented.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimates are
revised and future periods are affected.
Information about critical judgments in applying
accounting policies, as well as estimates and assumptions
that have the most significant effect to the carrying
amounts of assets and liabilities within the next financial
year are included in the following notes.
Useful Lives of Property, Plant and Equipment
The Company reviews the useful life of property, plant
and equipment at the end of each reporting period.
This reassessment may result in change in depreciation
expense in future period.
Valuation of Deferred Tax Liabilities/Assets
The Company reviews the carrying amount of deferred
tax liabilities/assets at the end of each reporting period.
Impairment of unquoted investments
The Company reviews its carrying value of investments
annually, or more frequently when there is indication for
impairment. If the recoverable amount is less than its
carrying amount, the impairment loss is accounted for.
Provisions and Contingent Liabilities
Provisions
A provision is recognized when the Company 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 (except retirement benefits and leave
encashments) are not discounted to its present value
and are determined based on best estimate required to
settle the obligation at the Balance Sheet date. These
are reviewed at each Balance Sheet date and adjusted to
reflect the current best estimates.
Contingent liabilities & commitments
A contingent liability is a possible obligation that arises
from past events whose existence will be confirmed by the
occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the company
or a present obligation that is not recognized because it is
not probable that an outflow of resources will be required
to settle the obligation or it cannot be measured with
sufficient reliability. The Company does not recognize
a contingent liability but discloses its existence in the
financial statements.
Recoverability of advances/ receivables
The Company makes provisions for expected credit loss
based on an assessment of the recoverability of trade
and other receivables. The identification of doubtful
debts requires use of judgment and estimates. Where the
expectation is different from the original estimate, such
difference will impact the carrying value of the trade and
other receivables and expenses on account of provision
for doubtful debts in the period in which such estimate
has been changed. At each balance sheet date, based
on historical default rates observed over expected life,
the management assesses the expected credit loss on
outstanding receivables and advances.
Provision for Inventories
Management reviews the inventory ageing on a periodic
basis. This review involves comparison of the carrying
value of the aged inventory items with the respective
net realizable value. The purpose is to ascertain whether
a provision is required to be made in the financial
statements for any obsolete and slow-moving items and
that adequate provision for obsolete and slow-moving
inventories has been made in the financial statements.
2.4 Property, Plant and Equipment
The Company had applied for the one-time transition
exemption of considering the carrying cost on the
transition date i.e., 1st April 2016 as the deemed cost under
Ind AS. Hence regarded thereafter as historical cost.
The cost of property, plant and equipment comprises its
purchase price net of any trade discounts and rebates,
any import duties and other taxes (other than those
subsequently recoverable from the tax authorities), any
directly attributable expenditure on making the asset
ready for its intended use, including relevant borrowing
costs for qualifying assets and any expected costs of
decommissioning. Expenditure incurred after the property,
plant and equipment has been put into operation, such as
repairs and maintenance, are charged to the Statement of
Profit and Loss in the year in which the costs are incurred.
Major shutdown and overhaul expenditure is capitalized
as the activities undertaken improves the economic
benefits expected to arise from the asset.
It includes professional fees and, for qualifying assets,
borrowing costs capitalised in accordance with the
Company's accounting policy based on Ind AS 23 -
Borrowing costs. Such properties are classified to the
appropriate categories of PPE when completed and
ready for intended use.
Assets in the course of construction are capitalised in the
assets under construction account. At the point when an
asset is operating at management's intended use, the cost
of construction is transferred to the appropriate category
of property, plant and equipment and depreciation
commences. Costs associated with the commissioning
of an asset and any obligatory decommissioning costs
are capitalised where the asset is available for use but
incapable of operating at normal levels until a year of
commissioning has been completed. Revenue generated
from production during the trial period is capitalised.
Property, plant and equipment except freehold land
held for use in the production, supply or administrative
purposes, are stated in the balance sheet at cost less
accumulated depreciation and accumulated impairment
losses, if any.
Subsequent expenditure and componentisation
Parts of an item of PPE having different useful lives
and significant value and subsequent expenditure on
Property, Plant and Equipment arising on account of
capital improvement or other factors are accounted for
as separate components only when it is probable that
future economic benefits associated with the item will
flow to the Company and the cost of the item can be
measured reliably. The carrying amount of any component
accounted for as a separate asset is derecognised when
replaced. All other repairs and maintenance are charged
to profit or loss during the reporting period in which they
are incurred.
Depreciation and Useful Life
Depreciable amount for assets is the cost of an asset,
or other amount substituted for cost, less its estimated
residual value. Assets in the course of development or
construction and freehold land are not depreciated.
Other assets are stated at cost less accumulated
depreciation and any provision for impairment.
Depreciation commences when the assets are ready for
their intended use.
Depreciation is calculated on the depreciable amount,
which is cost of an asset less its residual value. Depreciation
is provided at rates calculated to write off the cost, less
estimated residual value, of each asset on a written down
value basis over its expected useful life as per the useful
life prescribed in Schedule II to the Companies Act, 2013.
When significant spare 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.
Depreciation methods, useful lives and residual values
are reviewed at each financial year end and changes in
estimates, if any, are accounted for prospectively. Fully
depreciated assets still in use are retained in financial
statements at residual value.
Management believes that useful lives of assets are same
as prescribed in Schedule II to the Act:
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.
Derecognition
Gains and losses on disposal of an item of property,
plant and equipment are determined by comparing the
proceeds from disposal with the carrying amount of
property, plant and equipment, and are recognized net
within other income/other expense in Statement of Profit
and Loss.
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 or disposal. Any gain or loss
arising on de-recognition of the asset (calculated as the
difference between the net disposal proceeds and the
carrying amount of the asset) is recognized in profit or
loss when the asset is derecognized.
2.5 Capital Works-in-Progress
Projects under which assets are not ready for their
intended use and other capital work-in-progress are
carried at cost, comprising direct cost and related
incidental expenses.
Depreciation commences when the assets are ready for
their intended use. Depreciable amount for assets is the
cost of an asset, or other amount substituted for cost, less
its estimated residual value. Depreciation is recognized
so as to write off the cost of assets (other than freehold
land and properties under construction) less their
residual values over their useful lives, as per the useful
life prescribed in Schedule II to the Companies Act, 2013.
The Company reviews the residual value, useful lives and
depreciation method annually and, if expectations differ
from previous estimates, the change is accounted for as
a change in accounting estimate on a prospective basis.
2.6 Intangible Assets
Software: Cost of software which is not an integral part
of the related hardware acquired for internal use is
capitalized as intangible asset.
Intangible assets acquired are measured on initial
recognition at cost. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortization and accumulated impairment losses.
Intangible assets are amortized over the useful economic
life and assessed for impairment whenever there is an
indication that the intangible asset may be impaired.
The amortization period and amortization method for an
intangible asset are reviewed at the end of each reporting
period. The amortization expense on intangible asset is
recognized in the Statement of Profit and Loss unless
such expenditure forms part of carrying value of another
asset.
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 recognized in Statement of Profit and Loss when
the asset is derecognized.
2.7 Impairment of Assets
The Company assesses the impairment of assets at each
Balance Sheet date. If events or circumstances indicate
that the carrying amount of the asset exceeds the
recoverable amount, the loss on account of impairment
is accounted accordingly. The recoverable amount is the
higher of an asset's fair value less costs of disposal &
value in use.
2.8 Inventories
Raw materials
Raw materials and stores, work in progress, traded and
finished goods are stated at the lower of cost and net
realisable value. Cost of raw materials and traded goods
comprises cost of purchases.
Work in progress and finished goods
Cost of work-in-progress and finished goods comprises
direct materials, direct labour and an appropriate
proportion of variable and fixed overhead expenditure.
Fixed overheads are allocated on the basis of normal
operating capacity. Cost of inventories also include all
other costs incurred in bringing the inventories to their
present location and condition. Costs are assigned to
the individual items in a group of inventories on the
basis of weighted average cost basis. Costs of purchased
inventory are determined after deducting rebates and
discounts. Net realisable 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.
2.9 Financial Instrument
Financial assets and financial liabilities are recognized
when the Company becomes a party to the contractual
provisions of the instruments.
Financial assets and liabilities are initially measured at fair
value. Transaction costs that are directly attributable to
the acquisition or issue of financial assets and liabilities
(other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted
from the fair value measured on initial recognition of
financial asset or financial liability. Transaction costs
directly attributable to the acquisition of financial assets
or financial liabilities at fair value through profit and
loss are recognized immediately in Statement of Profit
and Loss.
Financial Assets at Fair Value through other
Comprehensive Income (FVTOCI).
Financial assets are measured at Fair Value through
Other Comprehensive Income if these financial assets
are held within a business whose objective is achieved
by both collecting contractual cash flows that give rise
on specified dates to solely payments of principal and
interest on the principal amount outstanding and by
selling financial assets.
Financial Assets at Fair Value through Statement of
Profit and Loss (FVTPL)
Financial assets are measured at fair value through
Statement of Profit and loss unless it is measured
at amortized cost or at fair value through other
comprehensive income on initial recognition. The
transaction cost directly attributable to the acquisition
of financial assets and liabilities at fair value through
statement of profit & loss are immediately recognized in
the statement of profit and loss.
Financial Assets at Amortized Cost
Financial Assets are subsequently measured at amortized
cost if these financial assets are held within a business
whose objective is to hold these assets 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.
2.10 Trade Receivables
The Company classifies the right to consideration in
exchange for deliverables as either a receivable or as
contract asset. A receivable is a right to consideration
that is unconditional and only the passage of time is
required before the payment of that consideration is due.
The Company assesses at each Balance Sheet date
whether a financial asset or a group of financial assets is
impaired. Ind AS 109 requires expected credit loss to be
measured through a loss allowance.
The Company recognizes lifetime expected credit loss
for all trade receivables that do not constitute a financial
transaction. Impairment loss allowance is based on a
simplified approach as permitted by Ind AS 109.
Full provision is made for all trade receivables considered
doubtful of recovery if it is probable/certain that the debt
is not recoverable.
Impairment loss allowance (or reversal) that is required
to be recognized at the reporting date is recognized as
an impairment loss or gain in the statement of profit and
loss account.
2.11 Cash and Cash Equivalents
Cash and Cash Equivalents consist of cash on hand and
balances with banks which are unrestricted for withdrawal
and usage.
2.12 Foreign Currency Transactions
Items included in the financial statements of the Company
are measured using the currency of the primary economic
environment in which the Company operates (i.e., the
“functional currency”). The financial statements are
presented in Indian Rupee, the national currency of India,
which is the functional currency of the Company.
In the Financial Statements of the Company, transactions
in currencies other than the functional currency are
translated into the functional currency at the exchange
rates ruling at the date of the transaction. Monetary
assets and liabilities denominated in other currencies
are translated into the functional currency at exchange
rates prevailing on the reporting date. Non-monetary
assets and liabilities denominated in other currencies and
measured at historical cost or fair value are translated at
the exchange rates prevailing on the dates on which such
values were determined. All exchange differences are
included in the Statement of Profit and Loss.
2.13 Contract Assets
Where the Company performs by transferring goods
or services to a customer before the customer pays
consideration or before payment is due, the Company
presents the contract as a contract asset. A contract
asset is a company's right to consideration in exchange of
goods or services that the Company has transferred to a
customer. Contract Assets are reviewed for impairment in
accordance with Ind AS 109.
2.14 Contract Liabilities
Where the Company receives consideration, or the
Company has the right to an amount of consideration
that is unconditional (i.e., a receivable), before the
Company transfers the good or service to the customer,
the Company presents the contract as a contract liability
when the payment is made or the payment is due
(whichever is earlier). A contract liability is a company's
obligation to transfer goods or services to a customer for
which the Company has received consideration (or an
amount of consideration is due) from the customer.
|