4. Material Accounting Policies
4.1 Current Vs Non Current Classification
The company presents assets and liabilities in the Balance
Sheet based on current/non-current classification
An asset is current when it is:
a. Expected to be realised or intended to be sold or
consumed in normal operating cycle
b. Held primarily for the purpose of trading
c. Expected to be realised 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 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 treated as non - current.
Deferred tax assets and liabilities are classified as non - current
assets and liabilities.
4.2 Fair value measurement
The Company measures financial instruments such as
Investments etc. 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.
A fair value measurement of a non-financial asset takes into
account a market participant’s ability to generate economic
benefits by using the assets in its highest and best use or by
selling it to another market participant that would use the asset
in its highest and best use.
The Company uses valuation techniques that are appropriate in
the circumstances and for which sufficient data is 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 based on the
nature, characteristics and risks of the asset or liability
and the level of the fair value hierarchy as explained above.
The Company’s management determines the policies and
procedure for both recurring fair value measurement, such
as derivative instruments and unquoted financial assets
measured at fair value.
External valuation experts are involved for valuation of
significant unquoted financial assets and liabilities.
4.3 Property, Plant and Equipment
a. Property, Plant and Equipment; and capital work in
progress are stated at cost of acquisition or construction
net of accumulated depreciation and/or accumulated
impairment losses, if any. Such cost includes the cost
of replacing parts of the property, plant and equipment,
borrowing costs for long term construction projects if the
recognition criteria are met and net initial cost estimate
of requirement of restoration of site where the asset is
located. When significant parts of property, plant and
equipment are required to be replaced at intervals, the
Company recognises such parts as individual assets with
specific useful lives and depreciates them accordingly.
Likewise, when a major inspection is performed, its cost is
recognised in the carrying amount of the Property, Plant
and Equipment if the recognition criteria are satisfied. All
other repair and maintenance costs are recognised in the
Statement of Profit and Loss as incurred.
b. Capital work-in-progress comprises of cost of Property,
Plant and Equipment that are not yet installed and ready
for their intended use at the Balance Sheet date.
c. Own manufactured assets are capitalised at cost
including an appropriate directly allocable expenses.
Depreciation
- With the commencement of the Companies Act, 2013,
depreciation is being provided on straight line method
according to the useful life prescribed on single shift
working basis in Sch II of the Act on the carrying amount
of the asset over the remaining useful life of the asset as
per the said schedule, except as stated below. Where the
asset is used any time during the year in double or triple
shift, depreciation is being calculated on the basis of Note
6 of the said schedule.
- Depreciation on Vehicle other than leased vehicles
is being provided over a period of five years, being the
estimated useful life of the asset to the company.
- Depreciation on Additions to Property, Plant and
Equipment is being provided on pro-rata basis from the
month of acquisition or installation of the said Asset, as
per Note 2 of Sch II to Companies Act, 2013 in a manner
stated above.
- Depreciation on Leased Vehicles is being provided over
a period of eight years, being the estimated useful life of
the asset to the Company.
- Depreciation on Compression Facilities given on lease
is being provided on the basis of estimated useful life of
each of the components of the facility.
- Depreciation on Jigs & Fixtures, Patterns and Dies is being
provided over a period of three years, being the estimated
useful life of the asset to the Company.
- Depreciation on Assets sold, discarded or demolished
during the year is being provided at their respective rates
up to the preceding month in which such Assets are sold,
discarded or demolished.
- Technical assessment of assets is carried out annually to
identify cost of part of asset which is significant to total
cost of asset and where useful life of that part of asset
is significantly different than useful life of remaining
part of asset. Parts are depreciated as per useful life
so determined.
An item of property, plant and equipment is derecognised
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 included in the Statement of Profit and Loss 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.
4.4 Intangible Assets
Intangible assets are recognised when it is probable that the
future economic benefits that are attributable to the assets
will flow to the Company and the cost of the asset can be
measured reliably.
Expenditure on acquiring Technical Know-how (intangible
asset) is amortised equally over a period of five years or
usage period whichever is lesser, after commencement of
commercial production. Depreciation on additions to Software
is provided on pro-rata basis from the month of installation,
over a period of one year.
Intangible assets not ready for the intended use on the date of
the Balance Sheet are disclosed as "Intangible assets under
development".
Gains or losses arising from de-recognition 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 and Loss when the
asset is derecognised.
I ntangible assets are recorded at the consideration paid
for acquisition.
4.5 Borrowing Cost
Borrowing Costs directly attributable to the acquisition,
construction or production of qualifying assets are capitalized
till the month in which the asset is ready to use, as part of the
cost of the asset. Other borrowing costs are recognized as
expenses in the period in which these are incurred.
4.6 Impairment of Assets
The Company assesses at each Balance Sheet date whether
there is any indication due to internal or external factors that
an asset or a group of assets comprising a Cash Generating
Unit (CGU) may be impaired. If any such indication exists, the
Company estimates the recoverable amount of the assets.
Market related information and estimates such as long term
growth rates, weighted average cost of capital and cash flow
projections considering past experience are used to determine
the recoverable amount. If such recoverable amount of the
assets or the recoverable amount (economic value in use) of
the CGU to which the asset belongs is less than the carrying
amount of the assets or the CGU as the case may be, the
carrying amount is reduced to its recoverable amount and the
reduction is treated as an impairment loss and is recognised
in the Profit and Loss account. If at any subsequent Balance
Sheet date there is an indication that a previously assessed
impairment loss no longer exists, the recoverable amount is
reassessed and the asset is reflected at recoverable amount
subject to a maximum of depreciated historical cost and is
accordingly reversed in the Profit and Loss account.
4.7 Financial Instruments - initial recognition and
subsequent measurement
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.
a) Financial assets
(i) Initial recognition and measurement of financial
assets
All financial assets are recognised initially at
fair value plus, in the case of financial assets
not recorded at fair value through profit or loss,
transaction costs that are attributable to the
acquisition of the financial assets. Transaction
costs of financial assets carried at fair value
through profit or loss are expensed in profit or loss.
However, trade receivables that do not contain a
significant financing component are measured at
transaction price.
(ii) Subsequent measurement of financial assets
For purposes of subsequent measurement, financial
assets are classified in three categories:
• Financial assets at amortised cost
• Financial assets at fair value through other
comprehensive income (FVTOCI)
• Financial assets at Fair value through profit
and loss (FVTPL)
• Financial assets at amortised cost :
A financial asset is measured at amortised cost if:
- The financial assets is 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 asset
give rise on specified dates to cash flows that
are solely payments of principal and interest
on the principal amount outstanding.
After initial measurement, such financial assets are
subsequently measured by applying the effective
interest rate (EIR) to the gross carrying amount of
a financial asset if applicable. The EIR amortisation
is included in finance income in the Statement of
Profit and Loss. The losses arising from impairment
are recognised in the Statement of Profit and Loss.
• Financial assets at fair value through other
comprehensive income
A financial asset is measured at fair value through
other comprehensive income if:
- The financial asset is held within a business
model whose objective is achieved by 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.
After initial measurement, such financial assets,
until they are derecognised or reclassified, are
subsequently measured at fair value with unrealised
gains or losses recognised in Other Comprehensive
Income except for interest income, impairment
gains or losses for foreign exchange gains and
losses which are recognised in the Statement of
Profit and Loss.
• Financial assets at fair value through profit or loss
A financial asset is measured at fair value
through profit and loss unless it is measured
at amortised cost or at fair value through other
comprehensive income.
In addition, the Company may elect to classify a
financial asset, which otherwise meets amortized
cost or fair value through other comprehensive
income criteria, as at fair value through profit
and loss. However, such election is allowed only
if doing so reduces or eliminates a measurement
or recognition inconsistency (referred to as
‘accounting mismatch’)
After initial measurement, such financial assets are
subsequently measured at fair value with unrealised
gains or losses recognised in the statement of profit
and loss.
(iii) De-recognition of financial assets
A financial asset is derecognised when:
- The contractual rights to the cash flows from
the financial asset expire,
Or
- The Company has transferred its contractual
rights to receive cash flows from the asset or
has assumed an obligation to pay the received
cash flows in full without material delay to a
third party and either (a) the Company has
transferred substantially all the risks and
rewards of the asset, or (b) the Company has
neither transferred nor retained substantially
all the risks and rewards of the asset, but has
transferred control of the asset.
(iv) Reclassification of financial assets
The Company determines classification of financial
assets and liabilities on initial recognition. After
initial recognition, no reclassification is made from
financial assets which are equity instruments
and financial liabilities. For financial assets 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.
The company applies expected credit loss
(ECL) model for measurement and recognition
of impairment loss on the assets carried at
amortised cost.
The impairment methodology applied depends on
whether there has been a significant increase in
credit risk.
For trade receivables only, the company applies
the simplified approach permitted by Ind AS 109
Financial Instruments, which requires expected
lifetime losses to be recognised from initial
recognition of the receivables.
b) Financial Liabilities
(i) Initial recognition and measurement of financial
liabilities
All financial liabilities are recognised initially at
fair value minus, in the case of financial liabilities
not recorded at fair value through profit or loss,
transaction costs that are attributable to the issue
of the financial liabilities.
(ii) Subsequent measurement of financial liabilities
For purposes of subsequent measurement, financial
liabilities are classified and measured as follows:
• Financial liabilities at fair value through profit
and loss
• Amortised Cost
• Loans and Borrowings at amortised Cost
After initial recognition, interest-bearing borrowings
are subsequently measured at amortised cost using
the Effective Interest Rate (EIR) method. Gains and
losses are recognised in the statement of profit and
loss when the liabilities are derecognised as well as
through the EIR amortisation process.
Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees or
costs that are an integral part of the EIR. The EIR
amortisation is included as finance costs in the
statement of profit and loss.
A financial liability (or a part of a financial liability)
is derecognised from Balance Sheet when, and
only when, it is extinguished i.e. when the obligation
specified in the contract is discharged or cancelled
or expired.
When an existing financial liability is replaced by
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 recognised in
the Statement of Profit and Loss.
4.8 Derivatives
Company uses derivative contracts to hedge its exposure
against movements in foreign exchange rates. The use of
derivative contracts is intended to reduce the risk to the
Company. Derivative contracts are not used for trading or
speculation purposes.
All derivatives are measured at fair value through the Profit and
Loss. Derivatives are carried as assets when their fair values
are positive and as liabilities when their fair values are negative.
Hedging activities are explicitly identified and documented by
the Company.
4.9 Foreign Currency Transactions
a. Initial Recognition
Foreign currency transactions are recorded in Indian
currency, by applying the exchange rate between the
Indian currency and the foreign currency at the date of
the transaction.
b. Conversion
Current assets and current liabilities, secured loans,
being monetary items, designated in foreign currencies
are revalorized at the rate prevailing on the date of
Balance Sheet.
c. Exchange Differences
Exchange difference arising on the settlement and
conversion of foreign currency transactions are
recognised as income or as expenses in the year in
which they arise, except in cases where they relate to the
acquisition of qualifying assets, in which cases they were
adjusted in the cost of corresponding asset up to the date
of transition to Ind AS. Further, exchange difference on
foreign currency loans utilized for acquisition of assets,
is adjusted in the cost of the asset up to transition date of
Ind AS only.
4.10 Leases
The determination of whether a contract is (or contains) a lease
is based on the substance of the contract at the inception of
the lease. The 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.
• Company as a Lessee
At the commencement date, a lessee shall recognise a right-of-
use asset and a lease liability. A lessee shall measure the lease
liability at the present value of the lease payments that are
not paid at that date. The lease payments shall be discounted
using the interest rate implicit in the lease, if that rate can be
readily determined. If that rate cannot be readily determined,
the lessee shall use the lessee’s incremental borrowing rate.
The Company uses the practical expedient to apply the
requirements of Ind AS 116 to a portfolio of leases with similar
characteristics if the effects on the financial statements
of applying to the portfolio does not differ materially from
applying the requirement to the individual leases within that
portfolio. However, when the lessee and the lessor each have
the right to terminate the lease without permission from the
other party with no more than an insignificant penalty the
Company considers that lease to be no longer enforceable.
Also according to Ind AS 116, for leases with a lease term of 12
months or less (short-term leases) and for leases for which the
underlying asset is of low value, the lessee is not required to
recognize right-of-use asset and a lease liability. The Company
applies both recognition exemptions.
Right of use asset
Right-of-use assets, which are included under property, plant
and equipment, are measured at cost less any accumulated
depreciation and, if necessary, any accumulated impairment.
The cost of a right-of-use asset comprises the present value
of the outstanding lease payments plus any lease payments
made at or before the commencement date less any lease
incentives received, any initial direct costs and an estimate of
costs to be incurred in dismantling or removing the underlying
asset. In this context, the Company also applies the practical
expedient that the payments for non-lease components are
generally recognized as lease payments.
If the lease transfers ownership of the underlying asset to the
lessee at the end of the lease term or if the cost of the right-
of-use asset reflects that the lessee will exercise a purchase
option, the right-of-use asset is depreciated to the end of the
useful life of the underlying asset. Otherwise, the right-of-use
asset is depreciated to the end of the lease term.
Lease liability
Lease liabilities, which are assigned to financing liabilities, are
measured initially at the present value of the lease payments.
Subsequent measurement of a lease liability includes the
increase of the carrying amount to reflect interest on the lease
liability and reducing the carrying amount to reflect the lease
payments made.
Lease modification
For a lease modification that is not accounted for as a separate
lease, the company accounts for the re-measurement of the
lease liability by making a corresponding adjustment to the
right-of-use asset.
• Company as Lessor
A lessor shall classify each of its leases as either an operating
lease or a finance lease. A lease is classified as a finance lease
if it transfers substantially all the risks and rewards incidental
to ownership of an underlying asset. A lease is classified as an
operating lease if it does not transfer substantially all the risks
and rewards incidental to ownership of an underlying asset.
Amounts due from lessees under finance leases are recorded
as receivables at the company’s net investment in the leases.
Finance lease income is allocated to accounting periods to
reflect a constant periodic rate of return on the net investment
outstanding in respect of the lease.
Where the Company is a lessor under an operating lease, the
asset is capitalised within property, plant and equipment and
depreciated over its useful economic life. However, if there is no
reasonable certainty that the company will obtain possession
of the asset upon end of the lease term, the asset is depreciated
over the shorter of the estimated useful life of the asset and the
lease term.
Rental income from operating lease is recognised on a
straight-line basis over the term of the relevant lease. 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.
4.11 Inventories
Cost of inventories have been computed to include all costs
of Purchase, Cost of Conversion and other costs incurred in
bringing inventories to their present location and condition.
I. The Stocks of Raw Materials and Components, Stores and
Spares and Traded Goods are valued at cost calculated on
Weighted Average basis.
II. The Stocks of Work-in-Progress (including factory-made
components) and Finished Goods are valued on the basis
of Full Absorption Cost of attributable factory overheads
or net realisable value, whichever is lower.
III. Goods in Transit are stated at actual cost to the date of
Balance Sheet.
IV. Unserviceable and Obsolete Raw Materials are valued at
an estimated realisable value.
V. I mported Materials lying in Bonded Warehouse, are
valued at cost to the date of Balance Sheet.
4.12 Taxes
Current income tax
Current income tax assets and liabilities are measured at the
amounts expected to be recovered from or paid to the taxation
authorities; on the basis of the taxable profits computed for the
current accounting period in accordance with Income Tax Act,
1961. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted at the
reporting date.
Current income tax relating to items recognised in other
comprehensive income or directly in equity is recognised in
other comprehensive income or in equity, respectively, and not
in the statement of profit and loss.
Deferred tax
Deferred tax is provided using the Balance Sheet method on
temporary difference 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:
• In respect of taxable temporary differences associated
with investments in subsidiaries, associates and
interests in joint arrangements, 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 including, 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:
• In respect of deductible temporary differences
associated with investments in subsidiaries,
associates and interests in joint arrangements,
deferred tax assets are recognised only to the extent
that it is probable that the temporary differences will
reverse in the foreseeable future and taxable profit will
be available against which the temporary differences
can be utilised.
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. Unrecognised
deferred tax assets are re-assessed at each reporting date
and are recognised to the extent that it has become probable
that future taxable profit will allow the deferred tax asset to
be recovered.
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 the statement
of profit and loss, is recognised outside the statement of profit
and loss. Deferred tax items are recognised in correlation to the
underlying transaction either in other comprehensive income
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.
4.13 Employee Benefits
a) Short Term Employee Benefits
The distinction between short term and long term
employee benefits is based on expected timing of
settlement rather than the employee’s entitlement
benefits. All employee benefits payable within twelve
months of rendering the service are classified as short
term benefits. Such benefits include salaries, wages,
bonus, short term compensated absences, awards, ex-
gratia, performance pay etc. and are recognised in the
period in which the employee renders the related service.
b) Employee Stock Options Scheme
The fair value of options granted on the date of grant to
employees is recognised as employee benefit expense
with corresponding increase in equity being the share
based payment. The total expense is recognised over
the vesting period, which is the period over which all the
specified vesting conditions are required to be satisfied.
At the end of each reporting period, the company revises
its estimates of the number of options that are expected
to vest based on the service and non-vesting conditions.
It recognises the impact of the revision to original
estimates, if any, in the statement of profit and loss, with
a corresponding adjustment to equity.
c) Post-Employment Benefits
(i) Defined contribution plan
The Company makes payment to approved
superannuation schemes, state government
provident fund scheme and employee state
insurance scheme which are defined contribution
plans. The contribution paid/payable under the
schemes is recognised in the statement of profit
and loss during the period in which the employee
renders the related service. The Company has no
further obligations under these schemes beyond its
periodic contributions.
(ii) Defined benefit plan
The employee’s gratuity fund scheme is Company’s
defined benefit plan. The present value of the
obligation under such defined benefit plan is
determined based on the actuarial valuation using
the Projected Unit Credit Method as at the date
of the Balance Sheet. In case of funded plans,
the fair value of plan asset is reduced from the
gross obligation under the defined benefit plan, to
recognise the obligation on the net basis.
Re-measurements, comprising of actuarial
gains and losses, the effect of the asset ceiling,
excluding amounts included in net interest on
the net defined benefit liability and the return on
plan assets (excluding amounts included in net
interest on the net defined benefit liability), are
recognised immediately in the Balance Sheet with
a corresponding debit or credit to retained earnings
through OCI in the period in which they occur. Re¬
measurements are not reclassified to the profit and
loss in subsequent periods.
Past service costs are recognised in the statement
of profit and loss on the earlier of:
• The date of the plan amendment or
curtailment, and
• The date that the Company recognises
related restructuring costs
Net interest is calculated by applying the discount
rate to the net defined benefit liability or asset. The
Company recognises the following changes in the
net defined benefit obligation as an expense in the
statement of profit and loss:
• Service costs comprising current service
costs, past-service costs, gains and
losses on curtailments and non-routine
settlements and net interest expense
or income.
d) Other long term employment benefits:
The employee’s long term compensated absences
are Company’s other long term benefit plans. The
present value of the obligation is determined based on
the actuarial valuation using the Projected Unit Credit
Method as at the date of the Balance sheet.
In regard to other long term employment benefits, the
Company recognises the net total of service cost; net
interest on the net defined benefit liability (asset); and re¬
measurements of the net defined benefit liability (asset)
in the statement of profit and loss.
Termination Benefits:
Termination Benefits are recognised in the statement of
profit and loss in the year in which termination benefits
become payable or when the Company determines that
it can no longer withdraw the offer of those benefits,
whichever is earlier.
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