2 Material Accounting Policies
2.1 Basis of preparation
The financial statements of the company have been prepared in accordance with Indian Accounting
Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015(as
amended).
The financial statements have been prepared on a historical cost basis, except for the following assets and
liabilities which have been measured at fair value or revalued amount:
- Certain financial assets and liabilities measured at fair value
The financial statements are presented in Indian Rupees (INR) in 000's.
2.2 Summary of Material accounting policies
(a) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as
revenue are inclusive of excise duty and net of returns, trade allowances, rebates, value added taxes and
amounts collected on behalf of third parties. The company recognises revenue when the amount of revenue
can be reliably measured, it is probable that future economic benefits will flow to the entity and specific
criteria have been met for each of the company's activities as described below. The company bases its
estimates on historical results, taking into consideration the type of customer, the type of transaction and the
specifics of each arrangement.
Recognising revenue from major business activities
(i) Sale of goods
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the
goods have passed to the buyer, usually on delivery of the goods. Revenue from the sale of goods is
measured at the fair value of the consideration received or receivable, net of returns and allowances, trade
discounts and volume rebates.
(ii) Interest income
For all debt instruments measured either at amortised cost or at fair value through other comprehensive
income, interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly
discounts the estimated future cash payments or receipts over the expected life of the financial instrument
or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortised
cost of a financial liability. When calculating the effective interest rate, the company estimates the expected
cash flows by considering all the contractual terms of the financial instrument (for example, prepayment,
extension, call and similar options) but does not consider the expected credit losses. Interest income is
included in other income in the statement of profit and loss.
Revenue is recognised when the company's right to receive the payment is established, which is generally
when shareholders approve the dividend.
(b) Taxes
(i) Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid
to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are
enacted or substantively enacted, at the reporting date in the countries where the company operates and
generates taxable income.
Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss
(either in other comprehensive income or in equity). Current tax items are recognised in correlation to the
underlying transaction either in OCI or directly in equity. Management periodically evaluates positions taken
in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation
and establishes provisions where appropriate.
(ii) Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax assets are recognised for all deductible temporary differences, 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.
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 profits 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 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.
(c) Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the
arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to
use the asset or assets, even if that right is not explicitly specified in an arrangement.
(i) As a lessee
A lease is classified at the inception date as a finance lease or an operating lease. Leases of property, plant
and equipment where the company, as lessee, has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised at the lease's inception at the fair value of the
leased property or, if lower, the present value of the minimum lease payments. The corresponding rental
obligations, net of finance charges, are included in borrowings or other financial liabilities as appropriate.
Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the
profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining
balance of the liability for each period.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty
that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the
shorter of the estimated useful life of the asset and the lease term.
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the
company as lessee are classified as operating leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the
lease unless the payments are structured to increase in line with expected general inflation to compensate
for the lessor's expected inflationary cost increases.
(ii) As a lessor
Leases are classified as finance leases when substantially all of the risks and rewards of ownership transfer
from the Company to the lessee. 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 so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the
lease.
Lease income from operating leases where the company is a lessor is recognised in income on a straight¬
line basis over the lease term unless the receipts are structured to increase in line with expected general
inflation to compensate for the expected inflationary cost increases. The respective leased assets are
included in the balance sheet based on their nature.
(d) Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term
deposits with an original maturity of three months or less, which are subject to an insignificant risk of
changes in value.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term
deposits, as defined above, net of outstanding bank overdrafts as they are considered an integral part of the
Company's cash management.
(e) Inventories
Inventories are valued at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
Raw materials: cost includes cost of purchase and other costs incurred in bringing the inventories to their
present location and condition. Cost is determined on first in, first out/weighted average basis.
Finished goods and work in progress: cost includes cost of direct materials and labour and a proportion of
manufacturing overheads based on the normal operating capacity, but excluding borrowing costs. Cost is
determined on first in, first out basis/weighted average.
Traded goods: cost includes cost of purchase and other costs incurred in bringing the inventories to their
present location and condition. Cost is determined on first in, first out basis/weighted average basis.
Initial cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges,
recognised in OCI, in respect of the purchases of raw materials.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make the sale.
(f) 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) Financial assets
Initial recognition and measurement
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 asset.
Purchases or sales of financial assets 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 asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
- Debt instruments at amortised cost
- Debt instruments at fair value through other comprehensive income (FVTOCI)
- Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
- Equity instruments measured at fair value through other comprehensive income (FVTOCI)
(1) Debt instruments at amortised cost
A ‘debt instrument' is measured at the amortised cost if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash
flows, and
b) Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal
and interest (SPPI) on the principal amount outstanding.
This category is the most relevant to the Company. After initial measurement, such financial assets are
subsequently measured at amortised cost using the effective interest rate (EIR) method. 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 in finance income in the profit or loss. The losses
arising from impairment are recognised in the profit or loss. This category generally applies to trade and
other receivables.
(2) Debt instrument at FVTOCI
A ‘debt instrument' is classified as at the FVTOCI if both of the following criteria are met:
(a) The objective of the business model is achieved both by collecting contractual cash flows and selling the
financial assets, and
(b) The asset's contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting
date at fair value. Fair value movements are recognized in the other comprehensive income (OCI).
However, the group recognizes interest income, impairment losses & reversals and foreign exchange gain
or loss in the P&L. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is
reclassified from the equity to P&L. Interest earned whilst holding FVTOCI debt instrument is reported as
interest income using the EIR method.
(3) Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for
categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the company may elect to designate a debt instrument, which otherwise meets amortized cost or
FVTOCI criteria, as at FvtPl. However, such election is allowed only if doing so reduces or eliminates a
measurement or recognition inconsistency (referred to as ‘accounting mismatch'). The company has not
designated any debt instrument as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes
recognized in the P&L.
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held
for trading and contingent consideration recognised by an acquirer in a business combination to which Ind
AS103 applies are classified as at FVTPL. For all other equity instruments, the company may make an
irrevocable election to present in other comprehensive income subsequent changes in the fair value. The
company makes such election on an instrument by- instrument basis. The classification is made on initial
recognition and is irrevocable.
If the company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the
instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI
to P&L, even on sale of investment. However, the company may transfer the cumulative gain or loss within
equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes
recognized in the P&L.
Interest in subsidiaries, associates and joint ventures are accounted at cost.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets)
is primarily derecognised (i.e. removed from the Company's balance sheet) when:
- The rights to receive cash flows from the asset have expired, or
- The company has transferred its 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 under a ‘pass-through'
arrangement; 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.
When the company has transferred its rights to receive cash flows from an asset or has entered into a pass¬
through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership.
When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor
transferred control of the asset, the company continues to recognise the transferred asset to the extent of
the Company's continuing involvement. In that case, the company also recognises an associated liability.
The transferred asset and the associated liability are measured on a basis that reflects the rights and
obligations that the company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the
lower of the original carrying amount of the asset and the maximum amount of consideration that the
company could be required to repay.
Impairment of financial assets
The company assesses on a forward looking basis the expected credit losses associated with its assets
carried at amortised cost and FVOCI debt instruments. The impairment methodology applied depends on
whether there has been a significant increase in credit risk. Note 21 details how the company determines
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.
(ii) Financial liabilties
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or
loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective
hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and
payables, net of directly attributable transaction costs.
The Company's financial liabilities include trade and other payables, loans and borrowings including bank
overdrafts, financial guarantee contracts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
(1) Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are
classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This
category also includes derivative financial instruments entered into by the company that are not designated
as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives
are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as
such at the initial date of recognition, and only if the criteria in Ind AS 109 are satisfied. For liabilities
designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in
OCI. These gains/ loss are not subsequently transferred to P&L. However, the company may transfer the
cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the
statement of profit or loss. The company has not designated any financial liability as at fair value through
profit and loss.
(2) Loans and borrowings
This is the category most relevant to the company. After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are
recognised in profit or 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.
(3) Financial guarantee contracts
Financial guarantee contracts issued by the company are those contracts that require a payment to be
made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when
due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially
as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the
guarantee. Subsequently, the liability is measured at the higher of the amount of loss allowance determined
as per impairment requirements of Ind AS 109 and the amount recognised less cumulative amortisation.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or
expires. When an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as the derecognition 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 or loss.
(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) 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.
(g) Trade and other payables
These amounts represent liabilities for goods and services provided to the company prior to the end of
financial year which are unpaid. The amounts are unsecured and are usually paid within XX days of
recognition. Trade and other payables are presented as current liabilities unless payment is not due within
12 months after the reporting period. They are recognised initially at their fair value and subsequently
measured at amortised cost using the effective interest method.
(h) Borrowing costs
General and specific borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset are capitalised during the period of time that is required to complete and
prepare the asset for its intended use or sale. Qualifying assets are assets that necessarily take a
substantial period of time to get ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure
on qualifying assets is deducted from the borrowing costs eligible for capitalisation. Other borrowing costs
are expensed in the period in which they are incurred.
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