3. MATERIAL ACCOUNTING POLICIES
3.1 Property, plant and equipment:
Property, plant and equipment are stated at cost of acquisition or construction less
accumulated depreciation and any accumulated impairment losses. The cost of fixed assets
comprises of its purchase price, non-refundable taxes & levies, freight and other incidental
expenses related to the acquisition and installation of the respective assets. Borrowing cost
attributable to financing of acquisition or construction of the qualifying fixed assets is
capitalized to respective assets when the time taken to put the assets to use is substantial.
When major items of property, plant and equipment like tooling or a separate identifiable
machinery spare part, have different useful lives, they are accounted for as separate items to
respective asset block. The cost of replacement of any property, plant and equipment is
recognized in the carrying amount of the item if it is probable that the future economic
benefit associated with the item will flow to the company and its cost can be measured
reliably.
Pre-operative expenditure comprising of revenue expenses incurred in connection with
project implementation during the period up to commencement of commercial production
are treated as part of the project costs and are capitalized. Such expenses are capitalized only
if the project to which they relate, involve substantial expansion of capacity or upgradation.
An item of property, plant and equipment is derecognized upon disposal or when no future
economic benefits are expected to arise from its use. Difference between the sales proceeds
and the carrying amount of the asset is recognized in statement of profit and loss.
Depreciation on property, plant and equipment is provided using straight line method based
on useful life of the assets estimated by the management, which are in line with the useful
lives as prescribed in Part C of Schedule II of the Act. The estimated useful lives, residual
values and depreciation method are reviewed at each financial year-end and changes in
estimates, if any are accounted for on a prospective basis.
Capital work-in-progress (CWIP) includes cost of PPE under installation/ under
construction, net of accumulated impairment loss, if any, as at the balance sheet date.
Expenditure/ income during construction period (including financing cost related to
borrowed funds for construction or acquisition of qualifying PPE) is included under Capital
Work-in-Progress, and the same is allocated to the respective PPE on the completion of their
construction.
Depreciation is not recorded on capital work-in-progress until construction and installation is
complete and the asset is ready for its intended use.
Intangible assets are stated at cost, less accumulated amortization and impairment losses,
if any.
Intangible assets not ready for the intended use on the date of the balance sheet are
disclosed as intangible assets under development.
In respect of intangible assets acquired / purchased during the year, amortization is
provided on a pro-rata basis from the date on which such asset is ready to use.
Intangible assets are amortized using straight line method over the estimated useful life as
prescribed in Part C of Schedule II of the Act.
Amortization method, useful lives and residual values are reviewed at the end of each
financial year and adjusted if appropriate.
3.3 Financial Instruments
A. Financial Assets
i. Classification of financial assets:
The Company classifies its financial assets in the following measurement
categories:
o Those to be measured subsequently at fair value (either through other
comprehensive income or through profit and loss) and
o Those measured at amortized cost.
The classification depends on the Company’s business model for managing the
financial assets and the contractual cash flow characteristics of the financial
assets.
ii. Initial measurement:
Financial assets (unless it is a trade receivable without a significant financing
component) are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets at fair value
through profit or loss are recognized immediately in profit or loss.
iii. Subsequent measurement:
ÝAmortized Cost
Assets that are held for collection of contractual cash flows where those
cash flows represent solely payments of principal and interest are
measured at amortized cost. Interest income from these financial assets
is included in finance income using the effective interest rate method.
ÝFair value through other comprehensive income (FVOCI)
Assets that are held for collection of contractual cash flows and for
selling the financial assets, where the assets’ cash flows represent solely
payments of principal and interest, are measured at fair value through
other comprehensive income (FVOCI). Movements in the carrying
amount are taken through OCI, except for the recognition of
impairment gains or losses, interest revenue which are recognized in
profit and loss. When the financial asset is derecognized, the
cumulative gain or loss previously recognized in OCI is reclassified
from equity to profit or loss and recognized in other gains / (losses).
Interest income from these financial assets is included in other income
using the effective interest rate method.
ÝFair value through profit or loss (FVTPL)
Assets that do not meet the criteria for amortized cost or FVOCI are
measured at fair value through profit or loss.
iv. Derecognition of financial assets:
A financial asset (or, where applicable, a part of a financial asset or part of a
Group of similar financial assets) is primarily derecognized (i.e. removed from
the Company’s balance sheet) when:
o The rights to receive cash flows from the asset have expired, or
o The Company has transferred its rights to receive cash flows from the asset
When the Company has transferred an asset, the Company evaluates whether it
has transferred substantially all risks and rewards of ownership of the financial
asset. In such cases, the financial asset is derecognized. Where the Company has
retained substantially all risks and rewards of ownership of the financial asset,
the financial asset is not derecognized.
Where the Company has neither transferred a financial asset nor retains asset is
derecognized if the Company has not retained control over the financial asset.
Where the Company has retained control of the financial asset, the asset is
continued to be recognized to the extent of continuing involvement in the
financial asset.
v. Income recognition:
Interest income is recognized in the statement of profit and loss as it accrues,
using the effective interest method.
vi. Investments
Investments in mutual funds are primarily held for the Company’s temporary
cash requirements and can be readily convertible in cash. These investments are
initially recorded at fair value and classified as fair value through profit or loss.
vii. Cash and cash equivalents:
Cash and cash equivalents consist of cash on hand and balances with bank.
viii. Trade Receivables:
Trade receivables are amounts due from customers for sale of services /goods
performed in the ordinary course of business. Trade receivables are initially
recognized at its transaction price which is considered to be its fair value and are
classified as current assets as it is expected to be received within the normal
operating cycle of the business.
ix. Other Financial assets:
Other non-derivative financial instruments are initially recognized at fair value
and subsequently measured at amortized costs using the effective interest
method.
x. Impairment:
At each balance sheet date, the Company assesses whether a financial asset is to
be impaired. Ind AS 109 requires the Company to apply expected credit loss
model for recognition and measurement of impairment loss. In determining the
allowances for doubtful trade receivables, the Company has used a practical
expedient by computing the expected credit loss allowance for trade receivables
based on a provision matrix. The provision matrix takes into account historical
credit loss experience and is adjusted for forward looking information. The
impairment loss is based on the ageing of the receivables that are due and
allowance rates used in the provision matrix. For all other financial assets,
expected credit losses are measured at an amount equal to the 12-months
expected credit losses or at an amount equal to the life time expected credit
losses if the credit risk on the financial asset has increased significantly since
initial recognition.
B. Financial Liabilities
The Company’s financial liabilities include borrowings, trade payables and other
financial liabilities.
i. Classification of financial liabilities:
All the Company’s financial liabilities, except for financial liabilities at fair
value through profit or loss, are measured at amortized cost.
ii. Initial measurement:
Financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial liabilities (other than
financial liabilities at fair value through profit or loss) are deducted from the fair
value of the financial liabilities, as appropriate, on initial recognition.
Transaction costs that are directly attributable to the acquisition or issue of
financial liabilities at fair value through profit or loss are recognized
immediately in profit or loss.
iii. Subsequent measurement:
Financial liabilities are subsequently measured at amortized cost using the
Effective Interest Rate Method. The Effective Interest Rate Method is a method
of calculating the amortized cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments (including transaction costs
and other premiums or discounts) through the expected life of the financial
liability, or (where appropriate) a shorter period, to the net carrying amount on
initial recognition.
iv. Derecognition of financial liabilities:
The Company derecognizes financial liabilities when, and only when, the
Company’s obligations are discharged, cancelled or waived off or have expired.
An exchange between the Company and the lender of debt instruments with
substantially different terms is accounted for as an extinguishment of the
original financial liability and the recognition of a new financial liability. The
difference between the carrying amount of the financial liability derecognized
and the consideration paid and payable is recognized in profit or loss.
v. Trade Payables:
Trade payables are amounts due to vendors for purchase of goods or services
acquired in the ordinary course of business and are classified as current
liabilities to the extent it is expected to be paid within the normal operating
cycle of the business.
vi. Borrowings
Borrowings are initially recorded at fair value net of transaction cost and
subsequently measured at amortized costs using effective interest rate method.
Transaction costs are charged to statement of profit and loss as financial
expenses over the term of borrowing.
vii. Other financial liabilities:
Other non-derivative financial instruments are initially recognized at fair value
and subsequently measured at amortized costs using the effective interest
method.
3.4 Employee benefits
A. Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity
pays fixed contributions into a separate entity and will have no legal or constructive
obligation to pay further amounts. The Company makes specified monthly contributions
towards government administered provident fund scheme. Obligations for contributions
to defined contribution plans are recognized as an employee benefit expense in
statement of profit and loss in the periods during which the related services are rendered
by employees.
B. Defined benefit plans
The Company operates an unfunded defined benefit gratuity plan in India. The
Company’s net obligation in respect of gratuity, which is defined benefit plan, is
calculated using the projected unit credit method and the same is carried out by qualified
actuary. The current service cost and interest on the net defined benefit liability / (asset)
is recognized in the statement of profit and loss. Past service cost is immediately
recognized in the statement of profit and loss. Actuarial gains and losses net of deferred
taxes arising from experience adjustment and changes in actuarial assumptions are
recognized in other comprehensive income in the period in which they arise.
3.5 Revenue from contract with customer
Sale of goods
Revenue is recognized upon transfer of control of promised goods to customers in an
amount that reflects the consideration which the Company expects to receive in exchange for
those goods. Contracts for the sale of goods provide customers with a customary right of
return in case of defects, quality issues etc. The rights of return give rise to variable
consideration.
Revenue from the sale of goods is recognized at the point in time when control is transferred
to the customer, which is determined based on contracts with the customers.
Revenue is measured based on the transaction price, which is the consideration, adjusted for
discounts and estimated returns as specified in the contracts with the customers. Revenue
excludes taxes collected from customers on behalf of the government.
Sales return is variable consideration that is recognized and recorded based on historical
experience, market conditions and provided for in the year of sale as reduction from
revenue. The methodology and assumptions used to estimate returns are monitored and
adjusted regularly in line with trade practices, historical trends, past experience, projected
market conditions and certain factual data in relation to actual returns received in terms of
delivery of short quantities and rejection on account of quality issue.
Sale of Services
The Company renders job work services that are provided separately. The Company
recognizes revenue from sale of services at a point in time, when products are sent to the
customer after completion.
Other income
Interest Income is recognized on time proportion basis taking into account the amount
outstanding and the applicable interest rate. Interest income is included under the head
‘Other Income’ in the Statement of Profit and Loss.
Other income is recognised when no significant uncertainty as to its determination or
realisation exists.
A. 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 country where the Company operates and generates taxable income.
Current income tax relating to items recognized outside profit and loss is recognized
outside profit and loss (either in other comprehensive income or in equity).
Current tax assets and liabilities are offset only if there is a legally enforceable right to
set off the recognized amounts, and it is intended to realize the asset and settle the
liability on a net basis or simultaneously. Advance taxes and provisions for current
income taxes are presented in the balance sheet after off-setting advance tax paid and
income tax provision arising in the same tax jurisdiction and where the relevant tax
paying units intends to settle the asset and liability on a net basis.
B. Deferred taxes
Deferred income taxes reflect the impact of temporary differences between tax base of
assets and liabilities and their carrying amounts. Deferred tax is measured based on the
tax rates and the tax laws enacted or substantively enacted at the reporting date.
Deferred tax liabilities are recognized for all taxable temporary differences, except
deferred tax liability arising from initial recognition of goodwill or an asset or liability in
a transaction that is not a business combination and, affects neither accounting nor
taxable profit/ loss at the time of transaction. Deferred tax assets are recognized for all
deductible temporary differences, the carry forward of unused tax credits and any
unused tax losses, except deferred tax assets arising from initial recognition of goodwill
or an asset or liability in a transaction that is not a business combination and, affects
neither accounting nor taxable profit/ loss at the time of transaction. Deferred tax assets
are recognized only to the extent that sufficient future taxable income will be available
against which such deferred tax assets can be realized.
The carrying amount of deferred tax asset is reviewed at each reporting date and reduced
to the extent that it is no longer probable that sufficient taxable profit will be available
against which such deferred tax assets can be realized.
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 tax assets
and deferred tax liabilities relate to the same taxable entity and the same taxation
authority.
Deferred tax relating to items recognized outside the statement of profit and loss is
recognized in correlation to the underlying transaction either in OCI or directly in
equity.
The Company assesses at contract inception whether a contract is, or contains, a lease. That
is, 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
The Company applies a single recognition and measurement approach for all leases, except
for short term leases. The Company recognizes lease liabilities to make lease payments and
right-of-use assets representing the right to use the underlying assets.
i) Right to use assets
The Company recognizes right-of-use assets at the commencement date of the lease
(i.e., the date the underlying asset is available for use). Right-of-use assets are
measured at cost, less any accumulated depreciation and accumulated impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-
use assets includes the amount of lease liabilities recognized, initial direct costs
incurred, and lease payments made at or before the commencement date less any
lease incentives received. Right-of-use assets are depreciated on a straight-line basis
over the shorter of the lease term and the estimated useful lives of the assets. If
ownership of the leased asset transfers to the Company at the end of the lease term
or the cost reflects the exercise of a purchase option, depreciation is calculated using
the estimated useful life of the asset. The right-of-use assets are also subject to
impairment.
ii) Lease liabilities
At the commencement date of the lease, the Company recognizes lease liabilities
measured at the present value of lease payments to be made over the lease term. The
lease payments include fixed payments (including in substance fixed payments) less
any lease incentives receivable, variable lease payments that depend on an index or
a rate, and amounts expected to be paid under residual value guarantees. The lease
payments also include the exercise price of a purchase option reasonably certain to
be exercised by the Company and payments of penalties for terminating the lease, if
the lease term reflects the Company exercising the option to terminate. Variable
lease payments that do not depend on an index or a rate are recognized as expenses
(unless they are incurred to produce inventories) in the period in which the event or
condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses its incremental
borrowing rate at the lease commencement date because the interest rate implicit in
the lease is not readily determinable. After the commencement date, the amount of
lease liabilities is increased to reflect the accretion of interest and reduced for the
lease payments made. In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in the lease term, a change in the
lease payments (e.g., changes to future payments resulting from a change in an
index or rate used to determine such lease payments) or a change in the assessment
of an option to purchase the underlying asset.
iii) Short term leases
The Company applies the short-term lease recognition exemption to its properties
(i.e., those leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). Lease payments on
short-term leases are recognized as expense in profit and loss.
3.8 Earnings per share
Basic earnings per share is computed by dividing profit or loss attributable to equity
shareholders of the Company by the weighted average number of equity shares outstanding
during the year. The Company did not have any potentially dilutive securities in any of the
years presented.
3.9 Impairment of non-financial assets
Property, plant and equipment and intangible assets with finite life are evaluated for
recoverability whenever there is any indication that their carrying amounts may not be
recoverable. If any such indication exists, the recoverable amount (i.e. higher of the fair
value less cost to sell and the value-in-use) is determined on an individual asset basis unless
the asset does not generate cash flows that are largely independent of those from other
assets. In such cases, the recoverable amount is determined for the cash generating unit
(CGU) to which the asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than it carrying
amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. An
impairment loss is recognized in the statement of profit and loss to such extent. When an
impairment loss subsequently reverses, the carrying amount of the asset (or a CGU) is
increased to the revised estimate of its recoverable amount, such that the increase in the
carrying amount does not exceed the carrying amount that would have been determined had
no impairment loss been recognized for the asset (or CGU) in prior years. A reversal of an
impairment loss is recognized immediately in statement of profit and loss.
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