B. Significant Accounting Policies
I. Statement of Compliance
The financial statements are prepared in accordance with Indian Accounting Standards (Ind AS), as prescribed
under section 133 of the Companies Act, 2013('the Act') read with the Rule 3 of the Companies (Indian
Accounting Standard) Rules 2015 as amended from time to time and guidelines issued by the Securities and
Exchange Board of India (SEBI).
II. Basis of preparation and presentation
The financial statements are prepared on the historical cost basis except for following financial instruments
that are measured at fair value:
• Defined benefit plan- Plan assets measured at fair value,
• Certain financial assets and liabilities measured at fair value (including derivative instruments).
> Functional and Presentation Currency
The financial statements are presented in Indian Rupees, which is the functional currency of the
Company and the currency of the primary economic environment in which the Company operates.
> Classification of Assets and Liabilities as Current and Non-Current
All assets & liabilities are classified as current or non-current as per the Company's normal
operating cycle and other criteria set out in Schedule III of the Companies Act, 2013. Based on the
nature of products/activities of the Company and the normal time between acquisition of assets
for processing and their realization in cash or cash equivalents, the Company has determined its
operating cycle as 12 months for the purpose of classification of its assets and liabilities as current
and non-current.
Assets are classified as current when any of following criteria is satisfied:
i. The Company expects to realize the asset, or intends to sell or consume it, in its normal
operating cycle;
ii. The Company holds the asset primarily for the purpose of trading;
iii. The Company expects to realize the asset within twelve months after the reporting period;
iv. The asset is cash or a cash equivalent unless the asset is 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.
Liabilities are classified as current when any of following criteria is satisfied:
i. The Company expects to settle the liability in its normal operating cycle;
ii. The Company holds the liability primarily for the purpose of trading;
iii. The liability is due to be settled within twelve months after the reporting period; or
iv. The Company does not have an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period. 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.
III. Revenue recognition
The company mainly deals in 100% cotton yarn spinning and derives revenues primarily from sale of
manufactured goods.
Revenue from Contracts with customers is recognized when the Company satisfies performance obligation
by transferring promised goods or services to the customer. Performance obligation is satisfied when the
company transfers significant risks and rewards to the customer and ceases its control over the goods.
Revenue from sale of goods is recognized at a point of time when the significant risks and rewards are
transferred to the customer and the company ceases to have its control over the goods.
Revenue is measured based on the transaction price, which is the consideration, adjusted for volume
discounts, rebates, price concessions and incentives, if any, as specified in the contract with customers.
Revenue excludes taxes collected from customers on behalf of government.
Payments from customers for the goods and services rendered are normally received within the credit terms
as per contracts with the customers.
The company recognizes sales return only when the goods are actually returned by the customers.
Other Operating revenue
a) Export incentives are accounted for in the year of export at net market realizable value.
b) Interest on bank deposits is recognized on the effective interest rate method basis taking into account
the amounts invested and the rate of interest applicable.
c) Interest from trade receivables and other financial assets are recognized when it is probable that the
economic benefit will flow to the entity and the amount can be measured reliably.
d) Claim lodged with insurance companies is recognized as income on acceptance by the insurance
Companies
IV. Government Grant & Government Assistance
Government grants are not recognised until there is reasonable assurance that the Company will comply
with the conditions attaching to them and that the grants will be received.
Government grant/subsidy if relates to an expense item are recognised in the statement of profit and loss on
a systematic basis over the periods in which the Company recognise as expenses the related costs for which
the grants are intended to compensate.
V. Inventories
Inventories including goods-in-transit are valued at lower of cost and estimated net realizable value. Cost
of inventory includes the cost of purchase (net of taxes whose credit is taken by the company) and all other
direct and indirect cost allocated proportionately incurred in bringing the inventories to their present
location and condition.
Raw materials and stores & spares:
Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location
and condition. Cost is determined on FIFO basis in case of raw material and on weighted average basis in
case of stores & spares.
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 weighted average cost
basis.
Waste:
Valued at net realizable value
Recognition and measurement
Property, plant and equipment (PPE) are carried at cost less accumulated depreciation and accumulated
impairment losses, if any.
The cost of property, plant and equipment (PPE) 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, other
incidental expenses, present value of decommissioning costs (where there is a legal or constructive
obligation to decommission) and interest on borrowings attributable to acquisition of qualifying assets up
to the date the asset is ready for its intended use.
Subsequent expenditure
Subsequent expenditure on property plant & equipment after its purchase / completion is capitalised only if
it is probable that the future economic benefits associated with the expenditure will flow to the Company.
Impairment
Property, plant and equipment are tested for impairment whenever events or changes in circumstances
indicate that an asset may be impaired. If an impairment loss is determined, the remaining useful life of the
asset is also subject to adjustment.
An impairment loss is recognized in the statement of profit and loss to the extent, asset's carrying amount
exceeds its recoverable amount. The recoverable amount is higher of an asset's fair value less cost of disposal
and value in use. Value in use is based on the estimated future cash flows, discounted to their present value
using pre-tax discount rate that reflects current market assessments of the time value of money and risk
specific to the assets.
The impairment loss recognised in prior accounting period is reversed if there has been a change in the
estimate of recoverable amount.
Capital work-in-progress
Projects under which property, plant and equipment are not yet ready for their intended use are carried
at cost less any recognised impairment loss. Cost comprises direct cost, related incidental expenses and
borrowing cost.
Depreciation
Depreciation is recognised for property, plant and equipment so as to write-off the cost less residual values
over their estimated useful lives. The estimated useful lives, residual values and depreciation method are
reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on
a prospective basis taking into account commercial and technological obsolescence as well as normal wear
and tear.
Depreciation on tangible assets except plant & machinery (excluding solar plant), is provided on straight line
method over the useful lives prescribed under Schedule II of Companies Act, 2013.
Depreciation on plant & machinery (Excluding solar plant) is provided on straight line method considering
the same as 'Continuous Process Plant' based on technical expert's advice, over the useful life prescribed
under the schedule II of the companies Act.2013.
Depreciation on additions to or on disposal of property, plant and equipment is calculated on pro-rata basis
i.e. from (up to) the date on which the Property, Plant and Equipment is available for use (disposed off).
De-recognition of PPE
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 property, plant and equipment) is included in the statement of profit & loss when the
VII. Right to use of assets
Recognition and measurement
At inception of an arrangement, the Company determines whether such an arrangement is or contains
a lease. A specific asset is subject of a lease if fulfillment of the arrangement is dependent on the use of
that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the
customer the right to control the use of the underlying asset. Arrangements that do not take the legal form
of a lease but convey rights to customers/suppliers to use an asset in return for a payment or a series of
payments are identified as either finance leases or operating leases.
Accounting for
a. Operating leases
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 lease. Payments made under operating leases are
recognised as an expense over the lease term
b. Finance Lease
Leases of Property, Plant and Equipment where the Company, as lessee has substantially all risks and
rewards of ownership are classified as finance lease. On initial recognition, assets held under finance
leases are recorded as Property, Plant and Equipment and the related liability is recognised under
borrowings. At inception of the lease, finance leases are recorded at amounts equal to the fair value
of the leased asset or, if lower, the present value of the minimum lease payments. Minimum lease
payments made under finance leases are apportioned between the finance expense and the reduction
of the outstanding liability.
c. Amortization
Right to use' assets are amortized over the period of right to use available to the company. Amortization
is done on the basis of straight line method. Change in 'right to use' period or change in future economic
benefit in the assets are considered to modify the amortization period or method, as appropriate, and
are treated as change in accounting estimates.
d. Impairment
Right to use' assets are amortised over the period of right available to the company and assessed for
impairment whenever there is an indication that the assets may be impaired
e. De-recognition
Right to use'asset is de-recognised on disposal or transfer to rights or when no future economic benefits
are expected from use of the assets. Gain or losses arising from de-recognition are recognition in the
statement of profit and loss when the assets is de-recognised
VIII. Intangible assets
Recognition and measurement
An intangible asset is recognized when it is probable that the expected future economic benefits that are
attributable to the asset will flow to the entity; and the cost of the asset can be measured reliably. All other
expenditure is expensed as incurred.
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated
amortisation and accumulated impairment losses.
The cost of a separately acquired intangible asset comprises of its purchase price, including import duties and
non-refundable purchase taxes, after deducting trade discounts and rebates; and any directly attributable
cost of preparing the asset for its intended use.
Internally generated intangibles, excluding capitalized development costs, are not capitalized and the related
expenditure is reflected in statement of profit or loss in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or infinite. The amortisation period and the
amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each
reporting period. Changes in the expected useful life or the expected pattern of consumption of future
economic benefits embodied in the asset are considered to modify the amortisation period or method, as
appropriate, and are treated as changes in accounting estimates.
Impairment
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be impaired. The amortisation expense on
intangible assets with finite lives is recognized in the statement of profit and loss unless such expenditure
forms part of carrying value of another asset.
Derecognition of Intangible assets
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use
or disposal. Gains or losses arising from derecognition of an intangible asset are determined as the difference
between the net disposal proceeds and the carrying amount of the asset and recognised in Statement of
profit and loss when the asset is derecognised.
IX. Foreign currencies
The Company's financial statements are presented in INR. (?)
Transactions and balances
In preparing the financial statements, transactions in foreign currencies are recognised at the rates of
exchange prevailing at the dates of the transactions. Exchange differences arising on foreign exchange
transactions settled during the period are recognised in the Statement of profit and loss of the period.
At the end of each reporting period, monetary items denominated in foreign currencies (except financial
instruments designated as Hedge Instruments) are translated at the rates prevailing at that date.
Exchange differences on translation of monetary items are recognised in Statement of profit and loss in the
period in which they arise with the exception of the following:
Monetary items that are designated as part of cash flow hedge instrument are recognised in other
comprehensive income.
Non-monetary that are measured in terms of historical cost in a foreign currency are translated using the
exchange rates at the dates of the initial transactions.
Derivative Financial Instruments and Hedge Accounting
The Company uses derivative instruments i.e. forward contracts to hedge its foreign currency risks. The
Company designates these forward contracts as cash flow hedges to mitigate the risk of foreign exchange
exposure on highly probable forecast cash transactions. The Company has designated forward instruments
on spot to spot basis. The Company recognises the forward points in the statement of profit and loss account.
At the inception of the hedge relationship, the entity documents the relationship between the hedging
instrument and the hedged item, along with its risk management objectives and its strategy for undertaking
various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the
Company documents whether the hedging instrument is highly effective in offsetting changes in fair values
or cash flows of the hedged item attributable to the hedged risk.
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes
in the fair value of the derivatives is recognised in other comprehensive income and accumulated in the
other comprehensive income under other equity. Any ineffective portion of changes in the fair value of
the derivative is recognised immediately in the statement of profit and loss. If the hedging instrument no
longer meets the criteria for hedge accounting, then hedge accounting is discontinued prospectively. If the
hedging instrument expires or is sold, terminated or exercised, the cumulative gain or loss on the hedging
instrument recognised in other comprehensive income till the period hedge was effective remains in other
comprehensive income until the forecasted transaction occurs. The cumulative gain or loss previously
recognised in the other comprehensive income is transferred to the statement of profit and loss upon the
occurrence of related forecasted transaction. If the forecasted transactions no longer expected to occur,
then the amount accumulated in other comprehensive income is reclassified to net profit in the statement
of profit and loss.
X. Employee benefits
Short-term Employee Benefits
Short-term employee benefits obligation is measured on undiscounted basis and is expensed as the related
service is provided. A liability is recognized for the amount expected to be paid if the Company has a present
legal or constructive obligation to pay this amount as a result of past service provided by the employee and
the obligation can be estimated reliably.
Defined Contribution Plan:
The Company makes defined contribution to Employees Provident Fund Organization (EPFO), Pension
Fund, Superannuation Fund and Employees State Insurance (ESI), which are accounted on accrual basis as
expenses in the statement of profit and loss in the period during which the related services are rendered by
employees.
Prepaid contribution is recognized as assets to the extent that a cash refund or reduction in future payments
is available.
Defined Benefit Plan:
The Company's liabilities on account of gratuity and earned leave on retirement of employees are determined
under defined benefit plans.
The Company's net obligation in respect of defined benefit plans is calculated separately for each plan
by estimating the amount of future benefit that employees have earned in the current and prior periods,
discounting that amount and deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected
unit credit method. When the calculation results in a potential asset for the Company, the recognized asset is
limited to the present value of economic benefits available in the form of any future refunds from the plan or
reductions in future contributions to the plan. In order to calculate the present value of economic benefits,
consideration is given to any applicable minimum funding requirements.
Re-measurement of the net defined benefit liability, which comprise actuarial gains and losses, the return on
plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized
immediately in Other Comprehensive Income. Net interest expense (income) on the net defined liability
(assets) is computed by applying the discount rate, used to measure the net defined liability (asset), to the
net defined liability (asset) at the start of the financial year after taking into account any changes as a result
of contribution and benefit payments during the year.
Net interest expense and other expenses related to defined benefit plans are recognized in statement of
profit and loss.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that
relates to past service or the gain or loss on curtailment is recognized immediately in statement of profit
and loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the
settlement occurs.
Income tax expense represents the sum of tax currently payable and deferred tax.
> Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from 'profit before
tax' as reported in the statement of profit and loss because of items of income or expense that are
taxable or deductible in other years and items that are never taxable or deductible.
Current tax is determined on the basis of taxable income and tax credits computed for Company, in
accordance with the Income-tax Act, 1961 enacted in India and tax laws prevailing in the respective tax
jurisdiction where the Company operates. The tax rates and tax laws used to compute the amount are
those that are enacted at the reporting date.
Current income tax relating to items recognized outside profit or loss is recognized outside profit or
loss (either in other comprehensive income (OCI) or in equity). Current tax items are recognized 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.
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 taxpaying units intends to settle the asset and liability on a net basis.
> Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax base used in the computation of taxable profit.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets
are generally recognized for all deductible temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible temporary differences can be utilized.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or
part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period
in which the liability will be settled or the asset will be realized, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation
authority and the relevant entity intends to settle its current tax assets and liabilities on a net basis.
Current and deferred tax for the year
Current and deferred tax are recognized in statement of profit and loss, except when they relate to items
that are recognized in other comprehensive income or directly in equity, in which case, the current and
deferred tax are also recognized in other comprehensive income or directly in equity respectively.
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