1.3 Material Accounting PoliciesA. Property, Plant and equipment and Depreciation
Property, Plant and Equipment is stated at cost/deemed cost, net of accumulated
depreciation and accumulated impairment losses, if any.
The cost of an asset includes the purchase cost of materials, including import duties
and non-refundable taxes, and any directly attributable costs of bringing an asset to the
location and condition of its intended use.
Interest and other financial charges on loans borrowed specifically for acquisition of
capital assets are capitalized till the start of commercial production. Administrative,
general overheads and other indirect expenditure incurred during the project period
which are neither related to the project nor are incidental thereto, are charged to
Statement of Profit and Loss.
Depreciation is provided under the straight-line method at the rates determined based
on useful lives of the respective assets and residual values which is in line with those
indicated in Schedule II of The Companies Act, 2013. The estimated useful life of the
Property Plant and Equipment is given below:
The residual values, useful lives and methods of depreciation of property, plant and
equipment are reviewed at the end of each financial year end.
B. Leases
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.
As a lessee
The Company applies a single recognition and measurement approach for all leases,
except for short-term leases and leases of low-value assets. The Company recognises
lease liabilities to make lease payments and right-of-use assets representing the right to
use the underlying assets.
(i) Right-of-use assets
The Company recognises 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 impairment losses, and
adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets
includes the amount of lease liabilities recognised, 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 recognises 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.
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 lease and lease of low-value assets
The Company applies the short-term lease recognition exemption to its short-term
leases of machinery and equipment (i.e., those leases that have a lease term of
twelve months or less from the commencement date and do not contain a purchase
option). It also applies the lease of low-value assets recognition exemption to leases
of offices, godowns, equipment, etc. that are of low value. Lease payments on
short-term leases and leases of low-value assets are recognised as expense on a
straight-line basis over the lease term.
C. Revenue Recognition
Revenue from contracts with customers is recognised when control of the goods or
services are transferred to the customer at an amount that reflects the consideration
to which the Company expects to be entitled in exchange for those goods or services.
Revenue is measured at the fair value of the consideration received / receivable taking
into account contractually defined terms of payment and excluding taxes or duties
collected on behalf of the Government.
Sale of goods is recognised at the point in time when control of the goods is transferred
to the customer. The revenue is measured on the basis of the consideration defined
in the contract with a customer, including variable consideration, such as discounts,
volume rebates, or other contractual reductions. As the period between the date on
which the Company transfers the promised goods to the customer and the date on
which the customer pays for these goods is generally one year or less, no financing
components are taken into account.
D. Interest Income
Interest income is recognized on time proportion basis taking into account the amount
outstanding and rate applicable.
E. Insurance Claims
Insurance and other claims are accounted for on the basis claims admitted/expected to
be admitted and to the extent that there is no uncertainty in receiving the claims.
F. Taxes
Tax expense is the aggregate amount included in determination of profit or loss for the
period in respect of current tax & deferred tax.
I. Current Tax
Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities using tax rates and tax laws that
are enacted or substantively enacted, at the reporting date.
Current tax relating to items recognised outside profit or loss is recognised outside
profit or loss (either in other comprehensive income or 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 and
the carry forward of 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 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 relating to items recognised outside profit or loss is recognised outside
profit or loss (either in other comprehensive income or in equity). Deferred tax items
are recognised in correlation to the underlying transaction either in OCI or directly
in equity.
G. Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost.
Following initial recognition, intangible assets are carried at cost less any accumulated
amortisation and accumulated impairment loss, if any. The Company has intangible
assets with finite useful lives.
Intangible assets (Computer Software and Trade mark) are amortised on a Straight-Line
Basis over a period of five years and three years respectively.
H. Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of
an asset that necessarily takes a substantial period of time to get ready for its intended
use or sale are capitalised as part of the cost of the asset. All other borrowing costs
are expensed in the period in which they occur. Borrowing costs consist of interest and
other costs that an entity incurs in connection with the borrowing of funds. Borrowing
cost also includes exchange differences to the extent regarded as an adjustment to the
borrowing costs.
I. Inventories
Inventories are valued at lower of cost and net realisable value, after providing for
obsolescence, if any. Cost of inventory comprises of purchase price, cost of conversion
and other cost incurred in bringing the Inventories to their respective present location
and condition. Additionally, in case of Finished goods and work in progress a proportion
of manufacturing overheads based on the normal operating capacity is also added. The
cost of Inventories is computed on weighted average basis except for Raw Materials and
Components which is computed on Moving Weighted average basis.
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.
J. Impairment of Non-Financial Assets
The Company assesses, at each reporting date, whether there is an indication that an
asset may be impaired. If any indication exists, or when annual impairment testing for
an asset is required, the Company estimates the asset's recoverable amount. An asset's
recoverable amount is the higher of an asset's or cash-generating unit's (CGU) fair
value less costs of disposal and its value in use. Recoverable amount is determined
for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or class of assets. When the carrying amount of
an asset or CGU exceeds its recoverable amount, the asset is considered impaired and
is written down to its recoverable amount.
K. Employee Benefits
i) Short-term employee benefits
Short-term employee benefits in respect of salaries and wages, including non¬
monetary benefits are recognised as an expense at the undiscounted amount in the
Statement of Profit and Loss for the year in which the related service is rendered.
ii) Defined Benefit plans
The Company operates a defined benefit gratuity plan in India, comprising of
Gratuity fund with Life Insurance Corporation of India. The Company's liability is
actuarially determined using the Projected Unit Credit method at the end of the year
in accordance with the provision of Ind AS 19 — Employee Benefits. The Company
recognizes the net obligation of a defined benefit plan in its balance sheet as an
asset or liability. Gains and losses through re-measurements of the net defined
benefit liability/(asset) are recognized in other comprehensive income and are not
reclassified to profit or loss in subsequent periods. The actual return of the portfolio
of plan assets, in excess of the yields computed by applying the discount rate used
to measure the defined benefit obligation is recognized in other comprehensive
income. The effect of any plan amendments are recognized in the Statement of
Profit & Loss.
The Company has a policy on compensated absences which are both accumulating
and non-accumulating in nature. The Company's liability is actuarially determined
using the Projected Unit Credit method at the end of the year in accordance with
the provision of Ind AS 19 - Employee Benefits. The Company recognizes the net
obligation of a defined benefit plan in its balance sheet as an asset or liability. Gains
and losses through re-measurements of the net defined benefit liability/(asset) are
recognized in Statement of Profit & Loss.
iii) Defined Contribution Plans
Payments to defined contribution plans are charged as an expense as they fall due.
Payments made to state managed retirement benefit schemes are dealt with as
payments to defined contribution schemes where the Company's obligations under
the schemes are equivalent to those arising in a defined contribution benefit scheme.
L. Foreign Currency Translation
Transactions in foreign currency are recorded applying the exchange rate at the date of
transaction. Monetary assets and liabilities denominated in foreign currency, remaining
unsettled at the end of the year, are translated at the closing exchange rates prevailing
on the Balance Sheet date. Exchange differences arising on settlement or translation of
monetary items are recognised in the Statement of Profit and Loss. Non-monetary items
carried at fair value that are denominated in foreign currencies are retranslated at the
rates prevailing at the date when the fair value was determined. Non-monetary items
that are measured in terms of historical cost in a foreign currency are not retranslated.
The gain or loss arising on translation of non-monetary items measured at fair value
is treated in line with the recognition of the gain or loss on the change in fair value of
the item (i.e. translation differences on items whose fair value gain or loss is recognised
in Other Comprehensive Income (OCI) or the Statement of Profit and Loss are also
reclassified in OCI or the Statement of Profit and Loss, respectively).
M. Financial Instruments
i) Financial Assets
The financial assets are classified in the following categories:
a) financial assets measured at amortised cost,
b) financial assets measured at fair value through profit and loss (FVTPL), and
c) financial assets measured at fair value through other comprehensive income
(FVOCI).
The classification of financial assets depends on the Company's business model for
managing financial assets and the contractual terms of the cash flow.
At initial recognition, the financial assets are measured at its fair value plus transaction
costs that are directly attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at FVTPL are expensed in the Profit or Loss. Financial
assets are not reclassified subsequent to their recognition except if and in the period the
Company changes its business model for arranging financial assets.
a. Financial assets measured at amortised 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 amortised cost.
After initial measurement, such financial assets are subsequently measured at amortised
cost using the effective interest rate method. The losses arising from impairment are
recognised in the Statement of Profit or Loss.
Trade Receivables are recognised initially at fair value and subsequently measured at
amortised cost using the effective interest method less provision for impairment, if any.
b. Financial instruments measured at FVTPL
Financial instruments included within FVTPL category are measured initially as well as
at each reporting period at fair value plus transaction costs as applicable. Fair value
movements are recorded in statement of profit and loss.
Investments in units of mutual funds, alternate investment funds (AIF's) other than
equity and debentures are accounted for at fair value and the changes in fair value are
recognised in the statement of Profit and Loss.
c. Financial assets at FVOCI
Financial assets are measured at FVOCI if these financial assets are 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.
d. Equity instruments
Investments in Subsidiary & Joint Venture are out of scope of Ind AS 109 and hence,
the company has accounted for its investment in Subsidiary & Joint Venture at cost.
All other equity investments are measured at fair value as per Ind AS 109. Equity
instruments which are held for trading are classified as at FVTPL. For all other equity
instruments, the company has 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 recognised in the OCI. There is
no recycling of the amounts from OCI to the Statement of Profit and Loss, even on sale
of investment. However, the company may transfer the cumulative gain or loss within
equity.
e. De-recognition of financial asset
The Company de-recognises a financial asset when the contractual rights to the cash
flows from the financial assets expire or it transfers the financial assets and such transfer
qualifies for de-recognition under Ind AS 109 : Financial Instruments.
f. Impairment of financial assets
The Company assesses on a forward-looking basis the expected credit losses associated
with its assets carried at amortised cost. The impairment methodology applied depends
on whether there has been a significant increase in credit risk.
Only for Trade receivables, allowances for credit losses has been estimated based on
ageing of receivables and customer related specific information in case to case basis.
Impairment loss allowance recognised /reversed during the year is charged/written back
to Statement of Profit and Loss.
ii) Financial Liabilities
Financial liabilities are measured at amortised cost using the effective interest method.
Borrowings are initially recognised at fair value, net of transaction costs incurred.
Borrowings are subsequently measured at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption amount is recognised in profit or
loss over the period of the borrowings using the effective interest method. Fees paid on
the establishment of loan facilities are recognised as transaction cost of the loan to the
extent that it is probable that some or all of the facility will be drawn down. In this case,
the fee is deferred until the draw down occurs. To the extent there is no evidence that it
is probable that some or all of the facility will be drawn down, the fee is capitalised as
a prepayment for liquidity services and amortised over the period of the facility to which
it relates.
Borrowings are classified as current liabilities unless the Company has an unconditional
right to defer settlement of the liability for at least 12 months after the reporting period.
Where there is a breach of a material provision of a long-term loan arrangement on or
before the end of the reporting period with the effect that the liability becomes payable
on demand on the reporting date, the entity does not classify the liability as current, if
the lender agreed, after the reporting period and before the approval of the financial
statements for issue, not to demand payment as a consequence of the breach.
For Trade and Other Payables maturing within one year from the balance sheet date,
the carrying amount approximates fair value to short-term maturity of these instruments.
A financial liability (or a part of financial liability) is de-recognised from Company's
balance sheet when obligation specified in the contract is discharged or cancelled or
expired.
iii) Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount is reported in the balance
sheet where there is a legally enforceable right to offset the recognised amounts and
there is an intention to settle on a net basis or realise the asset and settle the liability
simultaneously. The legally enforceable right must not be contingent on future events
and must be enforceable in the normal course of business and in event of default,
insolvency or bankruptcy of the Company or the counterparty.
N. 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.
O. Cash Flow Statement
Cash flows are reported using the indirect method, whereby profit/loss before tax is
adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals
of past or future operating cash receipts or payments and item of income or expenses
associated with investing or financing flows. The cash flows from operating, investing
and financing activities of the Company are segregated.
P. Dividend to Equity Holders
The Company recognises a liability to make cash distributions to equity holders of the
Company when the distribution is authorised and the distribution is no longer at the
discretion of the Company. As per the corporate laws in India, a distribution is authorised
when it is approved by the shareholders. A corresponding amount is recognised directly
in equity.
Q. Earning Per Share
Earning per share is calculated by dividing the net profit or loss before OCI for the year
attributable to equity shareholders by the weighted average number of equity shares
outstanding during the period. For the purpose of calculating diluted earnings per share,
the net profit or loss before OCI for the period attributable to equity shareholders and
the weighted average number of shares outstanding during the period are adjusted for
the effects of all dilutive potential equity shares.
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