4. Material accounting policies.
The Material accounting polices applied by the Company in
the preparation of its financial statements are listed below.
Such accounting policies have been applied consistently to all
the periods presented in these financial statements, unless
otherwise indicated.
a) Revenue recognition
A. Sale of Products
The Company recognises revenue from contracts
with customers when it satisfies a performance
obligation by transferring control of promised good
to a customer. Performance obligation in respect
of sale of product is satisfied at a point in time
which usually occurs upon receipt of goods by
the customer. At that point, the customer has full
discretion over the channel and price to sell the
products, and there are no unfulfilled obligations
that could affect the customer's acceptance
of the product.
The revenue is recognised to the extent of
transaction price allocated to the performance
obligation satisfied.
Transaction price is the amount of consideration
to which the Company expects to be entitled in
exchange for transferring good to a customer
excluding amounts collected on behalf of a third
party. Variable consideration is estimated using
the expected value method or most likely amount
as appropriate in a given circumstance. Payment
terms agreed with a customer are as per business
practice and there is no financing component
involved in the transaction price.
B. Sale of Services
In respect of sale of services, performance
obligation is satisfied over time when the entity
renders services to customers. Revenue from
services rendered is recognised as the services are
rendered and is booked based on agreement /
arrangements with the concerned parties.
Transaction price is the amount of consideration
to which the Company expects to be entitled in
exchange for transferring service to a customer
excluding amounts collected on behalf of a third
party. Variable consideration is estimated using
the expected value method or most likely amount
as appropriate in a given circumstance. Payment
terms agreed with a customer are as per business
practice and there is no financing component
involved in the transaction price.
C. Revenue from Construction/Project related
activity
Revenue from construction/project related activity
is recognised as follows:
The Company generally has fixed price contracts
in respect of which contract revenue is recognised
over time to the extent of performance obligation
satisfied and control transferred to the customer.
Contract revenue is recognised at allocable
transaction price which represents the cost of
work performed on the contract plus proportionate
margin, using the percentage of completion
method. Percentage of completion is the
proportion of cost of work performed to-date, to
the total estimated contract costs.
When Contract revenue recognized till date exceed
progress billing, the excess is shown as contract
assets. For contracts where progress billings
exceed the contract revenue till date, the excess
is shown as advance from customer (Contract
Liability). Amounts received before the related
work is performed are included as a liability as
advance from customer (Contract Liability).
Payment terms agreed with a customer are as
per business practice and there is no financing
component involved in the transaction price.
Impairment loss (termed as provision for
foreseeable losses in the financial statements)
is recognized in profit or loss to the extent the
carrying amount of the contract asset exceeds
the remaining amount of consideration that the
Company expects to receive towards remaining
performance obligations (after deducting the
costs that relate directly to fulfill such remaining
performance obligations).
b) Property plant and equipment.
Freehold Land is carried at historical cost. Property,
plant and equipment are stated at cost of acquisition
or construction less accumulated depreciation or
accumulated impairment loss, if any.
Depreciation is computed as per the straight line
method based on the management's estimate of
useful life of a property, plant and equipment. Land
is not depreciated but subject to impairment. These
charges are commenced from the dates the assets are
available for their intended use and are spread over
their estimated useful economic lives. The estimated
useful lives of assets and residual values are reviewed
regularly and, when necessary, revised.
The following useful lives apply to the different types of
tangible assets:
Buildings 4 - 30 Years
Plant and Equipment 10 - 42 Years
Furniture and fixtures 5 - 10 Years
Vehicles 3 -15 Years
Office Equipment 1- 15 Years
Freehold land is not depreciated.
Assets individually costing Rs. 10,000 or less are fully
depreciated in the year of acquisition.
Spares capitalized are being depreciated over the useful
life / remaining useful life of the plant and machinery
with which such spares can be used.
Schedule II to the Companies Act, 2013 ("Schedule")
prescribes the useful lives for various classes of tangible
assets. For certain class of assets, based on the technical
evaluation and assessment, the Company believes that
the useful lives adopted by it best represent the period
over which an asset is expected to be available for use.
Accordingly, for these assets, the useful lives estimated
by the Company are different from those prescribed
in the Schedule.
c) Goodwill and other Intangible assets
Goodwill arising on acquisition of business is measured
at cost less any accumulated impairment loss. Goodwill
is assessed annually for any impairment.
Intangible assets are only recognized when it is
probable that associated future economic benefits
would flow to the Company.
Intangibles in respect of non- compete and customer
relationships acquired in a business combination are
recognized at fair value at the acquisition date. They
have a finite useful life and are subsequently carried at
costs less accumulated amortization and accumulated
impairment losses, if any.
Intangible assets in respect of software's acquired
separately are measured on initial recognition at cost.
Following initial recognition, they are carried at cost less
accumulated amortization and accumulated impairment
losses, if any.
Intangible assets are derecognised either on their
disposal or where no future economic benefits are
expected from their use. Gains or losses arising from
derecognition of intangible assets are measured as
the difference between the net disposal proceeds and
the carrying amount of the asset and are recognized
in the Statement of Profit and Loss when the asset
is derecognized.
Subsequent to initial recognition, intangible assets
with definite useful lives are reported at cost
less accumulated amortisation and accumulated
impairment losses.
Intangible assets except Goodwill are amortised in
Statement of Profit or Loss over their estimated useful
lives, from the date that they are available for use based
on the expected pattern of consumption of economic
benefits of the asset. Accordingly, at present, these are
being amortised on straight line basis.
The estimated useful lives of Intangible Assets
are as follows:
Software 6 Years
Non-compete fee 15 Years
Customer Relationship 25 Years
The useful lives are reviewed at least at each year end.
Changes in expected useful lives are treated as changes
in accounting estimates.
d) 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.
(a) Financial assets
i. Financial assets at amortised cost
Financial assets are subsequently measured
at amortised cost if these financial assets
are held within a business model whose
objective is to hold these 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.
The effective interest method is a method of
calculating the amortised cost of a financial
instrument and of allocating interest income
or expense over the relevant period. The
effective interest rate is the rate that
exactly discounts future cash receipts or
payments through the expected life of the
financial instrument, or where appropriate, a
shorter period.
ii. Financial assets measured at fair value
Fair Value through other comprehensive
income (FVTOCI)
Financial assets are measured at fair value
through other comprehensive income if these
financial assets are held within a business
model whose objective is to hold these
assets in order to collect contractual cash
flows or to sell these 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.
Financial assets included within the FVTOCI
category are measured initially as well as
at each reporting date at fair value. Fair
value movements are recognised in the
OCI. However, the Company recognises
interest income, impairment losses and
reversals and foreign exchange gain or
loss in the statement of profit and loss.
On derecognition of the asset, cumulative
gain or loss previously recognised in OCI is
reclassified to the statement of profit and
loss. Interest earned while holding a FVTOCI
instrument is reported as interest income
using the effective interest rate method.
The Company in respect of equity
investments (other than in subsidiaries,
associates and joint ventures) which are not
held for trading has made an irrevocable
election to present in other comprehensive
income subsequent changes in the fair value
of such equity instruments. Such an election
is made by the Company on an instrument
by instrument basis at the time of initial
recognition of such equity investments.
Fair value through the statement of profit
and loss (FVTPL)
Financial asset not measured at amortised
cost or at fair value through other
comprehensive income is carried at fair
value through the statement of profit and
loss. Fair value changes are recognized
in the Statement of Profit & Loss at each
reporting period.
iii. Cash and bank balances
Cash and bank balances consist of:
(i) Cash and cash equivalents - which
includes cash in hand, deposits held at
call with banks and other short term
deposits which are readily convertible
into known amounts of cash, are
subject to an insignificant risk of
change in value and have maturities
of less than one year from the date
of such deposits. These balances
with banks are unrestricted for
withdrawal and usage.
(ii) Other bank balances - which includes
balances and deposits with banks that
are restricted for withdrawal and usage.
iv. Impairment of financial assets:
The Company recognizes loss allowances
using the expected credit loss (ECL) model
for the financial assets and unbilled
revenues which are not fair valued through
profit or loss. The Company recognises
lifetime expected credit losses for all trade
receivables and unbilled revenues that
do not constitute a financing transaction.
For all other financial assets whose credit
risk has not significantly increased since
initial recognition, loss allowance equal
to twelve months expected credit losses
is recognised. Loss allowance equal to the
lifetime expected credit losses is recognised
if the credit risk on the financial instruments
has significantly increased since initial
recognition. The Impairment losses and
reversals are recognized in the Statement
of Profit & Loss.
v. De-recognition of financial assets
The Company de-recognises a financial asset
only when the contractual rights to the cash
flows from the asset expire, or it transfers the
financial asset and substantially all risks and
rewards of ownership of the asset to another
entity. If the Company neither transfers nor
retains substantially all the risks and rewards
of ownership and continues to control the
transferred asset, the Company recognises
its retained interest in the assets and an
associated liability for amounts it may have
to pay. If the Company retains substantially
all the risks and rewards of ownership of
a transferred financial asset, the Company
continues to recognise the financial
asset and also recognizes a collateralised
borrowing for the proceeds received. On
de-recognition of a Financial Asset (except
for Financial Assets measured at FVTOCI), the
difference between the carrying amount and
the consideration received is recognized in
the Statement of Profit & Loss.
(b) Financial liabilities and equity instruments
Classification as debt or equity
Financial liabilities and equity instruments issued
by the Company are classified according to the
substance of the contractual arrangements
entered into and the definitions of a financial
liability and an equity instrument.
Equity instruments
An equity instrument is any contract that
evidences a residual interest in the assets of the
Company after deducting all of its liabilities. Equity
instruments are recorded at the proceeds received,
net of direct issue costs.
Financial Liabilities
Trade and other payables are initially measured
at fair value, net of transaction costs, and are
subsequently measured at amortised cost, using
the effective interest rate method where the time
value of money is significant. Interest bearing
bank loans, overdrafts and issued debt are initially
measured at fair value and are subsequently
measured at amortised cost using the effective
interest rate method. Any difference between
the proceeds (net of transaction costs) and
the settlement or redemption of borrowings is
recognised over the term of the borrowings in the
statement of profit and loss.
De-recognition of financial liabilities
The Company de-recognises financial liabilities
when, and only when, the Company's obligations
are discharged, cancelled or they expire. The
differences between the carrying amount of
the financial liability derecognized and the
consideration paid is recognized in the Statement
of Profit & Loss.
e) Provision for Decommissioning, Restoration and
Similar Liabilities
The Company has liabilities related to dismantling
(restoration of soil) and other related works, which are
due upon the closure of certain of its production sites.
Such liabilities are estimated case-by-case based on
available information, taking into account applicable
local legal requirements. The estimation is made using
existing technology and discounted using a discount
rate where the effect of time value of money is material.
Future dismantling and restoration costs discounted to
net present value, are capitalised and the corresponding
dismantling liability is recognized as soon as the
obligation to incur such costs arises. Future dismantling
costs are capitalised in property, plant and equipment
as appropriate and are depreciated over the life of the
related asset. The effect of the time value of money
on the dismantling and restoration costs liability is
recognised in the statement of profit and loss.
f) Inventories
Inventories of raw materials, components and stores
and spare parts are valued at lower of cost and net
realisable value. In determining the cost, weighted
average cost method is used.
Finished goods are valued at the lower of cost and
net realisable value. The comparison of cost and net
realisable value is made on an item-by-item basis.
Costs incurred on long term construction contracts
representing general purpose item of inventories
are disclosed as contract work in progress net of
provision for loss.
g) Leases
The Company has adopted Ind AS 116 "Leases" and
applied the standard to all lease contracts.
Company as a lessee
The Company, as a lessee, recognises a right-of-use
asset and a lease liability for its leasing arrangements,
if the contract conveys the right to control the use
of an identified asset. The contract conveys the right
to control the use of an identified asset if it involves
the use of an identified asset and the Company has
substantially all of the economic benefits from use of
the asset and has right to direct the use of the identified
asset. The cost of the right-of-use asset shall comprise
of the amount of the initial measurement of the lease
liability adjusted for any lease payments made at or
before the commencement date plus any initial direct
costs incurred. The right-of-use assets is subsequently
measured at cost less any accumulated depreciation,
accumulated impairment losses, if any and adjusted for
any remeasurement of the lease liability. The right-of-
use assets is depreciated using the straight-line method
from the commencement date over the shorter of lease
term or useful life of right-of-use asset.
The Company measures the lease liability at the present
value of the lease payments that are not paid at the
commencement date of the lease. The lease payments
are discounted using the interest rate implicit in the
lease, if that rate can be readily determined. If that
rate cannot be readily determined, the Company uses
incremental borrowing rate which ranges from 7% to
9%. For short-term and low value leases, the Company
recognises the lease payments as an operating expense
on a straight-line basis over the lease term. When the
lease liability is remeasured due to change in contract
terms, a corresponding change is made to the carrying
amount of right-of-use asset, or is recorded in the profit
and loss account if the carrying amount of right-of-use
asset is reduced to zero.
4A. Other accounting policies.
a) Property plant and equipment.
Cost of item of property, plant and equipment includes
purchase price, taxes, non- refundable duties, freight
and other costs that are directly attributable to bringing
assets to their working condition for their intended use.
Expenses capitalised include applicable borrowing costs
for qualifying assets, if any.
This recognition principle is applied to the costs incurred
initially to acquire an item of property, plant and
equipment and also to costs incurred subsequently to
add to, replace part of, or service it. All other repair
and maintenance costs, including regular servicing,
are recognized in the statement of profit and loss as
incurred. When a replacement occurs, the carrying
value of the replaced part is de-recognized. Where
an item of property, plant and equipment comprises
major components having different useful lives, these
components are accounted for as separate items.
An item of property, plant and equipment is
derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use
of asset. Any gain or loss arising on the disposal or
retirement of an item of property, plant and equipment
is determined as the difference between the sales
proceeds and the carrying amount of the asset and is
recognized in the Statement of Profit and Loss.
The residual values, useful lives and method of
depreciation of Property, Plant & Equipment is reviewed
at each financial year and adjusted prospectively, if any.
Spares that can be used only with particular items of
plant and machinery and such usage is expected to be
for more than one accounting period are capitalized.
Property, Plant and Equipment under construction are
recognized as capital work in progress.
b) Impairment of non financial assets.
The carrying amounts of property, plant & equipment,
capital work in progress and intangible assets are
reviewed at each Balance Sheet date, to determine
whether there is any indication of impairment. If any
such indication exists, the assets recoverable amounts
are estimated at each reporting date. Recoverable
amount is the higher of fair value less costs to sell
and value in use. In assessing the value in use, the
estimated future cash flows are discounted to their
present value using a pre-discount rate that reflects
the current market assessments of the time value of
money and the risks specific to the asset or the cash¬
generating unit. For the purpose of impairment testing,
assets are grouped together into the smallest group
of assets that generate cash inflows from continuing
use that are largely independent of the cash inflows of
other assets or groups of assets (the "cash-generating
unit"). An impairment loss is recognized whenever the
carrying amount of an asset or the cash generating
unit exceeds the corresponding recoverable amount.
Impairment losses are recognized in the Statement of
Profit and Loss.
Impairment losses recognized in prior periods are
assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An
impairment loss is reversed if there has been a change
in the estimates used to determine the recoverable
amount. An impairment loss is reversed only to the
extent that the assets carrying amount does not exceed
the carrying amount that would have been determined
net of depreciation or amortisation, if no impairment
loss had been recognized. Impairment loss recognized
for goodwill is not reversed in a subsequent period
unless the impairment loss was caused by a specific
external event of an exceptional nature that is not
expected to recur, and subsequent external events have
occurred that reverse the effect of that event.
c) Inventories
The cost of raw material includes purchase price, duties,
and taxes (other than those subsequently recoverable
by the Company from taxing authorities), freight inward
and other expenditure in bringing inventories to present
locations and conditions. The carrying costs of raw
materials, components and stores and spare parts are
not written down below cost if the finished products in
which they will be incorporated are expected to be sold
at or above cost.
Finished goods Cost comprises of direct material
and labour expenses and an appropriate portion of
production overheads incurred in bringing the inventory
to their present location and condition. Fixed production
overheads are allocated on the basis of normal capacity
of the production facilities.
Net realisable value of finished good 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.
d) Leases
Lease under which the Company assumes substantially
all the risks and rewards of ownership are classified as
finance lease. Such assets acquired are capitalised at
fair value of the asset or present value of the minimum
lease payments at the inception of the lease, whichever
is lower. 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.
Company as lessor
In respect of assets given on operating lease, the lease
rental income is recognized in the Statement of Profit
and Loss 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.
e) Investment in Joint Ventures & associates
A joint venture is a joint arrangement whereby the
parties have the joint control of the arrangement and
have rights to the net assets to joint arrangement. Joint
control is contractually agreed sharing of control of an
arrangement which exists only when decisions about
the relevant activity require unanimous consent of the
parties sharing control. Investment in joint ventures
are carried at cost less accumulated impairment, if any.
Where an indication of impairment exists, the carrying
amount of the investment is assessed and written down
immediately to its recoverable amount. On disposal of
investments in joint venture, the difference between
net disposal proceeds and the carrying amounts are
recognized in the Statement of Profit and Loss.
An associate is an entity over which the investor has
significant influence. Investment in associates are
carried at fair value through Profit & Loss.
f) Non-current assets held for sale and discontinued
operations.
Non-current assets (including those that are part of
a disposal group) are not depreciated or amortised
while they are classified as held for sale. Interest
and other expenses attributable to the liabilities of
a disposal group classified as held for sale continue
to be recognized.
Non-current assets classified as held for sale and the
assets of a disposal group classified as held for sale
are presented separately from the other assets in
the balance sheet. The liabilities of a disposal group
classified as held for sale are presented separately from
other liabilities in the balance sheet.
g) Income taxes.
Tax expense for the year comprises current tax and
deferred tax. The tax currently payable is based on
taxable profit for the year. Taxable profit differs from
net profit as reported in the statement of profit and
loss because it excludes items of income or expense
that are taxable or deductible in other years and
it further excludes items that are never taxable or
deductible. The Company's liability for current tax is
calculated using tax rates and tax laws that have been
enacted or substantively enacted by the end of the
reporting period.
Deferred tax is the tax expected to be payable or
recoverable on differences between the carrying values
of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation
of taxable profit and is accounted for using liability
method. In contrast, deferred tax assets are only
recognized to the extent that it is probable that future
taxable profits will be available against which the
temporary differences can be utilised.
The carrying value 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 is calculated at the tax rates that are
expected to apply in the period when the liability is
settled or the asset is realised based on the tax rates
and tax laws that have been enacted or substantially
enacted by the end of the reporting period. The
measurement of deferred tax liabilities and assets
reflects the tax consequences that would follow from
the manner in which the Company expects, at the end
of the reporting period, to cover or settle the carrying
value of its assets and liabilities.
Deferred tax assets and liabilities are offset to the
extent that they relate to taxes levied by the same tax
authority and there are legally enforceable rights to set
off current tax assets and current tax liabilities within
that jurisdiction and there is an intention to settle the
asset & liability on a net basis.
Current and deferred tax are recognized as an
expense or income in the statement of profit and loss,
except when they relate to items credited or debited
either in other comprehensive income or directly in
equity, in which case tax is also recognized in other
comprehensive income or directly in equity.
h) Earnings per share.
Basic earnings per share are calculated by dividing
the net profit or loss for the year attributable to equity
shareholders of the Company by the weighted average
number of the equity shares outstanding during the
year. For the purpose of calculating diluted earnings
per share, net profit or loss for the year attributable to
equity shareholders of the Company and the weighted
average number of equity shares outstanding during
the year are adjusted for the effect of all dilutive
potential equity shares.
|