2. MATERIAL ACCOUNTING POLICIES
2.1. Statement of Compliance
The financial statements of the Company have been prepared in accordance with Indian Accounting
Standards (Ind AS) notified under Companies (Indian Accounting Standards) Rules, 2015, as amended.
2.2. Basis of Preparation and Presentation
The financial statements of the Company have been prepared on accrual basis under the historical cost
convention except for certain financial instruments that are measured at fair values at the end of each
reporting period and employee defined benefit plan as per actuarial valuation, as explained in the accounting
policies below.
Historical cost is generally based on the fair value of the consideration given in the exchange of goods and
services. Fair value is the price that would be received on sale of asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date, regardless of whether that price
is directly observable or estimated in a reasonable and prudent manner. In estimating the fair value of an
asset or a liability, the Company takes into account the characteristics of the asset or a liability if market
participants would have those characteristics taken into account when pricing the asset or a liability at the
measurement date. Fair value for measurement and/or disclosure purposes in these Standalone Financial
Statements is determined on such or on the basis of and measurements that have some similarities to fair
value but are not fair value, such as net realizable value in Ind AS or value in use in Ind AS 36.
In addition, for financial reporting purposes, fair value measurements are categorized into level 1, 2 or 3
based on the degree to which the inputs to the fair value measurements are observable and the significance
of the inputs to the fair value measurement in its entirety, which are described as follows:
• Level 1 inputs are quoted prices (unadjusted ) in active markets for identical assets or liabilities that the
entity can access at the measurement date;
• Level 2 inputs are other than quoted prices included within level 1, that are observable for the asset or
liability, either directly or indirectly; and
• Level 3 inputs are unobservable inputs for the asset or a liability.
The principal accounting policies are set out below:
2.3. Revenue Recognition:
Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Company and
the amount can be reliably measured. Revenue is measured at the fair value of the consideration received or
receivable.
2.3. (a) Sale of goods
Sales are recognized net of returns and trade discounts, on transfer of significant risks and rewards of
ownership to the buyer, which generally coincides with the delivery of goods to the customers.
2.3. (b) Income from services
Revenues from contracts priced on a time and material basis are recognized when services are
rendered and related costs are incurred.
2.3. (c) Export Incentive
Export benefits in the nature of focus market scheme are accrued in the year of exports based on the
eligibility taking into consideration the prevailing regulations/policies and when there is no uncertainty in
receiving the same. Adjustments, if any, to the amounts recognized in accordance with this accounting
policy, based on final determination by the authorities, would be dealt with appropriately in the year of
final determination and acceptance.
2.3. (d) Other Income
Interest income from a financial asset is recognized when it is probable that the economic benefits will flow
to the Company and the amount of income can be measured reliably. Interest income is accrued on a time
basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life of the financial asset to that
asset's net carrying amount on initial recognition. Dividend income is accounted for when the right to receive
the income is established.
2.4. Leases:
The Company assesses at contract inception whether a contract is or contains, a lease, i.e., 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
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 its 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, as follows:
• Plant and machinery
• Buildings
• Land
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. 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
recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or
condition that triggers the payment occurs.
iii) Short-term leases and leases 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 12 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 office equipment that are considered to be 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.
Company as a lessor
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership
of an asset are classified as operating leases. Rental income arising is accounted for on a straight-line basis
over the lease terms and is included in revenue in the statement of profit or loss due to its operating nature.
Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount
of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents
are recognised as revenue in the period in which they are earned.
2.5. Government Grants:
Government grants are recognised in the Statement of Profit and Loss on a systematic basis over the
periods in which the Company recognises the related costs, which the grants are intended to compensate.
Government grants that are receivable towards capital investments under State Investments Promotion
Scheme are recognised in the Statement of Profit and Loss in the period in which they become receivable.
Government grants are not recognised until there is reasonable assurance that the Company will comply with the
conditions attached to them and that the grants will be received.
2.6. Functional and presentation currency:
Items included in the financial statements of the Company financial are measured using the currency of the primary
economic environment in which the entity operates. The fnancial statements are presented in Indian Rupee, the
national currency of India, which is the functional currency of the Company.
2.7. Foreign currency transactions:
In preparing the financial statements of the Company, transactions in currencies other than the entity's functional
currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At
the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are
retranslated at the rates prevailing at that 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.
Exchange differences on monetary items are recognised in the Statement of Proft and Loss in the period in which
they arise except for exchange differences on transactions entered into in order to hedge certain foreign currency
risks.
2.8. Borrowing costs:
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which
are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added
to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for capitalization.
All other borrowing costs are recognised in the Statement of Profit and Loss in the period in which they are
incurred.
2.9. Employee benefits
Employee benefits include Provident Fund, Superannuation scheme, Employees State Insurance Scheme,
Gratuity Fund and compensated absences.
2.9.1 Defined Contribution Plans
The Company's contribution to Provident Fund and Employees State Insurance Scheme are considered as
defined contribution plans and are recognized as an expense when employees have rendered service entitling
them to the contributions.
Defined Contribution Plans for Superannuation Scheme of Officers of both the Plants and the Staff of the Plant II
are administered by Life Insurance Corporation of India. Contributions are made monthly at a predetermined rate
to the Trust and debited to the Statement of Profit & Loss on an accrual basis.
2.9.2 Defined benefit plans
For defined benefit plans in the form of Gratuity Fund, the cost of providing benefits is determined using the
projected unit credit method, with actuarial valuations being carried out by an independent actuary at the end of
each reporting period. Defined benefit costs are categorised as follows:
• Service cost (including current service cost, past service cost, as well as gains and losses on curtailments
and settlements);
• Net interest expense or income; and
• Re-measurement:
The Company presents defined benefit costs in the Statement of Profit and Loss in the line item ‘Employee
benefits expense'. Net interest is calculated by applying the discount rate at the beginning of the period to the
net defined benefit liability or asset. Re-measurement, comprising actuarial gains and losses, the effect of the
changes to the asset ceiling (if applicable) and the return on plan assets (excluding net interest), is reflected
immediately in the Balance Sheet with a charge or credit recognized in Other Comprehensive Income in the period
in which they occur. Re-measurement recognized in Other Comprehensive Income is reflected immediately
in retained earnings and is not reclassified as profit or loss. Curtailment gains and losses are accounted for
as past service costs. Past service cost is recognized as profit or loss in the period of a plan amendment.
The obligation recognized in the Balance Sheet represents the actual deficit or surplus in the Company's defined
benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits
available in the form of refunds from the plans or reductions in future contributions to the plans.
2.9.3 Short-term Employee benefits:
Short term employee benefits including accumulated compensated absences as at the Balance Sheet date are
recognised as an expense as per Company's schemes based on expected obligation on an undiscounted basis.
2.9.4 Other long-term employee benefits:
Other Long term employee benefit comprise of leave encashment which is provided for based on the actuarial
valuation carried out as at the end of the year.
Liabilities recognised in respect of other long-term employee benefits are measured at the present value of
the estimated future cash outflows expected to be made by the Company in respect of services provided by
employees up to the reporting date.
2.10 Earnings per share:
Basic earnings per share is computed by dividing the net profit or loss after tax by the weighted average number
of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the net profit
or loss after tax as adjusted for dividend, interest and other charges to expense or income relating to the dilutive
potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings
per share and the weighted average number of equity shares which could have been issued on the conversion
of all dilutive potential equity shares. Potential equity shares are deemed to be dilutive only if their conversion to
equity shares would decrease the net profit per share from continuing ordinary operations.
2.11 Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
Current tax
Current tax is determined as the amount of tax payable in respect of taxable income for the year as determined
in accordance with the applicable tax rates and the provisions of the Income-tax Act, 1961. The Company has
exercised irrevocable option under section 115BAA.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred
tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally
recognised 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. Such deferred tax assets and
liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business
combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
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 is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively
enacted by the end of the reporting period.
Current and deferred tax for the year
Current and deferred tax are recognized in the Statement of Profit and Loss, except when they relate to items that
are recognised in Other Comprehensive Income or directly in equity, in which case, the current and deferred tax
are also recognised in Other Comprehensive Income or directly in equity respectively.
2.12. Property, Plant and Equipment
Property, Plant and Equipment (PPE) are stated in the Balance Sheet at cost less accumulated depreciation
and accumulated impairment losses, if any. Cost includes purchase price, attributable expenditure incurred in
bringing the asset to its working condition for the intended use and cost of borrowing till the date of capitalisation
in the case of assets involving material investment and substantial lead time. Fixed assets individually costing
'10,000 or less is depreciated in full in the year of addition.
Componentization:
If significant parts of an item of PPE have different useful lives, then they are accounted for as separate items
(major components) of PPE.
Expenditure during the Construction period:
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. Advances given towards acquisition or construction of
PPE outstanding at each reporting date are disclosed as Capital Advances under “Other Non-current Assets”.
Properties in the course of construction for production, supply or administrative purposes are carried at cost,
less any recognised impairment loss. Depreciation of these assets, on the same basis as other property assets,
commences when the assets are ready for their intended use.
Depreciation is provided on the straight-line method as per the useful life prescribed in Schedule II to the
Companies Act, 2013 except in respect of following categories of assets in whose case the life of certain assets
has been assessed based on technical advice taking into account the nature of the asset, the estimated usage
of the asset, the operating condition of the asset, past history of replacement, maintenance support etc. Any
Preliminary and Pre-operative expenditure incurred during the construction of properties is charged off to Profit
and Loss Account.
2.13. Impairment of tangible assets:
The Company assesses at each reporting date whether there is an indication that an asset/cash generating unit,
including assets that may no longer be useful that have to be impaired. If any indication exists the Company
estimates the recoverable amount of such assets and if carrying amount exceeds the recoverable amount,
impairment is recognised. The recoverable amount is the higher of the net selling price and its value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value using an appropriate
discount factor. When there is indication that previously recognised impairment loss no longer exists or may have
decreased such reversal of impairment loss is recognised as the profit or loss.
2.14. Inventories:
Stores and spares, packing materials, fuels, raw materials and other inventories are valued at lower of cost and net
realizable value. Net realizable value represents the estimated selling price of inventories less all estimated costs
of completion and costs necessary to make the sale.
The method of determination of cost of various categories of inventories is as follows:
1. Raw material, Stores and spares and packing materials - Weighted average cost.
2. Finished goods and Work-in-process - Weighted average cost of production which comprises of direct
material costs, direct wages and applicable overheads.
3. Stock-in-trade - Weighted average cost.
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