2.2 Summary of Material Accounting Policies
(i) Basis of classification of Current and non-current
Based on the nature of products / activities of the Company and the normal time between acquisition of assets
and their realisation 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.
(ii) Foreign currencies
a. Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic
environment in which the entity operates (‘functional currency').
The financial statements are presented in Indian Rupees which is the functional and presentation currency
of the Company.
b. Initial recognition
Transactions in foreign currencies are initially recorded in the functional currency at the spot exchange
rates prevailing at the date of the transaction when it first qualifies for recognition.
c. Translation on reporting date
Foreign currency monetary items are translated using the functional currency spot rates of exchange at the
reporting date. Non-monetary items that are measured in terms of historical cost denominated in a foreign
currency are translated using the exchange rate at the date of the initial transaction.
d. Exchange differences
Exchange differences arising on translation or settlement of monetary items are recognised in the statement
of profit and loss.
(iii) Fair value measurement
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place either:
- In the principal market for the asset or liability, or
- In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use
when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data
are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair
value measurement as a whole:
- Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
- Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement
is directly or indirectly observable
- Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company
determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation
(based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each
reporting period.
The Company's management determines the policies and procedures for both recurring fair value measurement,
such as derivative instruments and unquoted financial assets measured at fair value, and for non-recurring
measurement, such as assets held for distribution in discontinued operation.
External valuers are involved for valuation of significant assets, and significant liabilities, if any.
At each reporting date, the management analyses the movements in the values of assets and liabilities which
are required to be re-measured or re-assessed as per the Company's accounting policies. For this analysis, the
management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation
computation to contracts and other relevant documents.
The management, in conjunction with the Company's external valuers, also compares the change in the fair
value of each asset and liability with relevant external sources to determine whether the change is reasonable.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the
basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as
explained above.
This note summarises accounting policy for fair value. Other fair value related disclosures are given in the relevant
notes.
(iv) Revenue from contracts with customer
Revenue from sale of goods is recognised at the point in time when control of the goods is transferred to the
customer, generally on delivery of the goods. The normal credit term is around 30 days upon delivery. The
Company has concluded that it is the principal in its revenue arrangements, because it typically controls the
goods or services before transferring them to the customer.
Revenue from sale of power is recognised on a basis as per the contract terms based on actual power sold for
the year. The normal credit term is 7 to 60 days upon delivery.
In determining the transaction price for sale of goods, the Company considers the effect of variable consideration,
the existence of significant financing components and consideration payable to the customer (if any).
If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration
to which it will be entitled in exchange for transferring the goods and services to the customer. The variable
consideration is estimated at contract inception and constrained until it is highly probable that a significant
revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty
with the variable consideration is subsequently resolved.
Contract balances
Contract assets
A contract asset is initially recognized for revenue earned from sale of goods because the receipt of consideration
is conditional on successful completion when control of the goods is transferred to the customer, generally on
delivery of the goods. Upon delivery of goods and acceptance by the customer, the amount recognized as
contract assets is reclassified to trade receivables.
Contract assets are subject to impairment assessment. Refer to accounting policies on impairment of financial
assets in section (xx)(e) Financial instruments - initial recognition and subsequent measurement.
Trade receivables
A receivable represents the Company's right to an amount of consideration that is unconditional (i.e., only the
passage of time is required before payment of the consideration is due). Refer to accounting policies of financial
assets in section (xx)(a) Financial instruments - initial recognition and subsequent measurement.
Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received
consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before
the Company transfers goods or services to the customer, a contract liability is recognised when the payment
is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the
Company performs under the contract.
Cost to obtain a contract
The Company pays sales commission to agents for each contract that they obtain for sale of goods. The Company
has elected to apply the optional practical expedient for costs to obtain a contract which allows the Company to
immediately expense sales commission (included under other expenses) because the amortisation period of the
asset that the Company otherwise would have used is one year or less.
(v) Government grant
Government grants are recognised where there is reasonable assurance that the grant will be received and
all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as
income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are
expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected
useful life of the related asset.
When loans or similar assistance are provided by governments or related institutions, with an interest rate below
the current applicable market rate, the effect of this favourable interest is regarded as a government grant. The
loan or assistance is initially recognised and measured at fair value and the government grant is measured as
the difference between the initial carrying value of the loan and the proceeds received. The loan is subsequently
measured as per the accounting policy applicable to financial liabilities.
The Company receives interest subvention from the government on the loans which are availed at market rate of
interest from the Banks. The interest subvention is netted off from the interest expenses.
For the outstanding loans received from the Government at the interest rate below the current market rates,
is recognised at carrying value of previous GAAP as on date of transition on account of mandatory exemption
available for the first time adoption under Ind AS 01.
(vi) Taxes
Current Income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted, at the reporting date.
Current income tax relating to items recognised outside profit and loss is recognised outside profit and loss (either
in other comprehensive income or in equity). Current tax items are recognised in correlation to the underlying
transaction either in other comprehensive income 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. The Company shall reflect the effect of uncertainty
for each uncertain tax treatment by using either most likely method or expected value method, depending on
which method predicts better resolution of the treatment.
Deferred Tax
Deferred tax is recognised using the liability method on temporary differences between the tax bases of assets
and liabilities and their carrying amounts in the financial statements at the reporting date.
Deferred tax liabilities are recognized for all taxable temporary differences.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax
credits and any unused tax losses, if any. Deferred tax assets are recognized to the extent that it is probable
that taxable profit will be available against which the deductible temporary differences and the carry forward of
unused tax credits and unused tax losses can be utilized.
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 utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized 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 realized 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 recognized outside profit or loss is recognized outside profit or loss (either in
other comprehensive income or in equity). Deferred tax items are recognized in correlation to the underlying
transaction either in other comprehensive income or directly in equity.
The Company offsets deferred tax assets and deferred tax liabilities if and only if a legally enforceable right to set
off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities related to
income taxes levied by the same taxation authorities.
Goods and Service tax (GST)/Sales/Value added taxes on acquisition of assets or on incurring expenses:
When GST amount incurred on purchase of assets or services is not recoverable from the taxation authority,
the GST paid is recognised as part of cost of acquisition of the asset or part of the expense item, as applicable.
Otherwise, expenses and assets are recognised net of the amount of GST paid. The net amount of GST
recoverable from or payable to, the taxation authority is included as part of receivables or payables in the balance
sheet.
(vii) Property, plant and equipment (‘PPE’)
On transition to Ind AS i.e. April 01,2016, the Company had elected to continue with the carrying value of all its
property, plant and equipment (PPE) recognized as at the transition date measured as per the Indian GAAP and
use that carrying value as the deemed cost of the PPE.
An item of PPE is recognised as an asset, if and only if, it is probable that the future economic benefits associated
with the item will flow to the Company and its cost can be measured reliably.
PPE are initially recognised at cost, net of accumulated depreciation and accumulated impairment loss, if any.
Capital work in progress is stated at cost, net of impairment loss, if any. Cost comprises the purchase price,
including import duties and non- refundable purchase taxes, and any directly attributable cost of bringing the
asset to its working condition for its intended use Such cost includes borrowing costs for long-term construction
projects if the recognition criteria are met.
Subsequent expenditure related to an item of property, plant and equipment is added to its book value only if it
increases the future benefits from the existing asset beyond its previously assessed standard of performance.,
Freehold land is carried at historical cost. When significant parts are required to be replaced at regular intervals,
the Company recognises such parts as separate component of assets and depreciates separately based on their
specific useful life. When an item of PPE is replaced, then its carrying amount is de-recognised and cost of the
new item of PPE is recognised.
Items of stores and spares that meet the definition of PPE are capitalized at cost. Otherwise, such items are
classified as inventories. They are depreciated over the remaining useful life of related plant and equipment or
useful life of insurance/capital/ critical spares, whichever is lower.
The expenditure those are incurred after the item of PPE has been put to use, such as repairs and maintenance,
are charged to the statement of profit and loss in the period in which such costs are incurred. However, in
situations where such expenditure can be measured reliably, and is probable that future economic benefits
associated with it will flow to the Company, it is included in the asset's carrying value or as a separate asset, as
appropriate.
Depreciation on property, plant and equipment is provided on written down value basis using the life as specified
in Part C of Schedule II of the Companies Act, 2013, as set out below:
The useful lives, residual values and depreciation method of PPE are reviewed, and adjusted appropriately, at
each reporting date. The effect of any change in the estimated useful lives, residual values and / or depreciation
method are accounted for prospectively, and accordingly the depreciation is calculated over the PPE's remaining
revised useful life. The cost and the accumulated depreciation for PPE sold, scrapped, retired or otherwise
disposed off are de-recognised from the balance sheet and the resulting gains / (losses) are included in the
statement of profit and loss within other expenses / other income.
The cost of capital work-in-progress is presented separately in the balance sheet.
(viii) Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any.
Intangible assets with finite lives are amortised on a written down value basis over the estimated useful economic
life. The estimated useful life and amortisation method are reviewed at the end of each reporting period.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised on the straight-line method as per the useful life assessed based
on expected future benefit, taking into account the nature of the asset, the estimated usage of the asset:
An intangible asset is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no
future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the
asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is
included in the statement of profit and loss. when the asset is derecognised.
(ix) 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 to sell 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 group
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.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre¬
tax discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset. In determining fair value less costs of disposal, recent market transactions are taken into account, if
available, and if no such transactions can be identified, an appropriate valuation model is used.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are
prepared separately for each of the Company's CGUs to which the individual assets are allocated. These budgets
and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is
calculated and applied to project future cash flows after the fifth year. Impairment losses, if any, are recognized
in Statement of Profit and Loss as a component of depreciation and amortisation expense.
Impairment losses of continuing operations, including impairment on inventories, are recognized in the statement
of profit and loss.
After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful
life.
An assessment is made at each reporting date as to whether there is any indication that previously recognized
impairment losses may no longer exist or may have decreased. If such indication exists, the Company estimates
the asset's or CGU's recoverable amount. A previously recognised impairment loss is reversed only if there has
been a change in the assumptions used to determine the asset's recoverable amount since the last impairment
loss was recognised. The reversal is limited to the extent the carrying amount of the asset does not exceed its
recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation or
amortisation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognized
in the statement of profit and loss when the asset is carried at the revalued amount, in which case the reverse is
treated as a revaluation increase.
(x) 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.
Company as a lessee
The Company applies a single recognition and measurement approach for all leases, except for short-term taken
from related parties 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 re-measurement 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. Right-of-use assets are depreciated on a
straight-line basis from the commencement date over the shorter of the lease term and the estimated
useful lives of the assets.
The right-of-use assets are also subject to impairment. Refer to the accounting policies in section (ix)
Impairment of non-financial assets.
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)
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. The cost and the accumulated depreciation for Right of use assets
where the lease gets matured or disposed off before maturity are de-recognised from the balance sheet
and the resulting gains / (losses) are included in the statement of profit and loss within other expenses
/ other income. Lease liabilities and Right-of-use assets have been presented as a separate line in the
balance sheet. Lease payments have been classified as cash used in financing activities.
iii) Short-term leases except leases taken from related parties and leases of low-value assets
The Company has elected not to recognise right-of-use assets and lease liabilities for short term leases
except leases taken from related parties of all assets that have a lease term of 12 months or less and
leases of low-value assets. In case of lease contracts with related parties, there exist economic incentive for
the Company to continue using the leased premises for a period longer than the 11 months and considering
the contract is with the related parties, it does not foresee non-renewal of the lease term for future periods,
thus basis the substance and economics of the arrangements, management believes that under Ind AS
116, the lease terms in the arrangements with related parties have been determined considering the period
for which management has an economic incentive to use the leased asset (i.e. reasonable certain to use
the asset for the said period of economic incentive). Such assessment of incremental period is based on
management assessment of various factors including the remaining useful life of the asset as on the date
of transition. The Company recognises the lease payments associated with these leases as an expense on
a straight-line basis over the lease.
Company as a lessor
Leases in which the Company does not transfer substantially all the risks and rewards incidental to ownership of
an asset is classified as operating leases. Rental income arising is accounted for on a straight-line basis over the
lease terms. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying
amount of the leased asset, i.e., asset given on lease, 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.
(xi) Inventories
Inventories are valued at the lower of cost and net realisable value.
The Cost is determined as follows:
a. Stores and spares, Packing Materials, Raw Materials and Stock in trade: Moving weighted average method.
b. Work-in-progress: Material cost on weighted average method and appropriate manufacturing overheads is
included on absorption costing basis.
c. Finished goods (manufactured/produced): Material cost on weighted average method and appropriate
manufacturing overheads is included on absorption costing.
d. (i) By products (Bagasse,” C” Heavy Molasses and Pressmud) included under raw materials, finished
goods and work-in-progress: Net realisable Value.
(ii) By products (B Heavy molasses) included under finished goods and work in progress, whose cost is
not identifiable, are valued by allocating the costs between the products on the relative sales value of
each product at the completion of the production, considering it as a rational and consistent basis.
Materials and other items held for use in the production of inventories 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. Cost includes the
necessary cost incurred in bringing inventory to its present location and condition necessary for use.
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.
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