2. Significant Accounting Policies
2.1 Basis of Preparation
The financial statements of the Company have been prepared in accordance with Indian
Accounting Standards (Ind AS) notified under the Companies (Indian Accounting Standards)
Rules, 2015 (as amended from time to time).
The financial statements have been prepared on a historical cost basis except for the following
assets and liabilities which have been measured at fair value:
a. Plan assets under defined benefit plans.
b. Certain financial assets and liabilities.
The financial information are presented in Indian Rupees (INR) and all values are rounded to the
nearest lakhs, except where otherwise indicated.
(ii) Use of estimates and judgments
The preparation of the Company's financial statements requires management to make judgments,
estimates and assumptions that affect the reported amounts of revenues, expenses, assets and
liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities.
Uncertainty about these assumptions and estimates could results in outcomes that require a
material adjustment to the carrying amount of the asset or liability affected in future periods.
Judgements
In the process of applying the Company's accounting policies, management has made the
following judgments, which have the most significant effect on the amounts recognized in the
financial statements.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the
reporting date, that have a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year, are described below. The Company
based its assumptions and estimates on parameters available when the financial statements were
prepared. Existing circumstances and assumptions about future developments, however, may
change due to market changes or circumstances arising beyond the control of the Company. Such
changes are reflected in the assumptions when they occur.
a. Taxes
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax
laws, and the amount and timing of future taxable income. Given the wide range of business
relationships and the long term nature and complexity of existing contractual agreements,
differences arising between the actual results and the assumptions made, or future changes to
such assumptions, could necessitate future adjustments to tax income and expense already
recorded. The Company establishes provisions, based on reasonable estimates. The amount of
such provisions is based on various factors, such as experience of previous tax audits and
differing interpretations of tax regulations by the taxable entity and the responsible tax authority.
Such differences of interpretation may arise on a wide variety of issues depending on the
conditions prevailing in the respective domicile of the companies.
b. Defined benefit plans
The cost of defined benefit plans (i.e. Gratuity benefit) is determined using actuarial valuations.
An actuarial valuation involves making various assumptions which may differ from actual
developments in the future. These include the determination of the discount rate, future salary
increases, mortality rates and future pension increases. Due to the complexity of the valuation,
the underlying assumptions and its long-term nature, a defined benefit obligation is highly
sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
In determining the appropriate discount rate, management considers the interest rates of long
term government bonds with extrapolated maturity corresponding to the expected duration of the
defined benefit obligation. The mortality rate is based on publicly available mortality tables for
the specific countries. Future salary increases and pension increases are based on expected future
inflation rates.
c. Fair value measurement of financial instrument
When the fair value of financial assets and financial liabilities recorded in the balance sheet
cannot be measured based on quoted prices in active markets, their fair value is measured using
valuation techniques including the Discounted Cash Flow (DCF) model. The inputs to these
models are taken from observable markets where possible, but where this is not feasible, a degree
of judgement is required in establishing fair values. Judgements include considerations of inputs
such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could
affect the reported fair value of financial instruments.
d. Useful lives of PPE:
The Company reviews the useful life of PPE at the end of each reporting period. This
reassessment may result in change in depreciation expense in future periods.
2.2 Summary of Significant Accounting Policies:
2.2.1 Property, Plant & Equipment (PPE): -
Property, Plant and equipment including capital work in progress are stated at cost, less
accumulated depreciation and accumulated impairment losses, if any. The cost comprise of
purchase price, taxes, duties, freight and other incidental expenses directly attributable and
related to acquisition and installation of the concerned assets and are further adjusted by the
amount of GST credit availed wherever applicable. Cost includes borrowing cost for long term
construction projects if recognition criteria are met. When significant parts of plant and
equipment are required to be replaced at intervals, the Company depreciates them separately
based on their respective useful lives. Likewise, when a major inspection is performed, its cost is
recognized in the carrying amount of the plant and equipment as a replacement if the recognition
criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as
incurred.
The company identifies and determines cost of each component/ part of the asset separately, if
the component/ part has a cost which is significant to the total cost of the asset and has useful life
that is materially different from that of the remaining asset.
Capital work- in- progress includes cost of property, plant and equipment under installation /
under development as at the balance sheet date.
The residual values, useful lives and methods of depreciation of property, plant and equipment
are reviewed at each financial year end and adjusted prospectively, if appropriate.
In respect of others assets, depreciation is calculated on a straight-line basis using the rates arrived
at based on the useful lives estimated by the management and in the manner prescribed in
Schedule II of the Companies Act 2013. The useful life is as follows:
An item of property, plant and equipment and any significant part initially recognized is
derecognized upon disposal or when no future economic benefits are expected from its use or
disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is included in the income
statement when the asset is derecognized.
2.2.2 Cu rrent versus Non-Current Classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current
classification. An asset is treated as current when it is:
• Expected to be realized or intended to be sold or consumed in normal operating cycle;
• Held primarily for the purpose of trading;
• Expected to be realized within twelve months after the reporting period, or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability
for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is current when:
• It is expected to be settled in normal operating cycle;
• It is held primarily for the purpose of trading;
• It is due to be settled within twelve months after the reporting period, or
• There is no unconditional right to defer the settlement of the liability for at least twelve
months after the reporting period.
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their
realization in cash and cash equivalents. The company has identified twelve months as its
operating cycle.
2.2.3 Inventories:
Inventories (other than by-products) are valued at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and condition are accounted
for as follows:
Raw materials/ Stores & Spares: cost includes cost of purchase and other costs incurred
in bringing the inventories/ qualifying inventory to their present location and conditions
required to manufacture the desired end product. Cost is determined on first in, first out
basis.
Finished goods: cost includes cost of direct materials and labour and a proportion of
manufacturing overheads based on the normal operating capacity, but excluding borrowing
costs. Cost is determined on first in, first out basis.
Traded goods: cost includes cost of purchase and other costs incurred in bringing the
inventories to their present location and condition. Cost is determined on weighted average
basis.
By -products i.e. Refraction are valued at net realisable value.
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.
2.2.4 Employee Benefits:
(a) Short term obligations: -
Liabilities for wages and salaries, including non-monetary benefits that are expected to be
settled wholly within 12 months after the end of the period in which the employees render
the related service are recognized in respect of employee’s service up to the end of reporting
period and are measured at the amounts expected to be paid when the liabilities are settled.
The liabilities are presented as current employee benefit obligation in the balance sheet.
(b) Other Long term employee benefit obligations:
The liabilities for earned leave are not expected to be settled wholly within 12 months after
the end of the period in which the employees render the related service. They are therefore
measured based on the actuarial valuation using projected unit credit method at the year end.
The benefits are discounted using the market yields at the end of the reporting period that
have terms approximating to the term of the related obligation. Remeasurements as a result
of experience adjustments and changes in actuarial assumptions are recognized in profit or
loss.
(c) Post-employment obligations:
The Company operates the following post-employment schemes:
(1) defined benefit plans such as gratuity; and
(2) defined contribution plans such as provident fund and ESI.
Gratuity Obligations:
Gratuity liability is a defined benefit obligation and is provided for on the basis of an actuarial valuation
on projected unit credit method made at the end of each financial year. The amount of the actuarial
valuation of the gratuity of employees at the year-end is provided for as liability in the books.
Remeasurements comprising of actuarial gains and losses, the effect of the asset ceiling, excluding
amounts included in net interest on the net defined benefit liability and the return on plan assets
(excluding amounts included in net interest on the net defined benefit liability), are recognized
immediately in the Balance Sheet with a corresponding debit or credit to retained earnings through OCI
in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent
periods.
Net interest is calculated by applying the discount rate to the net defined benefit (liabilities/assets). The
Company recognized the following changes in the net defined benefit obligation under employee benefit
expenses in statement of profit and loss
i. Service cost comprising current service cost, past service cost, gain & loss on curtailments and non¬
routine settlements.
ii. Net interest expenses or income
2.2.5 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 in accordance with the Income Tax Act, 1961 (as amended) and Income
Computation and Disclosure Standards (ICDS) enacted in India by using the tax rates and tax laws that
are enacted or substantively enacted, at the reporting date in India where the Company operates and
generates taxable income.
Current income tax relating to items recognized outside profit or loss is recognized outside profit or loss
(either in other comprehensive income or in equity). Current tax items are recognized in correlation to
the underlying transaction relating to OCI & Equity either in OCI (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.
Deferred Tax:
Deferred tax is provided using the liability method on temporary differences between the tax basis of
assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognized for all taxable temporary differences, except when the deferred
tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is
not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused
tax credits and any unused tax losses. 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, except when the deferred tax asset
relating to the deductible temporary difference arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss.
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 assets 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 related to OCI & Equity either in OCI or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off
current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity
and the same taxation authority.
Deferred tax including Minimum Alternate Tax (MAT) recognizes MAT credit available as an asset only
to the extent that there is convincing evidence that the Company will pay normal income tax during
specified period, i.e. the period for which MAT credit is allowed to be carried forward. The Company
reviews the "MAT credit entitlement" asset at each reporting date and writes down the asset to the extent
the Company does not have convincing evidence that it will pay normal tax during the specified period.
Goods & Service Tax (GST) on acquisition of assets or on incurring expenses:
Expenses and assets are recognised net of the amount of GST paid, except:
• When the tax incurred on a purchase of assets or services is not recoverable from the taxation
authority, in which case, the tax paid is recognised as part of the cost of acquisition of the asset
or as part of the expense item, as applicable
• When receivables and payables are stated with the amount of tax included
The net amount of tax recoverable from, or payable to, the taxation authority is included as part of other
current assets or other current liabilities in the balance sheet.
2.2.6 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:
The Company classified its financial assets in the following measurement categories:
• Those to be measured subsequently at fair value (either through other comprehensive income or
through profit & loss)
• Those measured at amortized cost
Initial recognition and measurement:
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded
at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial
asset. Purchases or sales of financial assets that require delivery of assets within a time frame established
by regulation or convention in the market place (regular way trades) are recognized on the trade date,
i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement:
For purposes of subsequent measurement, financial assets are classified in following categories:
Debt instruments at amortized cost
A 'debt instrument' is measured at the amortized cost if both the following conditions are met:
a Business model test : The asset is held within a business model whose objective is to hold assets
for collecting contractual cash flows (rather than to sell the instrument prior to its contractual maturity
to realise its fair value changes), and
b Cash flow characteristics test : Contractual terms of the asset give rise on specified dates to cash
flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the
effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or
premium on acquisition and fees or costs that are an integral part of the EIR. EIR is the rate that exactly
discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter
period, where appropriate to the gross carrying amount of financial assets. When calculating the effective
interest rate the Company estimates the expected cash flow by considering all contractual terms of the
financial instruments. The EIR amortization is included in finance income in the profit or loss. The
losses arising from impairment are recognized in the profit or loss. This category generally applies to
trade and other receivables.
Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
FVTPL is a residual category for financial instruments. Any financial instrument, which does not meet
the criteria for amortized cost or FVTOCI (Fair value through Other Comprehensive Income), is
classified as at FVTPL. A gain or loss on a Debt instrument that is subsequently measured at FVTPL
and is not a part of a hedging relationship is recognized in statement of profit or loss and presented net
in the statement of profit and loss within other gains or losses in the period in which it arises. Interest
income from these Debt instruments is included in other income.
Equity instruments measured at Cost
Equity instruments / Investments in subsidiaries are accounted at cost in accordance with Ind AS 27 -
Separate Financial Statements.
Derecognition:
The Company derecognises a financial asset when the contractual rights to the cash flows from the asset
expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership
of the asset to another party. 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
recognises a collateralized borrowing for the proceeds received.
On de-recognition of a financial asset in its entirety, the difference between the asset’s carrying amount
and the sum of the consideration received and receivable and the cumulative gain or loss that had been
recognised in other comprehensive income and accumulated in equity is recognised in statement of profit
and loss if such gain or loss would have otherwise been recognised in statement of profit and loss on
disposal of that financial asset.
Impairment of financial assets:
The Company recognises loss allowances using the expected credit loss (ECL) model for the financial
assets which are not fair valued through profit and loss. Loss allowance for trade receivables with no
significant financing component is measured at an amount equal to lifetime ECL. For all other financial
assets, expected credit losses are measured at an amount equal to the 12-month ECL, unless there has
been a significant increase in credit risk from initial recognition in which case those are measured at
lifetime ECL. The amount of expected credit losses (or reversal) that is required to adjust the loss
allowance at the reporting date to the amount that is required to be recognised as an impairment gain or
loss in statement of profit and loss.
For trade receivables, the Company applies the simplified approach permitted by Ind AS 109 Financial
Instruments, which requires expected lifetime losses to be recognised from initial recognition of the
receivables. As a practical expedient, the Company uses a provision matrix to determine impairment
loss of its trade receivables. The provision matrix is based on its historically observed default rates over
the expected life of the trade receivable and is adjusted for forward looking estimates. The ECL loss
allowance (or reversal) during the year is recognised in the statement of profit and loss.
Reclassification of financial assets:
The Company determines classification of financial assets and liabilities on initial recognition. After
initial recognition, no reclassification is made for financial assets which are equity instruments and
financial liabilities. For financial assets which are debt instruments, a reclassification is made only if
there is a change in the business model for managing those assets. Changes to the business model are
expected to be infrequent. The Company's senior management determines change in the business model
as a result of external or internal changes which are significant to the Company's operations. Such
changes are evident to external parties. A change in the business model occurs when the Company either
begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies
financial assets, it applies the reclassification prospectively from the reclassification date which is the
first day of the immediately next reporting period following the change in business model. The Company
does not restate any previously recognized gains, losses (including impairment gains or losses) or
interest.
(b) Financial Liabilities:
Initial recognition and measurement:
Financial liabilities are classified at initial recognition as financial liabilities at fair value through
profit or loss, loans and borrowings, and payables, net of directly attributable transaction costs.
The Company's financial liabilities include loans and borrowings including bank overdraft, trade
payable, trade deposits and other payables.
Subsequent measurement:
The measurement of financial liabilities depends on their classification, as described below
Trade Payables:
These amounts represent liabilities for goods and services provided to the Company prior to the
end of financial year which are unpaid. The amounts are unsecured and are usually paid within
0-180 days of recognition. Trade and other payables are presented as current liabilities unless
payment is not due within 12 months after the reporting period. They are recognised initially at
fair value and subsequently measured at amortised cost using EIR method.
Financial Liabilities at fair value through profit & loss:
Financial liabilities at fair value through profit or loss include financial liabilities held for trading
and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of
repurchasing in the near term. Gains or losses on liabilities held for trading are recognised in the
statement of profit and loss. Financial liabilities designated upon initial recognition at fair value
through profit or loss are designated as such at the initial date of recognition, and only if the
criteria in IND AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses
attributable to changes in own credit risk is recognised in OCI. These gains/ losses are not
subsequently transferred to profit and loss. However, the Company may transfer the cumulative
gain or loss within equity. All other changes in fair value of such liability are recognised in the
statement of profit or loss.
Loans & Borrowings:
Borrowings are initially recognised at fair value, net of transaction cost incurred. After initial
recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost
using the EIR (Effective Interest Rate) method. Gains and losses are recognised in profit or loss
when the liabilities are derecognised as well as through the EIR amortization process. Amortised
cost is calculated by taking into account any discount or premium on acquisition and fees or
costs that are an integral part of the EIR. The EIR amortization is included as finance costs in
the statement of profit and loss.
Derecognition:
A financial liability is derecognised when the obligation under the liability is discharged or
cancelled or expires. When an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as the derecognition of the original liability
and the recognition of a new liability. The difference in the respective carrying amounts is
recognised in the statement of profit and loss.
Offsetting of financial instruments:
Financial assets and financial liabilities are offset and the net amount is reported in the balance
sheet if there is a currently enforceable legal right to offset the recognized amounts and there is
an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
2.2.7 Cash & Cash Equivalents:
Cash and cash equivalents in the balance sheet comprise cash at banks; cash in hand, other short
term deposits with original maturities of three months or less which are subject to an insignificant
risk of changes in value.
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