2. SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
i. Statement of compliance
The financial statements are prepared and presented
in accordance with Indian Accounting Standards (Ind
AS) [as notified under section 133 of the Companies
Act, 2013 read with Rule 3 of the Companies (Indian
Accounting Standards) Rules, 2015], as amended
from time to time, to the extent applicable, the
provisions of the Companies Act, 2013 and these
have been consistently applied.
ii. Functional and presentation currency
The standalone financial statements are presented
in Indian rupees, which is the functional currency
of the Company and the currency of the primary
economic environment in which the entity operates.
All financial information presented in Indian rupees
has been rounded to the nearest lakhs except share
and per share data.
iii. Use of estimates and judgment
The preparation of financial statements in conformity
with Ind AS require estimates and assumptions to be
made that affect the application of accounting policies
and reported amounts of assets and liabilities, and the
reported amounts of revenues and expenses during
the reporting period. The estimates and underlying
assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in
the period in which the estimate is revised.
2.2 Summary of significant accounting policies
The accounting policies set out below have been applied
consistently to all periods presented in these standalone
financial statements, unless otherwise stated.
2.3 Revenue recognition
Revenue is recognized when significant risks and rewards
of ownership and effective control on goods have been
transferred to the buyer. Revenue from the sale of
manufactured goods is recognized upfront at the point in time
when the goods are delivered to the customer. The supply of
alloys may include supply of third-party equipment or material.
In such cases, revenue for supply of such third party products
are recorded at gross or net basis depending on whether
the company is acting as the principal or as an agent of the
customer. The company recognizes revenue in the gross
amount of consideration when it is acting as a principal and at
net amount of consideration when it is acting as an agent.
Revenue is measured based on the transaction price,
which is the consideration, adjusted for volume discounts,
liquidated damages, performance bonuses and incentives,
if any, as specified in the contract with the customer.
Revenue is recognized when persuasive evidence exists,
usually in the form of an executed sales agreement, that
the significant risks and rewards of ownership have been
transferred to the buyer, recovery of the consideration is
probable, the associated costs and possible return of
goods can be estimated reliably, there is no continuing
management involvement with the goods and the amount
of revenue can be measured reliably. The appropriate
timing for transfer of risks and rewards varies depending
on the individual terms and conditions of the sales contract.
In case of Ex-works contract, revenue is recognized when
the goods are handed over to the carrier/agent for dispatch
to the buyer and wherever customer’s prior inspection is
stipulated; revenue is recognized upon acceptance by
customer’s inspector.
In case of sales on FOR/FOB destination contracts,
revenue is recognized considering the expected time in
respect of dispatches to reach the destination within the
accounting period, subject to adjustments based on actual
receipt of material at destination.
Claims for additional revenue in respect of sales contracts/
orders against outside agencies are accounted on certainty
of realization.
Revenue on rendering of service: Revenue is recognized
when the outcome of the services rendered can be
estimated reliably. Revenue is recognized in the period
when the service is performed by reference to the contract
stage of completion on the reporting date.
Contract assets are recognized when there is excess
of revenue earned over billings on contracts. Contract
assets are classified as unbilled receivables (only act of
invoicing is pending) when there is unconditional right to
receive cash, and only passage of time is required, as per
contractual terms.
Unearned and deferred revenue (“contract liability”) is
recognized when there is a billing in excess of revenues.
Contracts are subject to modification to account for
changes in contract specification and requirements. The
Company reviews modification to contract in conjunction
with the original contract, basis which the transaction price
could be allocated to a new performance obligation, or
transaction price of an existing obligation could undergo a
change. In the event transaction price is revised for existing
obligation a cumulative adjustment is accounted for.
Customer contributed equipment to facilitate Company’s
fulfilment of contract are accounted as non-cash
consideration received from Customer and are
measured at fair value.
Use of significant judgments in revenue recognition:
The Company’s contracts with customers could include
promises to transfer multiple products and services to a
customer. The Company assesses the products / services
promised in a contract and identify distinct performance
obligations in the contract. Identification of distinct
performance obligation involves judgment to determine
the deliverables and the ability of the customer to benefit
independently from such deliverables.
Judgment is also required to determine the transaction
price for the contract. The transaction price could be either
a fixed amount of customer consideration or variable
consideration with elements such as volume discounts,
service level credits, performance bonuses and incentives.
The transaction price is also adjusted for the effects of the
time value of money if the contract includes a significant
financing component. Any consideration payable to the
customer is adjusted to the transaction price, unless
it is a payment for a distinct product or service from the
customer. The estimated amount of variable consideration
is adjusted in the transaction price only to the extent
that it is highly probable that a significant reversal in the
amount of cumulative revenue recognized will not occur
and is reassessed at the end of each reporting period. The
Company allocates the elements of variable considerations
to all the performance obligations of the contract unless
there is observable evidence that they pertain to one or
more distinct performance obligations.
The Company uses judgment to determine an appropriate
standalone selling price for a performance obligation.
The Company allocates the transaction price to each
performance obligation on the basis of the relative stand¬
alone selling price of each distinct product or service
promised in the contract. Where standalone selling price is
not observable, the Company uses the expected cost plus
margin approach to allocate the transaction price to each
distinct performance obligation.
The Company exercises judgment in determining whether
the performance obligation is satisfied at a point in time or
over a period of time. The Company considers indicators
such as how customer consumes benefits as services are
rendered or who controls the asset as it is being created or
existence of enforceable right to payment for performance
to date and alternate use of such product or service,
transfer of significant risks and rewards to the customer,
acceptance of delivery by the customer, etc.
Contract fulfillment costs are generally expensed as
incurred except for certain software license costs which
meet the criteria for capitalization. The assessment of this
criterion requires the application of judgment, in particular
when considering if costs generate or enhance resources
to be used to satisfy future performance obligations and
whether costs are expected to be recovered.
2.4 Foreign currencies
Foreign currency monetary items are recorded in the
Functional Currency at the closing rate of the reporting
period. Non-monetary assets and liabilities denominated
in a foreign currency and measured at historical cost
are translated at the exchange rate prevalent at the date
of transaction.
Exchange differences arising on account of settlement
/ conversion of foreign currency monetary items are
recognized as expense or income in the period in
which they arise.
Foreign currency gains and losses are reported on a net
basis. This includes changes in the fair value of foreign
exchange derivative instruments, which are accounted at
fair value through statement of profit and loss.
2.5 Employee benefits
i. Defined Contribution Plan
A defined contribution plan is a post-employment
benefit plan under which an entity pays fixed
contributions to a separate entity and will have
no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined
contribution pension plans are recognized as an
employee benefit expense in the statement of profit
and loss in the periods during which services are
rendered by employees. The Company has Post
Retirement Medical Benefit Scheme (PRMBS) and
Pension Scheme under this category.
ii. Defined Benefit Plan
A defined benefit plan is a post-employment benefit plan
other than a defined contribution plan. The Company’s
net obligation in respect of defined benefit plans is
calculated separately for each plan by estimating the
amount of future benefit that employees have earned in
return for their service in the current and prior periods;
that benefit is discounted to determine its present value.
Any unrecognized past service costs and the fair value
of any plan assets are deducted. The discount rate is
the yield at the reporting date on government bonds, in
the absence of deep market for high quality corporate
bonds that have maturity dates approximating the
terms of the Company’s obligations and that are
denominated in the same currency in which the benefits
are expected to be paid. The calculation is performed
annually by a qualified actuary using the projected unit
credit method. When the calculation results in a benefit
to the Company, the recognized asset is limited to the
total of any unrecognized past service costs and the
present value of economic benefits available in the
form of any future refunds from the plan or reductions
in future contributions to the plan. In order to calculate
the present value of economic benefits, consideration
is given to any minimum funding requirements that
apply to any plan in the Company. An economic benefit
is available to the Company if it is realizable during the
life of the plan, or on settlement of the plan liabilities.
When the benefits of a plan are improved, the portion
of the increased benefit relating to past service by
employees is recognized in the statement of profit
and loss on a straight-line basis over the average
period until the benefits become vested. To the extent
that the benefits vest immediately, the expense is
recognized immediately in the statement of profit and
loss. The Company recognizes all actuarial gains
and losses arising from defined benefit plans in other
comprehensive income.
The Company has Gratuity and contribution towards
Provident Fund under this category.
iii. Compensated Absence
The Company accounts for its liability towards
compensated absences based on actuarial valuation
done as at the balance sheet date by an independent
actuary using the Projected Unit Credit Method. The
liability includes the long term component accounted
on a discounted basis and the short term component
which is accounted for on an undiscounted basis.
iv. Other Employee Benefits
Other employee benefits are estimated and accounted
for based on the terms of the employment contract.
2.6 Property, plant and equipment
Land is capitalized at cost to the Company. Development
of land such as leveling, clearing and grading is capitalized
along with the cost of building in proportion to the
land utilized for construction of building and rest of the
development expenditure is capitalized along with the cost
of land. Development expenditure incurred for the purpose
of landscaping or for any other purpose not connected with
construction of any building is treated as cost of land.
All other items of Property, plant and equipment are
measured at cost less accumulated depreciation and
impairment losses. The company opted to adopt the
previous GAAP value as the 'deemed cost' for the purposes
of preparation of opening balance sheet as at 01 April 2015.
The cost of property, plant and equipment includes
expenditures arising directly from the construction or
acquisition of the asset, any costs directly attributable to
bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended by
management and, when the Company has an obligation
to remove the asset or restore the site, an estimate of the
costs of dismantling and removing the item and restoring
the site on which it is located.
The cost of replacing a part of an item is recognized in
the carrying amount of the item of property, plant and
equipment, if the following recognition criteria are met:
a) It is probable that future economic benefits associated
with the item will flow to the Company and;
b) The cost can be measured reliably.
Each part of an item of property, plant and equipment with a
cost that is significant in relation to the total cost of the item
is depreciated separately. Useful lives of the significant
components are estimated by the internal technical experts.
The carrying amount of the replaced part is de-recognized
at the time the replacement part is recognized. The gain or
loss arising from the de-recognition of an item of property,
plant and equipment is included in statement of profit and
loss when the item is de-recognized. The costs of the day-
to-day servicing of the item are recognized in statement of
profit and loss as incurred.
The present value of expected cost for the dismantling and
restoration are included in the cost of respective assets if
recognizing criteria for provision are met.
Pending disposal, unserviceable fixed assets are removed
from the Fixed Assets Register and shown under “Other
Current Assets” as a separate line item at the lower of their
net book value and net realizable value. As and when the
disposal of such assets takes place, the difference between
the carrying amount and the amount actually realized will
be recognized as Loss / Profit from sale of Fixed Assets.
Advance paid towards the acquisition of property, plant
and equipment, outstanding at each balance sheet date
is classified as capital advance under “Other non-current
assets” and the cost of assets not put to use before such
date are disclosed under ‘capital work-in-progress’.
As per para 8 of Ind AS 16, items such as spare parts, stand¬
by equipment and servicing equipment are recognised in
accordance with this Ind AS when they meet the definition
of property, plant and equipment and are expected to be
used for more than one accounting year. Otherwise, such
items are classified as inventory.
Depreciation
Depreciation is calculated using the straight line method
to allocate their cost, net of residual values, over the
estimated useful life.
The useful lives have been determined to be equal to those
prescribed in Schedule II to the Companies Act, 2013. The
assets’ residual values and useful lives are reviewed, and
adjusted if appropriate, at the end of each reporting period.
Assets whose actual cost does not exceed '5000/-,
depreciation is provided at the rate of hundred percent in
the year of capitalization.
Disposal:
Gain and losses on disposal are determined by comparing
net sale proceeds with carrying amount. These are included
in statement of profit and loss.
2.7 Intangible assets
i. Intangible assets acquired separately
Intangible assets with finite useful lives that
are acquired separately are carried at cost less
accumulated amortization and accumulated
impairment losses. Amortization is recognized on a
straight-line basis over their estimated useful lives.
The estimated useful life and amortization method
are reviewed at the end of each reporting period, with
the effect of any changes in estimate being accounted
for on a prospective basis. Intangible assets with
indefinite useful lives that are acquired separately are
carried at cost less accumulated impairment losses.
For transition to Ind AS, the Company has elected to
continue with the carrying value of all its intangible
assets recognized as of April 1, 2015 (transition
date) measured as per the previous GAAP and use
that carrying value as its deemed cost as of the
transition date.
ii. De-recognition of intangible assets
An intangible asset is de-recognized on disposal,
or when no future economic benefits are expected
from use or disposal. Gains or losses arising from
de-recognition of an intangible asset, measured as
the difference between the net disposal proceeds
and the carrying amount of the asset, are recognized
in statement of profit and loss when the asset
is de-recognized.
iii. Useful lives of intangible assets
Amortization is calculated using the straight line
method to allocate their cost, net of residual values,
over the estimated useful life.
The useful lives have been determined in accordance
with guidance provided at Schedule II to the
Companies Act, 2013.
The assets’ useful lives are reviewed, and adjusted if
appropriate, at the end of each reporting period.
2.8 Inventories
Inventories are valued on the following basis:
i. Raw materials, consumables, spares and Tools
and Instruments in Central Stores
At weighted average cost
ii. Raw materials in Shop floor/ Sub-stores in the
shops
At weighted average rate of Central Stores, at the
end of the year
iii. Consumables in Shop floor/Sub-stores
All consumables drawn from the Central Stores are
charged off to expense. Only in respect of ‘A’ and ‘B’
class consumables identified by Management from
time to time, the stock at the Shop floor/Shop sub¬
stores are brought to inventory at the close of the
year at the weighted average rate. However, moulds,
rolls, dies etc., in use at the close of the year, are
valued at issue rates with reference to the balance
life, technically estimated.
iv (a) Re-usable process scrap, process rejections
and sales rejections with customers for return
At estimated realizable value for scrap.
(b) Scrap Identified for Sale
At estimated realizable value or market value
whichever is less
v Tools and Gauges
Issued tools, instruments, gauges etc. are amortized
uniformly over their estimated life.
vi Work-in-process
At cost or estimated realizable value appropriate to
the stage of production based on technical evaluation,
whichever is less. However, the WIP of 5 years old
and above is valued at the realizable scrap rate.
vii Finished Goods
At cost or net realizable value (at shop finished
stage) whichever is less. However, the Finished
Goods of 5 years old and above is valued at the
realizable scrap rate.
viii Goods in transit are valued at cost.
ix Stores declared surplus / unserviceable are
transferred to salvage stores for disposal, and
charged to revenue.
x Provision for the non-moving raw materials,
consumables and spares for over three years
is made as under:
Raw materials: 85% of the book value.
Consumables and Spares (which do not meet
definition of PPE): 50% of the book value.
xi Stationery, uniforms, medical and canteen stores are
charged off to revenue at the time of receipt.
2.9 Investments in associates and joint ventures
An associate is an entity over which the company has
significant influence. Significant influence is the power to
participate in the financial and operating policy decisions
of the investee but is not control or joint control over
those policies.
A joint venture is a joint arrangement whereby the parties
that have joint control of the arrangement have rights to
the net assets of the joint arrangement. Joint control is the
contractually agreed sharing of control of an arrangement,
which exists only when decisions about the relevant
activities require unanimous consent of the parties
sharing control.
Investments in associate and joint ventures are measured at
cost in accordance with Ind AS 109- Financial Instruments.
Investment in associate and joint ventures are subject
to impairment wherever there is indication of negative
reserve in the accounts of JV Companies. However, such
impairment is limited to the value of investment.
2.10 Income tax
Income tax comprises current and deferred tax. Income tax
expense is recognized in the statement of profit and loss
except to the extent it relates to items directly recognized in
equity or in other comprehensive income.
i. Current income tax
Current income tax for the current and prior periods
are measured at the amount expected to be recovered
from or paid to the taxation authorities based on the
taxable income for the period. The tax rates and tax
laws used to compute the current tax amount are
those that are enacted or substantively enacted by
the reporting date and applicable for the period. The
Company offsets current tax assets and current tax
liabilities, where it has a legally enforceable right to
set off the recognized amounts and where it intends
either to settle on a net basis or to realize the asset
and liability simultaneously.
ii. Deferred income tax
Deferred income tax is recognized using the balance
sheet approach. Deferred income tax asset 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. Deferred income tax liabilities are recognized
for all taxable temporary differences.
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