2.3 Summary of material accounting policies
1) Material Accounting Policies
a. Revenue recognition
Revenue from contracts with customers is recognised on transfer of control of promised goods or services to a customer at an
amount that reflects the consideration to which the Company is expected to be entitled to in exchange for those goods or services.
Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price (net of variable
consideration) allocated to that performance obligation. The transaction price of goods sold and services rendered is net of variable
consideration on account of various discounts and schemes offered by the Company as part of the contract. This variable
consideration is estimated based on the expected value of outflow.
For contracts with multiple performance obligations, transaction price is allocated to different obligations based on their standalone
selling price. In such case, revenue recognition criteria are applied for each performance obligation separately, in order to reflect the
substance of the transaction and revenue is recognized separately for each obligation as and when the recognition criteria for the
component is fulfilled. For contracts that permit the customer to return, revenue is recognized to the extent that it is highly probable
that a significant reversal in the amount of cumulative revenue recognized will not occur. The rates applied are the ones agreed with
customers or estimated by the management based on the latest terms of the agreement or latest negotiation with customers and
other industry considerations as appropriate. Due to the large variety and complexity of contractual terms, as well as ongoing
negotiations with customers, significant judgments are required to estimate the rates applied, interpretation of terms of agreement
and certainty of realization, measurement of billed services and timing of services. If the contracted services are not delivered then
penal clauses in the said agreement are invoked by the customers, which will have an impact on the accuracy of revenue recognized
in the current year and accrued as at year end.
Sale of products
Revenue from sale of products is recognized when the Company transfers all significant risks and rewards of ownership to the buyer,
while the Company retains neither continuing managerial involvement nor effective control over the products sold.
Revenue from Wind energy generation is recognised based on net units generated and transmitted (Net of rebate).
Sale of services
Revenue from services is recognized when the stage of completion can be measured reliably. Stage of completion is measured by
the services performed till Balance Sheet date as a percentage of total services contracted.
Other income
Other income comprises of interest income, rental income, fair value gain on mutual funds & financial guarantee income to be
recognised on accrual basis.
Interest Income
For all debt instruments measured either at amortised cost or at fair value through other comprehensive income, interest income is
recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts
over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial
asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected
cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar
options) but does not consider the expected credit losses. Interest income is included in other income in the statement of profit and
loss.
Rental Income
Rental income arising from operating leases on investment properties is accounted for on a straight-Line basis over the lease terms
and is included in other income in the statement of profit or loss.
Dividend Income
Revenue is recognised when the Company’s right to receive the payment is established.
b. Property, plant and equipment ('PPE')
Measurement at recognition:
Measurement at recognition: An item of property, plant and equipment that qualifies as an asset is measured on initial recognition at
cost. Following initial recognition, items of property, plant and equipment are carried at its cost less accumulated depreciation and
accumulated impairment losses.
The Company identifies and determines cost of each part of an item of property, plant and equipment separately, if the part has a
cost which is significant to the total cost of that item of property, plant and equipment and has useful life that is materially different
from that of the remaining item.
The cost of an item of property, plant and equipment comprises of its purchase price including import duties and other non¬
refundable purchase taxes or levies, directly attributable cost of bringing the asset to its working condition for its intended use and
the initial estimate of decommissioning, restoration and similar liabilities, if any. Any trade discounts and rebates are deducted in
arriving at the purchase price. Cost includes cost of replacing a part of a plant and equipment if the recognition criteria are met.
Expenses directly attributable to new manufacturing facility during its construction period are capitalized if the recognition criteria
are met. Expenditure related to plans, designs and drawings of buildings or plant and machinery is capitalized under relevant heads
of property, plant and equipment if the recognition criteria are met.
Items such as spare parts, stand-by equipment and servicing equipment that meet the definition of property, plant and equipment
are capitalized at cost and depreciated over their useful life. Costs in nature of repairs and maintenance are recognized in the
Statement of Profit and Loss as and when incurred. The Company had elected to consider the carrying value of all its property, plant
and equipment appearing in the Financial Statements prepared in accordance with Accounting Standards notified under the section
133 of the Companies Act, 2013, read together with Rule7 of the Companies (Accounts) Rules, 2014 and used the same as deemed
cost in the opening Ind AS Balance Sheet prepared on 1st April, 2020.
Capital work in progress and Capital advances
Cost of assets not ready for intended use, as on the Balance Sheet date, is shown as capital work in progress. Advances given
towards acquisition of fixed assets outstanding at each Balance Sheet date are disclosed as Other Non-Current Assets. Capital work
in progress is measured at cost.
Depreciation/amortisation
The carrying amount of an item of property, plant and equipment is derecognized on disposal or when no future economic benefits
are expected from its use or disposal. The gain or loss arising from the Derecognition of an item of property, plant and equipment is
measured as the difference between the net disposal proceeds and the carrying amount of the item and is recognized in the
Statement of Profit and Loss when the item is derecognized.
Depreciation on fixed assets has been provided at the rates prescribed in Schedule II of Companies Act, 2013 on following basis:
Tangible fixed assets are depreciated on Straight Line method with 1% salvage over the useful lives in accordance with Schedule II
of Companies Act, 2013.
Capitalization of Subsequent Expenditure:
Capitalization of subsequent expenditure occurs when it is probable that future economic benefits will flow to the entity. It is the cost
of replacing part of such an item. Such expenditure is incurred, when recognition criteria is met and future economic benefit is
probable.
c. Intangible assets
Recognition:
An Intangible Assets shall be recognised if, and only if: (a) It is probable that the expected future economic benefits that are
attributable to the asset will flow to the entity and (b) The cost of the assets can be measured reliably. An entity shall assess the
probability of expected future economic benefits using reasonable assumptions that represents best estimate of the set of economic
conditions that will exist over the useful life of the asset. An entity uses judgement to assess the degree of certainty attached to the
flow of future economic benefits that are attributable to the use of the asset on the basis of the evidence available at the time of initial
recognition, giving greater weight to the external evidence.
In case of Intangible asset for which future economic benefits are not certain and cost cannot be measured reliably are classified
under Intangible asset under development.
Measurement at initial recognition: Intangible assets acquired separately are measured on initial recognition at cost. Following initial
recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally
generated intangibles are not capitalised and the related expenditure is reflected in profit or loss in the period in which the
expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite.
Amortisation : Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible
asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the
expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period
or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with
finite lives is recognised in the statement of profit and loss unless such expenditure forms part of carrying value of another asset.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the
smallest cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life
continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds
and the carrying amount of the asset and are recognised in the statement of profit and loss when the asset is derecognised.
Derecognition: The carrying amount of an intangible asset is derecognized on disposal or when no future economic benefits are
expected from its use or disposal. The gain or loss arising from the Derecognition of an intangible asset is measured as the difference
between the net disposal proceeds and the carrying amount of the intangible asset and is recognized in the Statement of Profit and
Loss when the asset is derecognized.
The Company has elected to continue with the carrying value for all of its intangible assets as recognised in the previous GAAP
financial statements as at the date of transition to Ind AS, measured as per the previous Indian GAAP and use that as its deemed
cost as at the date of transition after making necessary adjustments in accordance with the relevant Ind AS, since there is no change
in functional currency.
d. Financial instruments:
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of
another entity.
Financial assets
Financial instruments with a contractual right to receive cash or another entities financial liability is recognised as financial asset by
the Company
Initial recognition and measurement
All financial assets are recognised 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. However, trade receivable that does not contain
a significant financing component are measured at transaction price.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
> Debt instruments at amortised cost
> Debt instruments, derivatives and equity instruments at fair value through profit or loss (FVTPL)
> Equity instruments measured at fair value through other comprehensive income (FVTOCI)
> Debt instruments at fair value through Other Comprehensive income (FVOCI)
Debt instruments at amortised cost
A ‘debt instrument’ is measured at the amortised cost if both the following conditions are met:
> The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
> 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.
This category is the most relevant to the Company. After initial measurement, such financial assets are subsequently measured at
amortised cost using the effective interest rate (EIR) method. 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 amortisation is included in finance income in
the profit or loss. The losses arising from impairment are recognised in the profit or loss. This category generally applies to loans
trade receivables and other financial assets.
Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for categorization as at
amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI criteria, as at
FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or recognition inconsistency
(referred to as ‘accounting mismatch’).
'Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the P&L.
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading are classified
as at FVTPL. For all other equity instruments, the Company may make an irrevocable election to present in other comprehensive
income subsequent changes in the fair value. The Company makes such election on an instrument by- instrument basis. The
classification is made on
initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding
dividends, are recognized in the OCI. There is no recycling of the amounts from OCI to P&L, even on sale of investment. However,
the Company may transfer the cumulative gain or loss within equity.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is primarily
derecognised (i.e. removed from the Company’s balance sheet) when:
> The rights to receive cash flows from the asset have expired, or
> The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a ‘pass-through’ arrangement? and either (a) the Company has
transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control of the asset."
When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement,
it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained
substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognise the
transferred asset to the extent of the Company’s continuing involvement. In that case, the Company also recognises an associated
liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the
Company has retained.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of
impairment loss on the following financial assets and credit risk exposure
1) Financial assets that are debt instruments, and are measured at amortised cost e.g. deposits, loans, trade receivables, bank
balance and other financial assets.
2) Trade receivables or any contractual right to receive cash or another financial asset that result from transactions that are within
the scope of Ind AS 115;
The Company follows ‘simplified approach’ for recognition of impairment loss allowance on Trade receivables.
The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment
loss allowance based on lifetime Expected Credit Losses (ECLs) at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been
a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, twelve-month ECL is used
to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period,
credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then
the entity reverts to recognising impairment loss allowance based on twelve-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument.
The twelve-month ECL is a portion of the lifetime ECL which results from default events that are possible within twelve months after
the reporting date.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the
cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of
profit and loss (P&L). This amount is reflected under the head ‘other expenses’ in the statement of profit and loss. The balance sheet
presentation for ECL on financial assets measured at amortised cost is presented as an allowance, i.e., as an integral part of the
measurement of those assets in the balance sheet. The allowance reduces the net carrying amount. Until the asset meets write-off
criteria, the Company does not reduce impairment allowance from the gross carrying amount.
For assessing increase in credit risk and impairment loss, the Company combines financial instruments on the basis of shared credit
risk characteristics with the objective of facilitating an analysis that is designed to enable significant increases in credit risk to be
identified on a timely basis.
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;
Payable s as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and Payable s, net of directly
attributable transaction costs.
The Company’s financial liabilities include trade and other Payable s, loans and borrowings including bank overdrafts and derivative
financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Loans and borrowings
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 amortisation 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 amortisation 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 or loss.
Reclassification of financial assets
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 recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the
liabilities simultaneously.
e. Investment in Subsidiary and Associate Companies & Joint Venture
Recognition & measurement
Investments in Subsidiaries, Associates and Joint Ventures are carried at cost less accumulated impairment losses, if any. Where an
indication of impairment exists, the carrying amount of the investment is assessed and written down immediately to its recoverable
amount. On disposal of investments in subsidiaries, associates and joint venture, the difference between net disposal proceeds and
the carrying amounts are recognized in the Statement of Profit and Loss.
f. Segment Reporting
Segments are identified based on the manner in which the Chief Operating Decision Maker (‘CODM’) decides about resource
allocation and reviews performance. Segment results that are reported to the CODM include items directly attributable to a segment
as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period
to acquire property and equipment and intangible assets other than goodwill.
g. Post-Employment Benefits:
Retirement benefit in the form of provident fund and other funds is a defined contribution scheme. The Company has no obligation,
other than the contribution payable to the provident fund. The Company recognizes contribution payable to the provident fund
scheme as an expense, when an employee renders the related service. If the contribution payable to the scheme for service received
before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability
after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received
before the balance sheet date, then excess is recognized as an asset to the extent that the pre-payment will lead to, for example, a
reduction in future payment or a cash refund.
The Company operates a defined benefit gratuity plan, which requires contributions to be made to a separately administered fund.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method 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
recognised 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
Past service costs are recognised in profit or loss on the earlier of:
1. The date of the plan amendment or curtailment, an
2. The date that the Company recognises related restructuring costs
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Company recognises the
following changes in the net defined benefit obligation as an expense in the consolidated statement of profit and loss:
1. Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine
settlements; and
2. Net interest expense or income
Accumulated leave, which is expected to be utilized within the next 12 months, is treated as a short-term employee benefit. The
Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused
entitlement that has accumulated at the reporting date.
The Company treats accumulated leave expected to be carried forward beyond twelve months, as a long-term employee benefit for
measurement purposes. Such long-term compensated absences are provided for based on the actuarial valuation using the
projected unit credit method as at the year-end. Actuarial gains/losses are immediately taken to the statement of profit and loss and
are not deferred. The Company presents the leave as a current liability in the balance sheet, to the extent it does not have an
unconditional right to defer its settlement for 12 months after the reporting date.
Short Term Employee Benefits:
Short-term employee benefits including salaries, bonuses and commission payable within twelve months after the end of the period
in which the employees render the related services and non-monetary benefits (such as medical care) for current employees are
estimated and measured on an undiscounted basis.
Accumulated leave, which is expected to be utilised within the next 12 months, is treated as a short-term employee benefit. The
Company measures the expected cost of such absences as the additional amount that it expects to pay as a result of the unused
entitlement that has accumulated at the reporting date.
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee
renders the related service are recognised based on actuarial valuation at the present value of the obligation as on the reporting
date.
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