Significant accounting policies
CORPORATE INFORMATION
Modern Insulators Limited (the Company) is a public limited company
incorporated in India under the provisions of the Companies Act, 1956 (the
Act) having its registered office at Abu Road, Rajasthan, India. The
Company is primarily engaged in the business of manufacturing insulators
and terry towels.
Note no. 1: Significant Accounting Policies
(a) Basis of preparation
(i) The Financial Statements have been prepared in accordance with
the Indian Accounting Standards (Ind AS) as specified under
section 133 of the Companies Act, 2013 read with the Companies
(Indian Accounting Standards) Rules, 2015 as amended and other
relevant provisions of the Act. The accounting policies are applied
consistently to all the periods in the Financial Statements.
(ii) The Financial Statements are prepared on accrual basis under the
historical cost convention except (i) claims of customers & others
which are accounted for as and when paid/settled and (ii) financial
assets and liabilities (including derivatives instruments) that are
measured at fair value as required by relevant Ind AS. The methods
used to measure fair values are discussed in notes to financial
statements.
(iii) The preparation of financial statements requires judgments,
estimates and assumptions that affect the reported amount of assets
and liabilities, disclosure of contingent liabilities on the date of
the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ
from those estimated. Difference between the actual results and
estimates are recognized in the period in which the results are
known/materialized. Major estimates are discussed in Note No.
1A.
(b) Functional and presentation currency
These 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 Company operates.
(c) Classification of assets and liabilities into current and non-current
The Company has ascertained its operating cycle as twelve months for
the purpose of Current and Non-Current classification of its Assets
and Liabilities. Classification is done in accordance with Schedule III
Division II of the Companies Act, 2013.
For the purpose of Balance Sheet, an asset is classified as current when:
(i) It is expected to be realised or intended to be sold or consumed in
the normal operating cycle; or
(ii) It is held primarily for the purpose of trading; or
(iii) It is expected to be realised within twelve months after the reporting
period; or
(iv) It is cash or cash equivalent unless it is 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.
Similarly, a liability is classified as current when:
(i) It is expected to be settled in the normal operating cycle; or
(ii) It is held primarily for the purpose of trading; or
(iii) It is due to be settled within twelve months after the reporting
period; or
(iv) The Company does not have an unconditional right to defer the
settlement of the liability for at least twelve months after the
reporting period.
All other liabilities are classified as non-current.
Deferred tax assets/liabilities are classified as non-current assets/
liabilities.
(d) Property, plant & equipment (PPE)
The Company had applied for the one time transition exemption of
considering the fair value as on the date of transition i.e. 01st April,
2016 as the deemed cost under Ind AS. Hence regarded thereafter as
historical cost.
Freehold land is carried at Cost. All other items of Property, plant and
equipment (PPE) are stated at acquisition or construction cost less
accumulated depreciation / amortisation and impairment loss. Cost
comprises the purchase price and any directly attributable cost of
bringing the asset to its location and working condition for its intended
use, including relevant borrowing costs.
If significant parts of an item of PPE have different useful lives, then
they are accounted for as separate items (major components) of PPE.
The cost of an item of PPE is recognised as an asset if, and only if, it is
probable that the economic benefits associated with the item will flow
to the Company in future periods and the cost of the item can be
measured reliably. Expenditure incurred after the PPE have been put
into operations, such as repairs and maintenance expenses are charged
to the Statement of Profit and Loss during the period in which they are
incurred.
Subsequent expenditure incurred after the PPE have been put into
operations is recognized as an increase in the carrying amount of the
asset when it is probable that future economic benefits deriving from
the cost incurred will flow to the enterprise and the cost of the item can
be measured reliably.
Items such as spare parts, standby equipments and servicing equipments
are recognised as PPE when it is held for use in the production or
supply of goods or services or for administrative purpose and are
expected to be used for more than one year. Otherwise such items are
classified as inventory.
An item of PPE is de-recognised upon disposal or when no future
economic benefits are expected to arise from the continued use of the
assets. Any gain or loss arising on the disposal or retirement of an item
of PPE, is determined as the difference between the net sales proceeds
and the carrying amount of the asset and is recognised in the Statement
of Profit and Loss.
(e) Expenditure during construction period
Expenditure, net of income earned, during construction (including
financing cost related to borrowed funds for construction or acquisition
of qualifying PPE) period is included under capital work-in-progress
and the same is allocated to the respective PPE on the completion of
construction. Advances given towards acquisition or construction of
PPE outstanding at each reporting date are disclosed as Capital
Advances under "Other Non Current Assets"
(f) Depreciation
Depreciation is the systematic allocation of the depreciable amount of
PPE over its useful life and is provided on a straight-line basis over the
useful lives as prescribed in Schedule II to the Act or as per technical
evaluation. Leasehold lands are amortised over the lease term unless it
is reasonably certain that the Company will obtain ownership by the
end of lease term.
Depreciable amount for PPE is the cost of PPE less its estimated residual
value. The useful life of PPE is the period over which PPE is expected
to be available for use by the Company or the number of production or
similar units expected to be obtained from the asset by the Company.
In case of certain classes of PPE, the Company uses different useful
lives than those prescribed in Schedule II to the Act. The useful lives
have been assessed based on technical evaluation, taking into
consideration the nature of the PPE and the estimated usage of the
Based on technical evaluation, management believes that the useful
life as given above best represent the period over which the management
expects to use these assets.
Depreciation on additions is provided on a pro-rata basis from the date
of installation or acquisition and in case of Projects from the date of
commencement of commercial production.
Depreciation on deductions/disposals is provided on a pro-rata basis
up to the date of deduction/disposal.
(g) Intangible assets and amortization
Internally generated intangible assets
Expenditure incurred on development is capitalised if such expenditure
leads to creation of any intangible asset, otherwise, such expenditure
is charged to the Statement of Profit and Loss. PPE procured for research
and development activities are capitalised.
Intangible assets acquired separately
Intangible assets acquired separately are carried at cost less accumulated
amortisation and accumulated impairment loss, if any. The Company
determines the amortisation period as the period over which the future
economic benefits will flow to the Company after taking into account
all relevant facts and circumstances. The estimated useful life and
amortisation method are reviewed periodically, with the effect of any
changes in estimate being accounted for on a prospective basis.
An item of intangible asset is de-recognised upon disposal or when no
future economic benefits are expected to arise from the continued use
of the assets. Any gain or loss arising on the disposal or retirement of
an item of intangible asset, is determined as the difference between the
net sales proceeds and the carrying amount of the asset and is recognised
in the Statement of Profit and Loss.
The useful life considered for calculation of depreciation / amortisation
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Based on technical evaluation, management believes that the useful
life as given above best represent the period over which the management
expects to use these assets.
Intangible asset having definite life are amortised on systematic basis
over their useful life. If life of any intangible asset is indefinite then it
is not amortised but tested for impairment loss at the end of each
reporting date.
(h) Borrowing Costs
Borrowing costs that are directly attributable to the acquisition,
construction, development or erection of a qualifying asset are
capitalized as part of the cost of such asset till such time the asset is
ready for its intended use and borrowing cost are being incurred. A
qualifying asset is an asset that necessarily takes a substantial period
of time to get ready for its intended use. All other borrowing costs are
recognized as an expense in the period in which they are incurred.
(i) Inventories
Inventories are valued at the lower of cost and net realisable value.
Raw material, stores and spare parts and packing materials are
considered to be realisable at cost, if the finished products, in which
they will be used, are expected to be sold at or above cost. The cost is
computed on weighted average basis.
Cost of finished goods and work- in- progress includes cost of
conversion based on normal capacity and other costs incurred in
bringing the inventories to their present location and condition. Net
realisable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion and the estimated costs
necessary to make the sale.
Spare parts, other than those capitalised as PPE are carried as
inventories.
The diminution in the value of obsolete, unserviceable and surplus
stores & spares is ascertained after review and if found material, suitable
provision is made/written down based on technical evaluation, its
recoverabl value and management’s best estimate.
(j) Investment in subsidiary and joint venture
Investments in subsidiary company and joint venture are recognized at
cost as per Ind AS 27.
(k) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks,
cash in hand and short-term deposits with an original maturity of three
months or less, which are subject to insignificant risk of change in
value.
(l) Government grants
Government grants are recognized when there is reasonable assurance
that the grant will be received and all associated conditions will be
complied with. When the grant relates to an expense item, it is
recognized 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 recognized as income on a
systematic basis over the expected useful life of the related asset.
(m) Provisions, contingent liabilities and contingent assets
Provisions are recognised when the Company has a present obligation
(legal or constructive) as a result of a past event and it is probable that
an outflow of resources, that can be reliably estimated, will be required
to settle such an obligation.
If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows to net present
value using an appropriate pre-tax discount rate that reflects current
market assessments of the time value of money and, where appropriate,
the risks specific to the liability. Unwinding of the discount is recognised
in the Statement of Profit and Loss as a finance cost.
The amount recognized as a provision is the best estimate of the
consideration required to settle the present obligation at reporting date,
taking into account the risks and uncertainties surrounding the
obligations. Provisions are reviewed at each reporting date and are
adjusted to reflect the management’s best estimate.
A present obligation that arises from past events where it is either not
probable that an outflow of resources will be required to settle or a
reliable estimate of the amount cannot be made, is disclosed as a
contingent liability. Contingent liabilities are also disclosed when there
is a possible obligation arising from past events, the existence of which
will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the control of the
Company. These are reviewed at each balance sheet date and are
adjusted to reflect the current management estimate.
Claims against the Company where the possibility of any outflow of
resources in settlement is remote, are not disclosed as contingent
liabilities.
Contingent assets are not recognised in financial statements since this
may result in the recognition of income that may never be realised.
However, when the realisation of income is virtually certain, then the
related asset is not a contingent asset and is recognised.
(n) Foreign currency transactions and translations
Transactions in foreign currencies, other than the Company’s functional
currency are recognised at the exchange rates prevailing at the dates of
the transactions. At the end of each reporting period, monetary assets
and liabilities denominated in foreign currencies are translated at the
rate prevailing at that date. Non-monetary items that are measured in
terms of historical cost in a foreign currency are not translated.
Exchange differences on monetary items are recognised in the statement
of profit and loss in the period in which these arise.
(o) Revenue recognition
Effective 01 April 2018, the Company has adopted Indian Accounting
Standard 115 (Ind AS 115) - Revenue from contracts with customers’.
The impact of the adoption of Ind-AS 115 on the financial statements
of the Company is insignificant.
Revenue is recognized on satisfaction of performance obligation upon
transfer of control of promised goods or services to customers in an
amount that reflects the consideration the Company expects to receive
in exchange for those goods or services.
The Company satisfies a performance obligation and recognizes revenue
over time, if one of the following criteria is met:
(i) The customer simultaneously receives and consumes the benefits
provided by the Company’s performance; or
(ii) The Company’s performance creates or enhances an asset that the
customer controls as the asset is created or enhanced; or
(iii) The Company’s performance does not create an asset with an
alternative use to the Company and an entity has an enforceable
right to payment for performance completed to date.
For performance obligations where one of the above conditions is not
met, revenue is recognized at the point in time at which the performance
obligation is satisfied.
If the Company has any contract wherein the period between transfer
of the promised goods or services to the customer and payment by the
customer exceeds one year, transaction price is adjusted for the time
value of money.
(p) Other operating revenues/other income
(i) Income from services is recognized (net of GST as applicable)
based on the services rendered in accordance with the terms of
contracts.
(ii) For all financial instruments measured at amortized cost, interest
income is recorded using the effective interest rate (EIR), which is
the rate that exactly discounts the estimated future cash receipts
over the expected life of the financial instrument to the gross
carrying amount of the financial asset.
(iii) Interest income for all financial instruments measured at fair value
through other comprehensive income is recognized in the statement
of profit and loss.
(iv) Dividend income is accounted for when the right to receive the
income is established.
(v) Export incentives under various schemes are recognized in the
year of export.
(q) Employee Benefits
Short term employee benefits
Short-term employee benefit obligations are recognized as an expense
on accrual basis.
Defined contribution plans
Defined contribution plans are those plans in which an entity pays
fixed contribution into separate entities and will have no legal or
constructive obligation to pay further amounts. Provident fund and
employee state insurance are defined contribution plans in which
company pays a fixed contribution and will have no further obligation.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a
defined contribution plan.
Company pays Gratuity as per provisions of the Payment of Gratuity
Act, 1972. The Company’s net obligation in respect of defined benefit
plans is calculated separately for each plan by estimating the amount
of future benefits that employees have earned in return for their services
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 based on the
prevailing market yields of Indian government securities as at the
reporting date 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 liability
to the company, the present value of liability is recognized as provision
for employee benefit. Any actuarial gains or losses are recognized in
Other Comprehensive Income in the period in which they arise.
Other long-term employee benefits
Benefits under the Company’s leave encashment constitute other long
term employee benefits.
The Company’s net obligation in respect of leave encashment is the
amount of future benefits that employees have earned in return for
their service in the current and prior periods, that benefit is discounted
to determine its present value and the fair value of any related assets is
deducted. The discount rate is based on the prevailing market yields of
Indian government securities as at the reporting date that have maturity
dates approximating the terms of the Company’s obligations. The
calculation is performed using the projected unit credit method. Any
actuarial gains or losses are recognized in the Statement of profit and
loss in the period in which they arise.
r) Research and development expenditure
Revenue expenditure on research and development is charged as an
expense in the year in which it is incurred under the respective heads
of accounts. Expenditure which results in the creation of capital assets
is capitalised and depreciation is provided on such assets as applicable.
s) Income taxes
Income Tax expenses comprise current tax and deferred tax charge or
credit.
Current Tax is measured on the basis of estimated taxable income for
the current accounting period in accordance with the applicable tax
rates and the provisions of the Income-tax Act, 1961 and other
applicable tax laws.
Deferred tax is provided, on all temporary differences at the reporting
date between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes. Deferred tax assets and
liabilities are measured at the tax rates that are expected to be applied
to the temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted at the reporting date.
Deferred tax assets and liabilities are offset, if there is a legally
enforceable right to offset current tax liabilities and assets and they
relate to income taxes levied by the same tax authority.
A deferred tax asset is recognized to the extent that it is probable that
future taxable profits will be available against which the temporary
differences can be utilised. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent it is no longer probable.
Income tax expenses relating to items recognised directly in equity or
OCI is recognised in equity or OCI and not in the Statement of Profit
and Loss.
(t) Leases
Leases are classified as finance leases, when the terms of the lease,
transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as Operating Leases.
Operating Lease: Lease rentals are charged or recognised in the
statement of profit and loss on a straight-line basis over the lease term.
Finance Lease: Assets held under finance leases are recognised as
assets of the Company at their fair value at the inception of the lease
or, if lower, at the present value of the minimum lease payments. Lease
payments are apportioned between finance charges and reduction of
the lease obligation. Finance charges are charged to the Statement of
Profit and Loss, unless they are directly attributable to qualifying assets,
in which case they are capitalised in accordance with the Company’s
policy on borrowing costs.
(u) Impairment of non-financial assets
At the end of each reporting period, the Company reviews the carrying
amounts of non-financial assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). When
it is not possible to estimate the recoverable amount of an individual
asset, the Company estimates the recoverable amount of the cash¬
generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs of disposal
and value in use. 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 for which the estimates of future cash
flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is
estimated to be less than its carrying amount, the carrying amount of
the asset (or cash-generating unit) is reduced to its recoverable amount.
An impairment loss is recognised immediately in Statement of Profit
and Loss, unless the relevant asset is carried at a revalued amount, in
which case the impairment loss is treated as a revaluation decrease.
When an impairment loss subsequently reverses, the carrying amount
of the asset (or a cash-generating unit) is increased to the revised
estimate of its recoverable amount, but to the extent that the increased
carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for the asset
(or cash-generating unit) in prior years. A reversal of an impairment
loss is recognised immediately in the Statement of Profit and Loss,
unless the relevant asset is carried at a revalued amount, in which case
the reversal of the impairment loss is treated as a revaluation increase.
(v) Impairment of financial assets
At the end of each reporting period, the Company applies the expected
credit loss model for recognizing the impairment loss on financial assets
including trade receivables. Expected credit loss is the difference
between the contractual cash flows and the cash flows the entity expects
to receive using effective interest rate.
Loss allowance for trade receivables is measured at an amount equal to
lifetime expected credit losses. For other financial assets, expected credit
losses are measured at an amount equal to the 12 month expected credit
losses unless there is significant increase in the credit risk from initial
recognition in which case those are measured at lifetime expected credit
losses. Lifetime expected credit losses are expected credit losses that
result from all possible defaults over the expected life of financial
instrument. Lifetime expected credit losses are computed based on
provision matrix which takes into account historical credit losses
adjusted for forward looking information, suit filed cases and credit
information of customers.
(w) Segment reporting
Identification of Segments
Operating Segments are identified based on monitoring of operating
results by the Board of Directors separately for the purpose of making
decision about resource allocation and performance assessment.
Segment performance is evaluated based on profit or loss and is
measured consistently with profit or loss of the Company.
Operating Segments are identified based on the nature of products and
services, the different risks and returns and the internal business
reporting system.
Segment Policies
The Company prepares its segment information in conformity with
the accounting policies adopted for preparing and presenting the
financial statements of the Company as a whole.
(x) Material prior period errors
Material prior period errors are corrected retrospectively by restating
the comparative amounts for the prior periods presented in which the
error occurred. If the error occurred before the earliest prior period
presented, the opening balances of assets, liabilities and equity for the
earliest prior period presented, are restated.
(y) Earnings Per Share (EPS)
The basic EPS is computed by dividing the profit after tax for the year
attributable to the equity shareholders by the weighted average number
of equity shares outstanding during the year.
For the purpose of calculating diluted EPS, profit after tax for the year
attributable to the equity shareholders and the weighted average number
of equity shares outstanding during the year are adjusted for the effects
of all dilutive potential equity shares.
(z) Fair value Measurement
The company measures financial instruments, such as investments and
derivatives at fair value at each reporting date.
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.
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 technique that are appropriate in the
circumstances and for which sufficient data are available to measure
fair value, maximizing the use of relevant observable inputs and
minimizing the use of unobservable inputs.
Fair values are categorized into different levels in the hierarchy as under:
• 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.
(aa) 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 and financial liabilities are recognized
when a Company becomes a party to the contractual provisions of the
instruments.
i) Initial Recognition: Financial assets and Financial liabilities
Financial assets and financial liabilities are initially measured at
fair value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities (other
than financial assets and financial liabilities at fair value through
profit or loss and ancillary costs related to borrowings) are added
to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs
directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised
immediately in statement of profit and loss.
ii) Classification and Subsequent Measurement: Financial Assets
The Company classifies financial assets as subsequently measured
at amortised cost, fair value through other comprehensive income
(“FVOCI”) or fair value through profit or loss (“FVTPL”) on the
basis of following:
• the entity’s business model for managing the financial assets
and
• the contractual cash flow characteristics of the financial asset.
At amortised cost:
A financial asset shall be classified and measured at amortised
cost if both of the following conditions are met:
• the financial asset is held within a business model whose
obj ective is to hold financial assets in order to collect contractual
cash flows and
• the contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
After initial recognition, such financial assets are subsequently
measured at amortised cost using expected interest rate (EIR)
method. In case of financial assets at amortised costs, interest
income, foreign exchange gain or loss and impairment are
recognized in Statement of profit and loss.
At fair value through OCI:
A financial asset shall be classified and measured at fair value
through OCI if both of the following conditions are met:
• the financial asset is held within a business model whose
objective is achieved by both collecting contractual cash flows
and selling financial assets and
• the contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
Where the Company has elected to present the fair value gain on
equity instruments in other comprehensive income, there is no
subsequent classification of fair value gain or losses to profit and
loss account. Dividend from such instruments is recognized in
profit and loss account as other income where right to receive is
established.
At fair value through Profit or Loss:
A financial asset shall be classified and measured at fair value
through profit or loss other than those measured at amortised cost
or at fair value through OCI.
All recognised financial assets are subsequently measured in their
entirety at either amortised cost or fair value, depending on the
classification of the financial assets.
Impairment of financial assets:
Financial assets, other than those at FVTPL, are assessed for
indicators of impairment at the end of each reporting period. In
case of trade receivables, the Company follows the simplified
approach permitted by Ind AS 109 - Financial Instruments for
recognition of impairment loss allowance. The Company recognises
a loss allowance for expected credit losses on financial asset. The
Company’s trade receivables do not contain significant financing
component and loss allowance on trade receivables is measured at
an amount equal to life time credit expected losses. The Company
calculates the expected credit losses on trade receivables using a
provision matrix on the basis of its historical credit loss experience.
Derecognition of financial assets:
The Company derecognises a financial asset when the contractual
rights to receive 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
neither transfers nor retains substantially all the risks and rewards
of ownership and continues to control the transferred asset, the
Company recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. 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 associated liabilities.
On derecognition of a financial asset, other than investments
classified as FVOCI, 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 profit or loss if such gain or loss would have otherwise
been recognised in profit or loss on disposal of that financial asset.
iii) Classification and Subsequent Measurement:
Financial liabilities
Financial liabilities are classified as either financial liabilities at
FVTPL or ‘other financial liabilities’
Financial Liabilities at FVTPL:
Financial liabilities are classified as at FVTPL when the financial
liability is held for trading or are designated upon initial recognition
as FVTPL. Gains or losses on liabilities held for trading are
recognised in the statement of profit and loss.
Other Financial Liabilities:
Other financial liabilities (including borrowings and trade and other
payables) are subsequently measured at amortised cost using the
effective interest method.
Derecognition of Financial Liabilities:
The Company derecognises a financial liability 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 exchange or modification
is treated as derecognition of the original liability and the
recognition of a new financial liability. The difference in the
respective carrying amounts is recognised in the statement of profit
or loss.
The difference between the carrying amount of financial liability
derecognized and consideration paid and payable is recognized in
the statement of profit and loss.
On derecognition of equity investments classified as FVOCI,
accumulated gains or loss recognised in OCI is transferred to
retained earnings.
(bb) Financial liabilities and equity instruments
• Classification as debt or equity
Debt and equity instruments issued by the Company are classified
as either financial liabilities or as equity in accordance with the
substance of the contractual arrangements and the definitions of a
financial liability and an equity instrument.
• Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its liabilities.
Equity instruments issued by a Company are recognised at the
proceeds received.
(cc) Derivative financial instruments
The Company enters into derivative financial instruments viz. foreign
exchange forward contracts to manage foreign exchange risks. The
Company does not hold derivative financial instruments for speculative
purposes.
Derivatives are initially recognised at fair value on the date derivative
contracts are entered into and are subsequently remeasuredat their fair
value at the end of each reporting period. The resulting gain or loss is
recognised in statement of profit and loss.
Note no. 1A. Significant Accounting Judgements, Estimates and
Assumptions
The preparation of the Company’s financial statements requires
management to make judgements, estimates and assumptions that affect
the reported amounts of revenues, expenses, assets, liabilities, the
accompanying disclosures and the disclosure of contingent liabilities.
Continuous evaluation is done on estimates and judgments based on
historical experience and other factors, including expectation of future
events that are believed to be reasonable. Uncertainty about these
assumptions and estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or liabilities
affected in future periods.
Estimates made in preparing Financial Statements:
(a) Useful life of Property, plant and equipment and intangible
assets
The Company uses its technical expertise along with historical
and industry trends for determining the economic life of an asset/
component of an asset. The useful lives are reviewed by
management periodically and revised, if appropriate. In case of a
revision, the unamortized depreciable amount is charged over the
remaining useful life of the assets.
(b) Post-employment benefit plans
Employees benefit obligations are measured on the basis of
actuarial assumptions which include mortality and withdrawal rates
as well as assumptions concerning future developments in discount
rates, the rate of salary increases and the inflation rate. The
Company considers that the assumptions used to measure its
obligations are appropriate and documented. However, any changes
in these assumptions may have a material impact on the resulting
calculations.
(c) Expected credit losses on financial assets
The loss allowance on financial assets including trade receivables
are based on assumption about the risk of default and expected
timing of collection. The Company uses judgement in making these
assumptions and selecting the inputs to the expected credit loss
calculation based on Company’s history of credit losses adjusted
to reflect current and estimated future economic conditions, suit
filed cases and credit information of customers at the end of each
reporting period.
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