2.1 Material Accounting Policies
2.1.1 Revenue Recognition
Revenue from Contacts with Customers
The company manufactures Denim Cloth, Shirting
Cloth and Yarn and engaged in trading of Cotton and
Coal. The company also render job work service. The
time taken from entering into order and sale is less
than 12 months and the normal credit period offered
to customers is also less than 12 months. The company
offers trade Discount, Quantity Discount, cash Discount,
Discount for Shortage or quality issue discount which
are factored while determining transaction price.
Revenue is recognized such that significant reversal
is not highly probable. The reconciliation between
the contract price and revenue recognized is given
in Note 23.
2.1.1.a Sale of Goods
Revenue from the sale of goods is recognized at
a point in time when the control of the products
has transferred which generally coincides with
dispatch of products to customers in case of
domestic sales and on the basis of bill of lading in
the case of export sales.
At that point in time, the customer has the ability to
direct the use of, and obtain substantially all of the
remaining benefits from, the asset or to restrict the
access of other entities to those benefits.
2.1.1.b Rendering of Service
Revenue from Job work service contracts:
i) The revenue relating to Job Work service
contracts are recognised at point in time
as control is transferred to the customer on
dispatch of goods to them and
ii) the revenue relating to supplies are measured
in line with policy set out in 2.1.1.a
I n respect of indivisible contracts, the revenues
are recognised over a period of time, measured as
per (i) above.
When the consideration is received, before the
Company transfers goods to the customer, the
Company shall present the consideration as a
contract liability and when the services rendered
by the Company exceed the payment, a contract
asset is recognised excluding any amount
presented as receivable.
1.1.2 Insurance Claim
Insurance claims are recognized when there is
reasonable certainty regarding the realization of the
same at an amount estimated by the management to
the extent that it is highly probable that a significant
reversal in the amount recognised will not occur at
the time of actual receipt of the claim amount. At the
end of each reporting period, the estimated amount
is updated, if required, to represent faithfully the
circumstances present at the end of the reporting
period and the changes in circumstances during the
reporting period.
1.1.3 Inventories
Inventories are measured at cost and net realizable
value, whichever is lower. Net realizable value is
the estimated selling price in the ordinary course of
business less estimated cost necessary to make the
sale. Cost in respect of raw materials and stock in trade
are determined on FIFO basis. Costs in respect of all
other Inventories are computed on weighted average
basis method. Finished goods and process stock
include cost of conversion and other costs incurred
in acquiring the inventory and bringing them to their
present location and condition.
Inventories are written down to net realizable value
item by item except where it is appropriate to group
similar or related items. When a decline in the price
of materials, indicates that the cost of the finished
products exceeds net realizable value, the materials
are written down to their replacement cost. When the
circumstances that previously caused inventories to
be written down below cost no longer exist or when
there is clear evidence of an increase in net realizable
value because of changed economic circumstances,
the amount of the write-down is reversed so that the
new carrying amount is the lower of the cost and the
revised net realizable value. Inventories are recognized
as expense in the period in which the related revenue
is recognized.
2.1.4 Property, Plant and Equipment
2.1.4. a Recognition of Property, Plant and Equipment
Property, plant and equipment are tangible items
that are held for use in the production or supply
of goods and services, rental to others or for
administrative purposes and are expected to
be used during more than one period. The cost
of an item of property, plant and equipment is
recognized as an asset if and only, if it is probable
that future economic benefits associated with
the item will flow to the Company and the cost of
the item can be measured reliably. Freehold land
is carried at cost less accumulated impairment
losses. All other items of property, plant and
equipment are stated at cost less accumulated
depreciation and accumulated impairment losses.
Cost of an item of property, plant and equipment
comprises:
• Its purchase price, all costs including financial
costs till commencement of commercial
production are capitalized to the cost of
qualifying assets. Goods & Service Tax credit,
if any, are accounted for by reducing the cost
of capital goods;
• Any other 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.
All other repairs and maintenance are charged to
profit or loss during the reporting period in which
they are incurred.
2.1.4. b Depreciation of Property, Plant and Equipment
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 on straight-line method. Parts of plant
and equipment that are technically advised to
be replaced at prescribed intervals / periods of
operation, insurance spares and cost of inspection
/ overhauling are depreciated separately based
on their specific useful life provided these are of
significant amounts. The depreciation charge for
each period is recognized in profit or loss unless
it is included in the carrying amount of another
asset. Depreciable amount of an item of property,
plant and equipment is arrived at after deducting
estimated residual value. The depreciable amount
of an asset is allocated on a systematic basis over
its useful life as disclosed in Note 3. The Company
reviews the residual value and useful life at each
financial year-end and, if expectations differ from
previous estimates, the residual value and useful
lives are changed prospectively and accounted for
as a change in accounting estimate. Depreciation
commences when the item of property, plant
and equipment is in the location and condition
necessary for it to be capable of operating in the
manner intended by management. Depreciation
ceases at the earlier of the date that the asset is
classified as held for sale (or included in a disposal
group that is classified as held for sale) and the
date that the asset is derecognized. The Company
reviews the depreciation method at each financial
year-end and if, there has been a significant change
in the expected pattern of consumption of the
future economic benefits embodied in the asset,
the method is changed to reflect the changed
pattern. Such a change is accounted as a change
in accounting estimate on prospective basis.
2.1.4. c Compensation for Impairment
The Company recognizes compensation from third
parties for items of property, plant and equipment
that were impaired, lost or given up in profit or loss
when the compensation becomes receivable.
2.1.4. d Derecognition of Property, Plant and Equipment
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 from the
derecognition of an item of property, plant and
equipment is recognized in profit or loss when the
item is derecognized.
2.1.5 Leases
As a Lessee
At inception of a contract, the company assesses
whether a contract is, or contains, a lease. A contract
is or contains, a lease if the contract conveys the right
to control the use of an identified asset for a period of
time in exchange for consideration. To assess whether
a contract conveys the right to control the use of an
identified asset, the company assesses whether: (i) the
contract involves the use of an identified asset (ii) the
company has the right to obtain substantially all of the
economic benefits from use of the asset throughout
the period of use; and (iii) the company has the right to
direct the use of the asset.
The Company recognises a right-of-use asset and a
lease liability at the lease commencement date. The
right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability
adjusted for any lease payments made at or before
the commencement date, plus any initial direct costs
incurred and an estimate of costs to dismantle and
remove the underlying asset or to restore the underlying
asset or the site on which it is located, less any lease
incentives received.
The cost of the right-of-use asset is subsequently
depreciated using the straight-line method from the
commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the
lease term. The estimated useful lives of right-of-use
assets are determined on the same basis as those of
Property, Plant and Equipment. In addition, the right-of-
use asset is periodically reduced by impairment losses,
if any, and adjusted for certain remeasurements of the
lease liability.
The lease liability is initially measured at the present
value of the lease payments that are not paid at the
commencement date, discounted using the interest
rate implicit in the lease or, if that rate cannot be readily
determined, the Company's incremental borrowing
rate. Generally, the Company uses its incremental
borrowing rate as the discount rate.
The lease liability is subsequently measured as
given below:
(a) i ncreasing the carrying amount to reflect interest
on the lease liability;
(b) reducing the carrying amount to reflect the lease
payments made; and
(c) remeasuring the carrying amount to reflect any
reassessment or lease modifications.
It is remeasured when there is a change in future lease
payments arising from a change in an index or rate,
if there is a change in the Company's estimate of the
amount expected to be payable under a residual value
guarantee, or if the Company changes its assessment
of whether it will exercise a purchase, extension or
termination option.
When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying
amount of the right-of-use asset, or is recorded in profit
or loss if the carrying amount of the right-of-use asset
has been reduced to zero.
Short-term leases and leases of low-value assets
The Company has elected not to recognise right-to-
use assets and lease liabilities for short-term lease that
have a lease term of 12 months or less and leases of
low-value assets. The Company recognises the lease
payments associated with these leases as expense on
straight line basis as per the terms of the lease.
2.1.6 Employee Benefits
2.1.6. a Short-term Employee Benefits
Short-term employee benefits are employee
benefits (other than termination benefits) that
are expected to be settled wholly before twelve
months after the end of the reporting period in
which the employees render the related service.
Short-term employee benefits include salaries,
wages, social security contributions, bonus, paid
annual leave etc. Liabilities recognised in respect
of short-term employee benefits are measured at
the undiscounted amount of the benefits expected
to be paid in exchange for the related service.
2.1.6. b Post-employment Benefits
Post-employment benefits are benefits (other than
termination benefits and short-term employee
benefits) that are payable after the completion
of employment. Post-employment benefits are
identified under defined contribution plans and
defined benefit plans.
2.1.6. b.i Defined Contribution Plans
Post-employment benefits are identified
under defined contribution plans if the
Company has no obligation other than to
contribute a fixed amount of money to a
fund. Employees may contribute to the fund
along with the Company. Contributions to
the Employees' Regional Provident Fund
and Superannuation Fund are recognised
as defined contribution plan. Such
contributions are recognised as liability and
expenses during the period in which the
employees perform the services. Any excess
contributions to the fund are recognised
as an asset.
2.1.6. b.ii Defined Benefit Plans
Post-employment benefits in the form of
Gratuity are considered as defined benefit
plan and determined on actuarial valuation
using the projected unit credit method at the
balance sheet date. Actuarial Gains or Losses
through re-measurement of the net obligation
of a defined benefit liability or asset is
recognised in Other Comprehensive Income
and aggregated with retained earnings. Such
re-measurements are not reclassified to
Profit or Loss in subsequent periods.
Gratuity is funded through a trust for which
a policy with Life Insurance company Limited
has been taken.
2.1.6.C Other long-term employment benefits
Employee Benefits that are neither short-term
employee benefit nor post-employment benefit
nor termination benefits are other long-term
employee benefits. Entitlements to annual leave
and sick leave are recognized when they accrue
to employees. Sick leave can only be availed while
annual leave can be either availed or encashed
subject to a restriction on the maximum number
of accumulated leave. The Company determines
the liability for such accumulated leaves using the
projected unit credit method. Actuarial gains and
losses are recognised in the Profit or Loss.
2.1.7 Government Grants
Grants related to assets, including non-monetary
grants at fair value, are presented in the balance sheet
as deferred government grants Liabilities. Deferred
government grants Liabilities is recognised in profit or
loss on the basis the related assets are depreciated or
amortised if they are related to asset or under other
income when the grant becomes receivable. Grants
related to income are presented in profit or loss under
other income. Grants received in advance before
fulfilment of conditions are recognised as Other Liability
classified into current or non-current, as appropriate in
the circumstances of the case.
Export Incentives
Export entitlements are recognized in Profit or Loss
when the right to receive credit as per the terms of
scheme is established in respect of the exports made
and where there is no significant uncertainty regarding
the ultimate collection of the relevant export proceeds.
Subsidy
Subsidy under Textiles Up gradation Fund Scheme
(TUFS), Gujarat Textile Policy or any other subsidy
are recognized when there is reasonable certainty
regarding the realization of the same.
2.1.8 Borrowing Costs
Interest and other costs that the Company incurs in
connection with the borrowing of funds are identified
as borrowing costs. The Company capitalises borrowing
costs that are directly attributable to the acquisition,
construction or production of a qualifying asset as part
of the cost of that asset. Other borrowing costs are
recognised as an expense in the period in which it is
incurred. A qualifying asset is an asset that necessarily
takes a substantial period of time to get ready for its
intended use. The Company identifies the borrowings
into specific borrowings and general borrowings.
Specific borrowings are borrowings that are specifically
taken for the purpose of obtaining a qualifying asset.
General borrowings include all other borrowings except
the amount outstanding as on the balance sheet date
of specific borrowings for assets that are not yet ready
for use. Borrowing cost incurred actually on specific
borrowings are capitalised to the cost of the qualifying
asset. For general borrowings, the Company determines
the amount of borrowing costs eligible for capitalisation
by applying a capitalisation rate to the expenditures on
the qualifying asset based on the weighted average of
the borrowing costs applicable to general borrowings.
The capitalisation on borrowing costs commences
when the Company incurs expenditure for the asset,
incurs borrowing cost and undertakes activities that are
necessary to prepare the asset for its intended use or
sale. The capitalisation of borrowing costs is suspended
during extended periods in which active development
of a qualifying asset is suspended. The capitalisation
of borrowing costs ceases when substantially all the
activities necessary to prepare the qualifying asset for
its intended use or sale are complete.
2.1.9 Financial Instruments
Significant judgement is required to assess whether a
particular asset is a financial instrument or otherwise.
An asset that represents a contractual right to receive
cash that is subject to other than only passage of time
or cannot be sold independently of other operating
rights have not been presented as financial assets.
Such assets are mainly in the nature of security deposits
and investments in equity shares for receiving services
from third parties including government-controlled
organisations.
2.1.9.a Recognition, classification, measurements and
derecognition of Financial Assets Financial assets
include cash and cash equivalents, trade and
other receivables, investments in securities and
other eligible current and non-current assets.
At initial recognition, all financial assets are
measured at fair value except for trade receivable
that initially measured at transaction price.
Transaction costs is adjusted to the initial fair
value where financial assets are not classified
as subsequently measured at fair value through
profit or loss.
Financial assets are subsequently classified
and measured under one of the following three
categories according to the purpose for which they
are held and contractual cash flow characteristics.
Financial assets are reclassified only when the
purpose for which they are held changes. Financial
assets are derecognised when the right to cash
flows from the financial asset expires or when the
financial asset is transferred resulting in transfer of
significant risks and rewards to the buyer. Where
significant risks and rewards are retained on
transfer of a financial asset, the financial asset is not
derecognised, and a financial liability is recognised
for the consideration received. Where the transfer
of financial asset results in partial transfer of risks
and rewards, the asset is derecognised if the
buyer obtains the right to sell the asset to third
party unilaterally without attaching any conditions
else the financial asset continues to be recognised
to the extent of continuing involvement.
2.1.9. a.i Financial Assets at amortised cost
The company subsequently measures the
following financial assets at amortised cost
by applying the Effective Interest Rate (EIR)
method to the gross carrying amount of the
financial asset except for financial assets
that are credit-impaired in which case the
effective interest rate is applied to the
amortised cost. Financial assets at amortised
cost, at the date of initial recognition, are
held to collect contractual cash flows and
have contractual terms that are consistent
with a basic lending arrangement comprising
of cash flows on specified dates that are
solely payments of principal and interest on
principal amount outstanding. The losses
arising from impairment are recognised in the
profit or loss.
2.1.9. a.ii Financial asset at Fair Value through
Other Comprehensive Income (FVOCI)
Financial asset at FVOCI, at the date of initial
recognition, are held to collect contractual
cash flows of principal and interest on principal
amount outstanding on specified dates, as
well as held for selling. Therefore, they are
subsequently measured at each reporting
date at fair value, with all fair value movements
recognised in Other Comprehensive Income
(OCI). Interest income calculated using
the Effective Interest Rate (EIR) method,
impairment gain or loss and foreign exchange
gain or loss are recognised in Profit or Loss.
On derecognition of the asset, cumulative
gain or loss previously recognised in Other
Comprehensive Income is reclassified from
the OCI to Profit or Loss.
2.1.9. a.iii Financial assets at Fair Value through
Profit or Loss (FVPL)
Financial Assets at FVPL, at the date of initial
recognition, are held for trading, or which
are measured neither at Amortised Cost
nor at Fair Value through OCI. Therefore,
they are subsequently measured at each
reporting date at fair value, with all fair value
movements recognised in the Statement of
Profit and Loss.
2.1.9. b Impairment of Financial Assets
The Company recognizes the impairment on
financial assets based on the expected credit
loss model for the financial assets which are not
measured at fair value through profit or loss. In
case of trade receivables, the Company follows
a simplified approach wherein an amount equal
to lifetime ECL is measured and recognized as
loss allowance. In case of other financial assets,
expected credit losses are measured at an
amount equal to 12-month ECL unless there has
been significant increase in credit risk from initial
recognition in which case these are measured
at lifetime expected credit loss. 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 recognized is
recognized as an impairment gain or loss in the
profit or loss for the period.
2.1.9. c Recognition, classification, measurement and
derecognition of financial liabilities
Financial liabilities include long-term and short¬
term loans and borrowings, trade and other
payables and other eligible current and non¬
current liabilities. All financial liabilities are
recognised initially at fair value and, in the case
of loans and borrowings and other payables,
net of directly attributable transaction costs.
The Company derecognises a financial liability
when the obligation specified in the contract is
discharged, cancelled or expires.
After initial recognition, financial liabilities are
classified as:
2.1.9. c.i Financial liabilities at amortised cost
After initial recognition, such financial
liabilities are subsequently measured at
amortised cost by applying the Effective
Interest Rate (EIR) method to the gross
carrying amount of the financial liability.
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