2.2 SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared using the significant accounting policies and measurement
bases summarised as below. These policies are applied consistently for all the periods presented in the
financial statements, except where the Company has applied certain accounting policies and exemptions
upon transition to Ind AS.
a) Revenue Recognition
Revenue from contracts with customers is recognized when control of the goods or services are
transferred to the customer at an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services.
Revenue from the sale of goods is recognized at the point in time when control of the asset is
transferred to the customer, generally on the delivery of the goods.
The Company satisfies the performance obligation and recognizes revenue over time, if one of the
criteria prescribed under Ind_AS 115 - "Revenue from Contracts with Customers" is satisfied. If a
performance obligation is not satisfied over time, then revenue is recognized at a point in time at
which the performance obligation is satisfied.
The Company recognizes revenue for performance obligation satisfied over time only if it can
reasonably measure its progress towards complete satisfaction of the performance obligation. The
Company would not be able to reasonably measure its progress towards complete satisfaction
of a performance obligation if it lacks reliable information that would be required to apply an
appropriate method of measuring progress. In those circumstances, the Company recognizes
revenue only to the extent of cost incurred until it can reasonably measure outcome of the
performance obligation.
The management reviews and revises its measure of progress periodically and revisions, if any,
are considered as change in estimates and accordingly, the effect of such changes in estimates is
recognized prospectively in the period in which such changes are determined.
The Company considers whether there are other promises in the contract that are separate
performance obligations to which a portion of the transaction price needs to be allocated. In
determining the transaction price, the Company considers the effects of variable consideration,
the existence of significant financing component and consideration payable to the customer like
return and trade discounts.
Sales are disclosed excluding net of sales returns and Goods and Service Tax (GST).
Income from operations mainly includes Sales of Manufactured Goods and revenue earned on
account of job work income which is accounted as per the terms agreed with the customers.
Other income is comprised primarily of interest income, dividend income, gain / loss on
investments, Export benefits available under prevalent schemes and exchange gain/loss on foreign
currency transactions. Interest income is recognized using the effective interest method. Dividend
income is recognized (gross of tax deducted at source, if any) when the right to receive payment is
established.
b) Foreign Currency Transactions
Transactions in foreign currencies are initially recorded by the Company at the rate of exchange
prevailing on the date of the transaction.
Monetary assets and monetary liabilities denominated in foreign currencies remaining unsettled
at the end of the year are converted at the exchange rate prevailing on the reporting date.
Differences arising on settlement or conversion of monetary items are recognized in Statement of
Profit or Loss.
Exchange differences regarded as an adjustment to borrowing costs are presented in the Statement
of Profit and Loss, within finance costs and Exchange difference relating to long term monetary
items, arising during the year, in so far as they relate to the acquisition of depreciable fixed asset
is adjusted to the carrying cost of the fixed asset All other foreign exchange gains and losses are
presented in the Statement of Profit and Loss on a net basis within other gains/(losses). Non¬
monetary foreign currency items are carried at cost.
c) Inventories
All Inventories of raw materials, stores and spares, packing materials, stock in trade, finished
goods, work-in-progress etc. are valued at the lower of cost and net realizable value. Waste and by
product are valued at net realizable value.
Cost of inventories comprise of all cost of purchase, cost of conversion and other cost incurred
in bringing the inventory to their present location and condition. Cost of Work in progress and
Finished Goods are determined at acquisition cost plus direct costs of development, other direct
overheads attributable to inventory and appropriate share of other overheads.
d) Property, Plant and Equipment's (PPE)
Property, plant and equipment are carried at cost of acquisition or construction, net of recoverable
taxes less accumulated depreciation and accumulated impairment losses, if any. Cost includes
purchases price, borrowing cost and any cost directly attributable to the bringing the assets to its
working condition for its intended use.
Capital work in progress includes cost of property, plant and equipment under installation as at
the balance sheet date.
Depreciation on the Property plant and equipment is provided using Straight Line Method (SLM)
over useful life of assets as specified in schedule II to the Companies Act, 2013, Depreciation on
Property Plant & equipment addition/deletion during the year has been provided on pro-rata
basis from the date of such addition or upto date of such deletion as the case may be. Freehold
land is not depreciated.
The assets' residual values, useful lives and method of depreciation are reviewed at each financial
year end and are adjusted prospectively, if appropriate.
Property plants and equipment are eliminated from financial statement, either on disposal or
when retired from active use. Profits/Losses arising in the case of retirement/disposal of property
plant and equipment are recognized in the statement of profit and losses in the year of occurrence.
Leasehold Lands are amortized over period of lease. Buildings constructed on leasehold land are
depreciated based on the useful life specified in schedule II to the Companies Act, 2013, where the
lease period of land is beyond the life of the building.
e) Intangible Assets
Intangible assets are carried at cost less accumulated amortization and accumulated impairment
losses, if any Cost includes expenditure that is directly attributable to the acquisition of the
intangible assets.
Identifiable intangible assets are recognised when it is probable that future economic benefits
attributed to the asset will flow to the Company and the cost of the asset can be reliably measured.
Computer software are capitalized at the amount paid to acquire the respective license for use and
are amortized over period of useful lives. The assets useful lives are reviewed at each financial year
end.
Gains or losses arising from de-recognition 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 derecognized.
f) Assets held for sale
Assets held for sale are measured at the lower of carrying amount or fair value less costs to
sell. The determination of fair value less costs to sell includes use of management estimates
and assumptions. The fair value of the assets held for sale has been estimated using valuation
techniques which includes unobservable inputs.
g) Investment Properties
Property that is held for long-term rental yields or for capital appreciation or both, is classified
as investment property. Investment property is measured initially at its cost, including related
transaction costs and where applicable borrowing costs. Subsequent expenditure is capitalized
to the asset's carrying amount only when it is probable that future economic benefits associated
with the expenditure will flow to the Company and the cost of the item can be measured reliably.
All other repairs and maintenance costs are expensed when incurred. When part of an investment
property is replaced, the carrying amount of the replaced part is derecognized.
h) Leases
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.
Company as a lessee
(A) Lease Liability
At the commencement date, the Company measures the lease liability at the present value
of the lease payments that are not paid at that date. The lease payments shall be discounted
using incremental borrowing rate.
(B) Right-of-use assets
Initially recognized at cost, which comprises the initial amount of the lease liability adjusted
for any lease payments made at or prior to the commencement date of the lease plus any
initial direct costs less any lease incentives.
Subsequent measurement
(A) Lease Liability
Company measure the lease liability by (a) increasing the carrying amount to reflect interest
on the lease liability; (b) reducing the carrying amount to reflect the lease payments made;
and (c) re-measuring the carrying amount to reflect any reassessment or lease modifications.
(B) Right-of-use assets
Subsequently measured at cost less accumulated depreciation and impairment losses. Right-
of-use assets are depreciated from the commencement date on a straight line basis over the
shorter of the lease term and useful life of the under lying asset.
Impairment
Right of use assets are evaluated for recoverability whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. For the purpose of impairment
testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-
in-use) is determined on an individual asset basis unless the asset does not generate cash flows
that are largely independent of those from other assets. In such cases, the recoverable amount is
determined for the Cash Generating Unit (CGU) to which the asset belongs.
Short term Lease
Short term lease is that, at the commencement date, has a lease term of 12 months or less. A
lease that contains a purchase option is not a short-term lease. If the company elected to apply
short term lease, the lessee shall recognize the lease payments associated with those leases as
an expense on either a straight-line basis over the lease term or another systematic basis. The
lessee shall apply another systematic basis if that basis is more representative of the pattern of the
lessee's benefit.
As a lessor
Leases for which the company is a lessor is classified as a finance or operating lease. Whenever, the
terms of the lease transfers substantially all the risks and rewards of ownership to the lessee, the
contract is classified as a finance lease. All other leases are classified as operating leases.
Lease income is recognized in the statement of profit and loss on straight line basis over the lease
term.
i) Fair Value Measurement
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 techniques 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.
j) Impairment of Assets
An asset is considered as impaired when at the date of Balance Sheet, there are indications
of impairment. The assets are evaluated for recoverability whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. For the purpose of
impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and
the value-in-use) is determined on an individual asset basis unless the asset does not generate
cash flows that are largely independent of those from other assets. In such cases, the recoverable
amount is determined for the CGU to which the asset belongs.
If such assets are considered to be impaired, the impairment to be recognized in the Statement
of Profit and Loss is measured by the amount by which the carrying value of the assets exceeds
the estimated recoverable amount of the asset. An impairment loss is reversed in the Statement
of Profit and Loss if there has been a change in the estimates used to determine the recoverable
amount. The carrying amount of the asset is increased to its revised recoverable amount, provided
that this amount does not exceed the carrying amount that would have been determined (net of
any accumulated amortization or depreciation) had no impairment loss been recognized for the
asset in prior years.
k) Cash and Cash equivalents
Cash and cash equivalents include cash at bank and cash in hand and highly liquid interest-bearing
securities with maturities of three months or less from the date of inception/acquisition.
l) Cash flow statement
Cash flows are reported using the indirect method, whereby profit for the period is adjusted for the
effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating
cash receipts or payments and item of income or expenses associated with investing or financing
cash flows. The cash flows from the operating, investing and financing activities of the Company
are segregated.
m) Borrowing Costs
Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are
subsequently measured at amortized cost. Any difference between the proceeds (net of transaction
costs) and the redemption amount is recognized in profit or loss over the period of the borrowings
using the effective interest method.
Borrowing costs directly attributable to the acquisition, construction or production of an asset
that necessarily takes a substantial period of time to get ready for its intended use or sale are
capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period
in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds. Borrowing cost also includes exchange differences to the
extent regarded as an adjustment to the borrowing costs.
n) Employee Benefit Expenses
Short term employee benefits are recognised as an expense in the statement of profit and loss of
the year in which the related services are rendered.
Post-employment and other long term employee benefits are charged off in the year in which the
employee has rendered services. The amount charged off is recognized at the present value of the
amounts payable determined using actuarial valuation techniques based on Projected Unit Credit
Method. Actuarial gain/losses in respect of post-employment and other long term benefits are
charged to Other Comprehensive Income (Net of Tax).
Retirement benefits in the form of Provident Fund are a defined contribution scheme and the
contributions are charged to the Statement of Profit and Loss of the year when the contributions
to the respective funds are due.
i) Defined Benefit Plans:
Employee defined benefit plans include gratuity
For defined benefit retirement benefit plans, the cost of providing benefits is determined
using the projected unit credit method, with actuarial valuations being carried out at the
end of each annual reporting period. Re-measurement, comprising actuarial gains and
losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan
assets (excluding net interest), is reflected immediately in the balance sheet with a charge
or credit recognized in other comprehensive income in the period in which they occur.
Re-measurement recognized in other comprehensive income is reflected immediately in
retained earnings and is not reclassified to profit or loss. Past service cost is recognized in
the Statement of profit or loss in the period of a plan amendment. Net interest is calculated
by applying the discount rate at the beginning of the period to the net defined benefit liability
or asset.
Defined benefit costs are categorized as follows:
Ý Service cost (including current service cost, past service cost, as well as gains and losses on
curtailments and settlements);
Ý Net interest expense or income; and
Ý Re-measurement comprising actuarial gains or losses and return on plan assets (excluding
amounts included in net interest on the net defined benefit liability).
The Company presents the first two components of defined benefit costs in profit or loss in
the line item 'Employee benefits expense'. Curtailment gains and losses are accounted for as
past service costs.
The retirement benefit obligation recognized in the balance sheet represents the actual
deficit or surplus in the Company's defined benefit plans. Any surplus resulting from this
calculation is limited to the present value of any economic benefits available in the form of
refunds from the plans or reductions in future contributions to the plans.
A liability for a termination benefit is recognized at the earlier of when the entity can no
longer withdraw the offer of the termination benefit and when the entity recognizes any
related restructuring costs.
The Company makes contribution to a scheme administered by the insurer to discharge
gratuity liabilities to the employees.
ii) Defined Contribution Plans
Employee defined contribution plans include provident fund, Employee state insurance and
Gratuity Fund.
Provident Fund and Employee State Insurance:
All employees of the Company receive benefits from Provident Fund and Employee's State
Insurance, which are defined contribution plans. Both, the employee and the Company make
monthly contributions to the plan, each equaling to a specified percentage of employee’s
basic salary. The Company has no further obligations under the plan beyond its monthly
contributions. The Company contributes to the Employee Provident Fund and Employee's
State Insurance scheme maintained by the Central Government of India and the contribution
thereof is charged to the Statement of Profit and Loss in the year in which the services are
rendered by the employees.
Gratuity Fund:
The Company makes contribution to a scheme that is funded through an 'Approved Trust'.
The Trust has taken a Policy from the Life Insurance Corporation of India (LIC) and the
management of the fund is undertaken by the LIC. The Company has no other liability other
than its annual contribution."
o) Taxation
Tax expense recognized in Statement of Profit and Loss comprises the sum of deferred tax and
current tax except to the extent it recognized in other comprehensive income or directly in equity.
i) Current Tax
Current tax comprises the tax payable or receivable on taxable income or loss for the year
and any adjustment to the tax payable or receivable in respect of previous years. Current
tax is computed in accordance with relevant tax regulations. The amount of current tax
payable or receivable is the best estimate of the tax amount expected to be paid or received
after considering uncertainty related to income taxes, if any. Current income tax relating to
items recognised outside profit or loss is recognised outside profit or loss (either in other
comprehensive income or in equity).
Current tax assets and liabilities are offset only if there is a legally enforceable right to set off
the recognised amounts, and it is intended to realise the asset and settle the liability on a net
basis or simultaneously.
ii) Deferred Tax
Deferred tax is recognised in respect of temporary differences between carrying amount of
assets and liabilities for financial reporting purposes and corresponding amount used for
taxation purposes. Deferred tax assets are recognised on unused tax loss, unused tax credits
and deductible temporary differences to the extent it is probable that the future taxable
profits will be available against which they can be used.
This is assessed based on the Company's forecast of future operating results, adjusted for
significant non-taxable income and expenses and specific limits on the use of any unused
tax loss. Unrecognised deferred tax assets are re-assessed at each reporting date and are
recognised to the extent that it has become probable that future taxable profits will allow the
deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in
the year when the asset is realised or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted at the reporting date. The measurement
of deferred tax reflects the tax consequences that would follow from the manner in which
the Company expects, at the reporting date to recover or settle the carrying amount of its
assets and liabilities. Deferred tax assets and liabilities are offset only if there is a legally
enforceable right to set off the recognised amounts, and it is intended to realise the asset and
settle the liability on a net basis or simultaneously. Deferred tax relating to items recognised
outside statement of profit and loss is recognised outside statement of profit or loss (either
in other comprehensive income or in equity).
p) Export Incentives
Benefit on account of entitlement of Duty Draw Back and others are recognized as and when right
to receive is established as per the terms of the scheme.
q) Government Grants
The grants are recognized where a certainty exists for the fulfilment of conditions and ultimate
collection of such grants. Grants which relate to revenue are credited either to the profit and loss
account as 'Other Income'.
Grants which related to Property, Plant & Equipment or having capital nature are reduced from the
carrying value of the Capital Assets.
The company is accounting the government grants on receipt basis.
r) Dividend Distribution
Annual dividend distribution to the shareholders is recognised as a liability in the period in which
the dividends are approved by the shareholders. Dividend payable and corresponding tax on
dividend distribution is recognised directly in other equity.
s) Financial Instruments
The Company recognizes financial assets and financial liabilities when it becomes a party to the
contractual provisions of the instrument.
(i) Financial Assets
(a) Initial recognition and measurement
All financial assets are recognized initially at fair value plus, in the case of financial assets
not recorded at fair value through profit or loss, transaction costs that are attributable to the
acquisition of the financial asset. Purchases or sales of financial assets that require delivery
of assets within a time frame established by regulation or convention in the market place
(regular way trades) are recognized on the trade date i.e, the date that the Company commits
to purchase or sell the asset.
(b) Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in three categories:
- Financials Assets at Amortized Cost
A financial asset is subsequently measured at amortized cost if it is held within a business
model whose objective is to hold the asset 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 measurement, debt instruments at amortized cost are subsequently measured
at amortized cost using the effective interest rate method, less impairment, if any.
Financial assets at fair value through Other Comprehensive Income (FVOCI)
A financial asset is subsequently measured at fair value through other comprehensive
income if it 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.
Financial assets at fair value through Profit or Loss (FVTPL)
Financial assets which are not classified in any of the above categories are subsequently fair
valued through profit or loss.
(c) De-recognition
The Company derecognizes a financial asset when the contractual rights to the cash flows
from the financial asset expire or it transfers the financial asset and the transfer qualifies for
de-recognition under Ind AS 109.
(d) Impairment
The Company recognizes loss allowances using the Expected Credit Loss (ECL) model for
the financial assets which are not fair valued through Profit and Loss / OCI. Loss allowance
for trade receivables with no significant financing component is measured at an amount
equal to lifetime ECL. The company offers different credit policies to its consumers based
on the work order received due to which it is practically impossible to categorize the trade
receivables and apply the method of ECL as specified in IND AS 109. Therefore, in order to
comply with the provision of IND AS 109, the company has decided to provide for ECL @1%
on the Closing Balance of the trade receivables. 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 treated as an impairment gain or loss in the Statement of
Profit and Loss.
(e) Write Offs
Financial assets are written off either partially or in their entirety to the extent that there is
no realistic prospect of recovery. Any subsequent recoveries are credited to impairment on
financial instrument on statement of profit and loss.
(ii) Financial Liabilities
(a) Initial recognition and measurement
The Company's financial liabilities include trade and other payables, loans and borrowings
including bank overdrafts, financial guarantee contracts and derivative financial instruments.
Financial liabilities are classified, at initial recognition, as at fair value through profit and
loss or as those measured at amortized cost.
(b) Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as
follows:
Financial liabilities at fair value through Profit and Loss:
Financial liabilities at fair value through profit and loss include financial liabilities held for
trading. The Company has not designated any financial liabilities upon initial recognition at
fair value through profit and loss.
Financial liabilities measured at Amortized Cost
After initial recognition, interest bearing loans and borrowings are subsequently measured
at amortized cost using the effective interest rate method except for those designated in an
effective hedging relationship.
(c) De-recognition
A financial liability (or a part of a financial liability) is derecognized from the Company's
balance sheet when the obligation specified in the contract is discharged or cancelled or
expires.
t) Segment Reporting
As the Company operates in only one business the disclosure requirements under Ind_AS 108 -
"Operating Segment" is not applicable.
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