2.2 Summary of Material accounting policies
The following are the material accounting policies
for the Company:
a. Property, Plant & equipment
Measurement at recognition:
The cost of an item of property, plant and
equipment are 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 historical cost less
any accumulated impairment losses.
Items of property, plant and equipment
(including capital-work-in progress) are stated
at cost of acquisition or construction less
accumulated depreciation and impairment
loss, if any.
Cost includes expenditures that are directly
attributable to the acquisition of the asset
i.e., freight, duties and taxes applicable and
other expenses related to acquisition and
installation. The cost of self-constructed
assets includes the cost of materials and other
costs directly attributable to bringing the
asset to a working condition for its intended
use. Borrowing costs that are directly
attributable to the construction or production
of a qualifying asset are capitalized as part of
the cost of that asset.
The cost of replacing part of an item of
property, plant and equipment is recognized
in the carrying amount of the item if it is
probable that the future economic benefits
embodied within the part will flow to the
Company and its cost can be measured
reliably. The carrying amount of the replaced
part will be derecognized. The costs of
repairs and maintenance are recognized in
the statement of profit and loss as incurred.
Items of stores and spares that meet the
definition of Property, plant and equipment
are capitalized at cost, otherwise, such items
are classified as inventories.
When significant parts of plant and equipment
are required to be replaced at intervals, the
Company depreciates them separately based
on their specific useful lives.
Items of property, plant and equipment
acquired through exchange of non-monetary
assets are measured at fair value, unless
the exchange transaction lacks commercial
substance or the fair value of either the
asset received or asset given up is not
reliably measurable, in which case the asset
exchanged is recorded at the carrying amount
of the asset given up.
Subsequent expenditure
Subsequent expenditure is capitalized only
if it is probable that the future economic
benefits associated with the expenditure will
flow to the Company and the cost of the item
can be measured reliably.
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 Current Assets.
Derecognition:
The carrying amount of an item of PPE 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 PPE 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.
b. Intangible Assets
Intangible Assets are stated at cost of
acquisition net of recoverable taxes less
accumulated amortization/depletion and
impairment loss, if any. The cost comprises
purchase price, borrowing costs, and any cost
directly attributable to bringing the asset to
its working condition for the intended use.
Research & Development Expenditure:
Revenue expenditure on Research is
expensed out in the statement of profit and
loss for the year. Development costs of
products are charged to the statement of profit
and loss unless a product’s technological and
commercial feasibility has been established,
in which case such expenditure is capitalized.
Capital expenditure on research and
development is shown as an addition to
property, plant and equipment.
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.
Depreciation:
Depreciation on each part of an item /
component of PPE is provided on pro-rata
basis using the Written down Value method
based on the expected useful life of the asset
and is charged to the Statement of Profit and
Loss as per the requirement of Schedule II
of the Companies Act, 2013. The estimated
useful life has been assessed based on
technical evaluation, taking into account
the nature of the asset and the estimated
usage basis management’s best judgement
of economic benefits from those classes
of assets.
Freehold land is not depreciated. Leasehold
improvements are amortized over the period
of the lease.
The useful lives, residual values of each part of
an item of PPE and the depreciation methods
are reviewed at the end of each financial
year. If any of these expectations differ from
previous estimates, such change is accounted
for as a change in an accounting estimate.
c. Financial Instruments
A financial instrument is a contract that gives
rise to a financial asset of one entity and
a financial liability or equity instrument of
another entity.
Financial Assets
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
(FVTPL), transaction costs that are attributable
to the acquisition of the financial asset.
However, trade receivables that do not contain a
significant financing component are measured at
transaction price.
Where the fair value of a financial asset at initial
recognition is different from its transaction price,
the difference between the fair value and the
transaction price is recognized as a gain or loss in
the Statement of Profit and Loss at initial recognition
if the fair value is determined through a quoted
market price in an active market for an identical
asset (i.e. level 1 input) or through a valuation
technique that uses data from observable markets
(i.e. level 2 input).
I n case the fair value is not determined using a
level 1 or level 2 input as mentioned above, the
difference between the fair value and transaction
price is deferred appropriately and recognized as
a gain or loss in the Statement of Profit and Loss
only to the extent that such gain or loss arises due
to a change in factor that market participants take
into account when pricing the financial asset.
Subsequent measurement:
For subsequent measurement, the Company
classifies a financial asset in accordance with the
below criteria:
i. The Company’s business model for managing
the financial asset and
ii. The contractual cash flow characteristics of
the financial asset.
Based on the above criteria, the Company classifies
its financial assets into the following categories:
i. Debt instruments at amortized cost;
A ‘debt instrument’ is measured at the
amortized cost, if both of the following
conditions are met:
(i) The asset is held within a business
model whose objective is to hold assets
for collecting contractual cash flows; and
(ii) 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.
After initial measurement, such financial assets
are subsequently measured at amortized cost
using the effective interest rate (EIR) method.
Amortized 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 amortization is included in finance income in
the statement of profit and loss. The losses arising
from impairment are recognized in the statement
of profit and loss. This category generally applies
to trade and other receivables.
ii. Debt instruments at fair value through other
comprehensive income (FVTOCI);
A ‘debt instrument’ is classified as FVTOCI, if
both of the following criteria are met:
(i) The objective of the business model is
achieved both by collecting contractual
cash flows and selling the financial
assets; and
(ii) The asset’s contractual cash flows
represent SPPI.
Debt instruments included within the FVTOCI
category are measured initially as well as at each
reporting date at fair value. Fair value movements
are recognized in OCI. However, the Company
recognizes interest income, impairment losses
and foreign exchange gain or loss in the statement
of profit and loss. On de-recognition of the asset,
cumulative gain or loss previously recognized in
OCI is reclassified from the equity to statement
of profit and loss. Interest earned whilst holding
FVTOCI debt instrument is reported as interest
income using the EIR method.
iii. Debt instruments, derivatives and equity
instruments at fair value through profit or loss
(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
FVTPL. Debt instruments included within the
FVTPL category are measured at fair value
with all changes recognized in the statement
of profit and loss.
iv. Equity instruments measured at fair value
through other comprehensive income (FVTOCI)
All equity investments in scope of Ind AS 109
are measured at fair value. Equity instruments
which are held for trading are classified as
FVTPL. If the Company decides to classify
an equity instrument as FVTOCI, then all fair
value changes on the instrument, excluding
dividends, are recognized in the OCI and there
is no subsequent reclassification of these fair
value gains and losses to the statement of
profit and loss. Equity instruments included
within the FVTPL category are measured at
fair value with all changes recognized in the
statement of profit and loss.
Derecognition:
A financial liability is derecognized 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 between the carrying amount
of the financial liability derecognized and the
consideration paid is recognized in the Statement
of Profit and Loss.
Impairment of Financial Assets:
The company assesses at each balance sheet date
whether a financial asset or a group of financial
assets is impaired.
In accordance with Ind AS 109, the company uses
“Expected Credit Loss” (ECL) model, for evaluating
impairment of Financial Assets other than those
measured at Fair Value through Profit and Loss
(FVTPL).
Expected credit losses are measured through a
loss allowance at an amount equal to:
• The 12 months expected credit losses
(expected credit losses that result from those
default events on the financial instrument
that are possible within 12 months after the
reporting date);
• Full lifetime expected credit losses (expected
credit losses that result from all possible
default events over the life of the financial
instrument)
• The company follows simplified approach for
recognition of impairment loss allowance on
trade receivables and under the simplified
approach, the company does not track
changes in credit risk. Rather, it recognizes
impairment loss allowance based on lifetime
ECL at each reporting date right from its
initial recognition. The company uses a
provision matrix to determine impairment
loss allowance on trade receivables. The
provision matrix is based on its historically
observed default rates over the expected
life of trade receivable and is adjusted for
forward looking estimates. At every reporting
date, the historical observed default rates
are updated
For other assets, the company uses 12-month
ECL to provide for impairment loss where there
is no significant increase in credit risk. If there is
significant increase in credit risk full lifetime ECL
is used.
Financial Liabilities
Initial recognition and measurement:
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value i.e.,
loans and borrowings, payables, or as derivatives
designated as hedging instruments in an effective
hedge, as appropriate. All financial liabilities are
recognized initially at fair value and, in the case of
loans and borrowings and payables, net of directly
attributable transaction costs.
The Company’s financial liabilities include trade
and other payables, loans and borrowings including
bank overdrafts, financial guarantee contracts.
Subsequent measurement:
The measurement of financial liabilities depends
on their classification.
Financial liabilities at fair value through profit or
loss:
Financial liabilities at fair value through profit or
loss include financial liabilities held for trading
and financial liabilities designated upon initial
recognition as fair value through profit or loss.
Financial liabilities are classified as held for trading
if they are incurred for the purpose of repurchasing
in the near term. This category also includes
derivative financial instruments entered into by
the Company that are not designated as hedging
instruments in hedge relationships as defined by
Ind AS 109. Separated embedded derivatives
are also classified as held for trading, unless they
are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are
recognized in the statement of profit and loss.
Financial liabilities designated upon initial
recognition at fair value through profit or loss are
designated as such at the initial date of recognition,
and only if the criteria in Ind AS 109 are satisfied.
For liabilities designated as FVTPL, fair value
gains/losses attributable to changes in own credit
risks are recognized in OCI. These gains/loss are
not subsequently transferred to the statement of
profit and loss.
However, the Company may transfer the cumulative
gain or loss within equity. All other changes in
fair value of such liability are recognized in the
statement of profit and loss.
Loans and borrowings:
After initial recognition, interest-bearing
borrowings are subsequently measured at
amortized cost using the EIR method. Gains and
losses are recognized in the statement of profit
and loss when the liabilities are derecognized
as well as through the EIR amortization process.
Amortized 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 amortization is included as finance costs in the
statement of profit and loss.
De-recognition:
A financial liability is derecognized when the
obligation under the liability is discharged or
cancelled or expired. 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 de-recognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognized in the
statement of profit and loss.
Reclassification of financial assets and liabilities:
The Company determines classification of financial
assets and liabilities on initial recognition. After
initial recognition, no re-classification is made
for financial assets which are equity instruments
and financial liabilities. For financial assets which
are debt instruments, a re-classification is made
only if there is a change in the business model for
managing those assets. A change in the business
model occurs when the Company either begins or
ceases to perform an activity that is significant to
its operations. If the Company reclassifies financial
assets, it applies the re-classification prospectively
from the re-classification date, which is the first day
of the immediately next reporting period following
the change in business model. The Company does
not restate any previously recognized gains, losses
(including impairment gains or losses) or interest.
Offsetting of financial assets and financial
liabilities:
Financial assets and financial liabilities are offset
and the net amount is reported in the Balance Sheet
wherever there is a currently enforceable legal
right to offset the recognized amounts and there is
an intention to settle on a net basis or to realise the
asset and settle the liability simultaneously.
d. Cash & Cash Equivalents
Cash and bank balances comprise of cash
balance in hand, in current accounts with
banks, and other short-term deposits. For this
purpose, “short-term” means investments
having maturity of three months or less from
the date of investment, and which are subject
to an insignificant risk of change in value.
e. Inventory
Raw materials, work-in-progress, finished
goods, packing materials, stores, spares,
components, consumables and stock-in¬
trade are carried at the lower of cost and net
realizable value. However, materials and other
items held for use in production of inventories
are not written down below cost if the finished
goods in which they will be incorporated
are expected to be sold at or above cost.
Net realizable value is the estimated selling
price in the ordinary course of business less
estimated cost of completion and estimated
costs necessary to make the sale.
Cost of inventory is determined on weighted
average basis. Cost of inventory comprises
all costs of purchase, non-refundable duties
and taxes, cost of conversion including
an appropriate share of fixed and variable
production overheads and all other costs
incurred in bringing the inventory to their
present location and condition.
The Company considers factors like
estimated shelf life, product discontinuances
and ageing of inventory in determining the
provision for slow moving, obsolete and
other non-saleable inventory and adjusts the
inventory provisions to reflect the recoverable
value of inventory.
f. Impairment of non-financial assets
The carrying amounts of the Company’s non¬
financial assets, other than inventories and
deferred tax assets are reviewed at each
reporting date to determine whether there is
any indication of impairment.
If any such indication exists, then the asset’s
recoverable amount is estimated.
The recoverable amount of an asset or cash¬
generating unit (as defined below) is the
greater of its value in use and its fair value
less costs to sell.
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 or the cash-generating unit.
For the purpose of impairment testing, assets
are grouped together into the smallest group
of assets that generates cash inflows from
continuing use that are largely independent
of the cash inflow of other assets or groups of
assets (the “cash-generating unit”).
The Company bases its impairment calculation
on detailed budgets and forecast calculations,
which are prepared separately for each of
the Company’s CGUs to which the individual
assets are allocated. These budgets and
forecast calculations generally cover a period
of five years. For longer periods, a long-term
growth rate is calculated and applied to
project future cash flows after the fifth year.
To estimate cash flow projections beyond
periods covered by the most recent budgets/
forecasts, the Company extrapolates cash
flow projections in the budget using a steady
or declining growth rate for subsequent years,
unless an increasing rate can be justified. In
any case, this growth rate does not exceed
the long-term average growth rate for the
products, industries, or country in which the
entity operates, or for the market in which the
asset is used.
An impairment loss is recognized in the
statement of profit and loss if the estimated
recoverable amount of an asset or its cash¬
generating unit is lower than its carrying
amount. Impairment losses recognized
in respect of cash-generating units are
allocated first to reduce the carrying amount
of any goodwill allocated to the units and
then to reduce the carrying amount of the
other assets in the unit on a pro-rata basis.
Reversal of Impairment of Assets
An impairment loss in respect of goodwill
is not reversed. In respect of other assets,
impairment losses recognized in prior periods
are assessed at each reporting date for any
indications that the loss has decreased or no
longer exists. An impairment loss is reversed
if there has been a change in the estimates
used to determine the recoverable amount.
An impairment loss is reversed only to the
extent that the asset’s carrying amount does
not exceed the carrying amount that would
have been determined, net of depreciation
or amortization, if no impairment loss had
been recognized.
g. Employee Benefits
Short term employee benefits
Short-term employee benefits are expensed
as the related service is provided. A liability
is recognized for the amount expected
to be paid if the Company has a present
legal or constructive obligation to pay this
amount as a result of past service provided
by the employee and the obligation can be
estimated reliably.
Defined contribution plans
The Company’s contributions to defined
contribution plans are charged to the
statement of profit and loss as and when the
services are received from the employees.
Defined benefit plans
The liability in respect of defined benefit
plans and other post-employment benefits
is calculated using the projected unit
credit method consistent with the advice
of qualified actuaries. The present value of
the defined benefit obligation is determined
by discounting the estimated future cash
outflows using interest rates of high-quality
corporate bonds that are denominated
in the currency in which the benefits will
be paid, and that have terms to maturity
approximating to the terms of the related
defined benefit obligation. In countries where
there is no deep market in such bonds, the
market interest rates on government bonds
are used. The current service cost of the
defined benefit plan, recognized in the
statement of profit and loss in employee
benefit expense, reflects the increase in the
defined benefit obligation resulting from
employee service in the current year, benefit
changes, curtailments and settlements. Past
service costs are recognized immediately in
the statement of profit and loss.
The net interest cost is calculated by applying
the discount rate to the net balance of the
defined benefit obligation and the fair value of
plan assets. This cost is included in employee
benefit expense in the statement of profit
and loss. Actuarial gains and losses arising
from experience adjustments and changes
in actuarial assumptions for defined benefit
obligation and plan assets are recognized in
OCI in the period in which they arise. When
the benefits under a plan are changed or
when a plan is curtailed, the resulting change
in benefit that relates to past service or the
gain or loss on curtailment is recognized
immediately in the statement of profit and
loss. The Company recognizes gains or
losses on the settlement of a defined benefit
plan obligation when the settlement occurs.
Termination benefits
Termination benefits are recognized as
an expense in the statement of profit and
loss when the Company is demonstrably
committed, without realistic possibility of
withdrawal, to a formal detailed plan to either
terminate employment before the normal
retirement date, or to provide termination
benefits as a result of an off er made to
encourage voluntary redundancy. Termination
benefits for voluntary redundancies are
recognized as an expense in the statement
of profit and loss if the Company has made
an off er encouraging voluntary redundancy,
it is probable that the offer will be accepted,
and the number of acceptances can be
estimated reliably.
Other long-term employee benefits
The Company’s net obligation in respect of
other long-term employee benefits is the
amount of future benefit that employees
have earned in return for their service in the
current and previous periods. That benefit is
discounted to determine its present value.
Re-measurements are recognized in the
statement of profit and loss in the period in
which they arise.
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