3 Material accounting policies
3.1 Revenue recognition
Revenue is recognised upon transfer of control of
promised products or services to customers in an
amount that reflects the consideration which the
company expects to receive in exchange for those
products or services.
The company's revenues are derived from sale of goods
and services.
• Revenue from sale of goods is recognized where
control is transferred to the company’s customers
at the time of shipment to or receipt of goods by
the customers.
• Service income, is recognized as and when
the underlying services are performed. Upfront
non-refundable payments received under these
arrangements continue to be deferred and are
recognized over the expected period that related
services are to be performed.
• Dividend income is accounted for when the right to
receive the income is established.
• Difference between the sale price and carrying
value of investment is recognised as profit or loss
on sale / redemption on investment on trade date
of transaction.
• Interest income is accrued on, time basis, by
reference to the principal outstanding and at the
effective interest rate applicable, which is the
rate that exactly discounts estimated future cash
receipts through the expected life of the financial
asset to that asset’s net carrying amount on
initial recognition.
3.2 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
The Company accounts for each lease component
within the contract as a lease separately from non¬
lease components of the contract and allocates the
consideration in the contract to each lease component
on the basis of the relative stand-alone price of the lease
component and the aggregate stand-alone price of the
non-lease components.
The Company recognises right-of-use asset representing
its right to use the underlying asset for the lease term at
the lease commencement date. The cost of the right of-
use asset measured at inception shall comprise of the
amount of the initial measurement of the lease liability
adjusted for any lease payments made at or before the
commencement date less any lease incentives received,
plus any initial direct costs incurred and an estimate
of costs to be incurred by the lessee in dismantling
and removing the underlying asset or restoring the
underlying asset or site on which it is located. The right-
of-use assets is subsequently measured at cost less
any accumulated depreciation, accumulated impairment
losses, if any and adjusted for any remeasurement of
the lease liability. The right-of-use assets is depreciated
using the straight-line method from the commencement
date over the shorter of lease term or useful life of right-
of-use asset. The estimated useful lives of right-of-use
assets are determined on the same basis as those of
property, plant and equipment. Right of-use assets are
tested for impairment whenever there is any indication
that their carrying amounts may not be recoverable.
Impairment loss, if any, is recognised in the statement of
profit and loss.
The Company measures the lease liability at the present
value of the lease payments that are not paid at the
commencement date of the lease. The lease payments
are discounted using the interest rate implicit in the lease
if that rate can be readily determined. If that rate cannot
be readily determined, the Company uses incremental
borrowing rate. For leases with reasonably similar
characteristics, the Company, on a lease by lease basis,
may adopt either the incremental borrowing rate specific
to the lease or the incremental borrowing rate for the
portfolio as a whole. The lease payments shall include
fixed payments, variable lease payments, residual value
guarantees, exercise price of a purchase option where
the Company is reasonably certain to exercise that
option and payments of penalties for terminating the
lease, if the lease term reflects the lessee exercising
an option to terminate the lease. The lease liability is
subsequently remeasured by increasing the carrying
amount to reflect interest on the lease liability, reducing
the carrying amount to reflect the lease payments made
and remeasuring the carrying amount to reflect any
reassessment or lease modifications or to reflect revised
in-substance fixed lease payments. The Company
recognises the amount of the re-measurement of lease
liability due to modification as an adjustment to the right-
of-use asset and statement of profit and loss depending
upon the nature of modification. Where the carrying
amount of the right-of-use asset is reduced to zero and
there is a further reduction in the measurement of the
lease liability, the Company recognises any remaining
amount of the re-measurement in statement of profit
and loss.
The Company has elected not to apply the requirements
of Ind AS 116 Leases to short term leases of all assets
that have a lease term of 12 months or less and leases
for which the underlying asset is of low value. The lease
payments associated with these leases are recognised
as an expense on a straight-line basis over the lease term.
3.3 Foreign currencies
I n preparing the financial statements of the company,
transactions in currencies other than the company’s
functional currency (foreign currencies) are recognised
at the rates of exchange prevailing at the dates of the
transactions. At the end of each reporting period,
monetary items denominated in foreign currencies are
retranslated at the rates prevailing at that date. Non¬
monetary items that are measured in terms of historical
cost in a foreign currency are not retranslated. Exchange
differences on monetary items are recognised in profit or
loss in the period in which they arise.
3.4 Borrowing costs
Specific borrowing costs that are attributable to the
acquisition, construction or production 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 costs 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 recognised as an expense in the period in
which they are incurred.
Borrowing cost includes interest expense, amortization
of discounts, ancillary costs incurred in connection with
borrowing of funds and exchange difference arising
from foreign currency borrowings to the extent they are
regarded as an adjustment to the Interest cost.
3.5 Taxation
I ncome tax expense consists of current and deferred
tax. Income tax expense is recognized in the income
statement except to the extent that it relates to items
recognized directly in equity, in which case it is
recognized in equity.
Current tax
Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or
substantively enacted at the reporting date, and any
adjustment to tax payable in respect of previous years.
Deferred tax
Deferred tax is recognized using the balance sheet
method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation
purposes. Deferred tax is not recognized for the
following temporary differences: the initial recognition of
assets or liabilities in a transaction that is not a business
combination and that affects neither accounting nor
taxable profit; differences relating to investments in
subsidiaries and jointly controlled entities to the extent
that it is probable that they will not reverse in the
foreseeable future; and taxable temporary differences
arising upon the initial recognition of goodwill. Deferred
tax is 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 by 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 on the same taxable entity, or on
different tax entities, but they intend to settle current tax
liabilities and assets on a net basis or their tax assets and
liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent that it
is probable that future taxable profits will be available
against which the temporary difference can be utilized.
Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer
probable that the related tax benefit will be realized.
3.6 Earnings per share
The company presents basic and diluted earnings per
share (“EPS”) data for its ordinary shares. The basic
earnings per share is computed by dividing the net profit
attributable to equity shareholders for the period by the
weighted average number of equity shares outstanding
during the year.
Diluted earnings per share is computed by dividing the
net profit attributable to equity shareholders for the year
relating to the dilutive potential equity shares, by the
weighted average number of equity shares considered
for deriving basic earnings per share and the weighted
average number of equity shares which could have been
issued on the conversion of all dilutive potential equity
shares. Potential equity shares are deemed to be dilutive
only if their conversion to equity shares would decrease
the net profit per share.
3.7 Property, plant and equipment (PPE)
The initial cost of PPE comprises its purchase price,
including import duties and non-refundable purchase
taxes, and any directly attributable costs of bringing an
asset to working condition and location for its intended
use, including relevant borrowing costs and any
expected costs of decommissioning, less accumulated
depreciation and accumulated impairment losses, if any.
Expenditure incurred after the PPE have been put into
operation, such as repairs and maintenance, are charged
to the Statement of Profit and Loss in the period in which
the costs are incurred.
If significant parts of an item of PPE have different useful
lives, then they are accounted for as separate items
(major components) of PPE.
Material items such as spare parts, stand-by equipment
and service equipment are classified as PPE when they
meet the definition of PPE as specified in Ind AS 16 -
Property, Plant and Equipment.
Fixtures, plant and equipment where the cost
exceeds C 5,000 and the estimated useful life is more
than one year is capitalised and stated at cost (net of
duty/ tax credit availed) less accumulated depreciation
and accumulated impairment losses.
3.8 Expenditure during construction period
Expenditure during construction period (including
financing cost related to borrowed funds for construction
or acquisition of qualifying PPE) is included under Capital
Work-in-Progress, and the same is allocated to the
respective PPE on the completion of their construction.
Advances given towards acquisition or construction of
PPE outstanding at each reporting date are disclosed as
Capital Advances under “Other non-current Assets”.
3.9 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 assessment.
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.
The company has componentised its PPE and has
separately assessed the life of major components.
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 advice, taking into account the nature of the
PPE and the estimated usage of the asset on the basis
of management’s best estimation of obtaining economic
benefits from those classes of assets.
Depreciation on additions is provided on a pro-rata
basis from the month 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.
3.10Intangible assets and amortisation
I ntangible assets are stated at cost less accumulated
amortization and impairment. Intangible assets are
amortized over their respective estimated useful lives on
a straight-line basis, from the date that they are available
for use.
Amortization
The estimated useful life of an identifiable intangible
asset is based on a number of factors including the
effects of obsolescence, demand, competition and
other economic factors (such as the stability of the
industry and known technological advances) and the
level of maintenance expenditures required to obtain the
expected future cash flows from the asset.
Software, Design and development is amortised over a
period of five years.
Technical knowhow is amortised over a period of
eight years.
3.11 Inventories
Inventories are valued as follows:
• Raw materials, stores & spare parts and
packing materials:
Valued at lower of cost and net realisable value
(NRV). However, these items 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. Cost is determined on weighted
average basis.
• Work-in- progress (WIP), finished goods and stock-
in-trade:
Valued at lower of cost and NRV. Cost of Finished
goods and WIP includes cost of raw materials,
cost of conversion and other costs incurred in
bringing the inventories to their present location
and condition.
3.12Cash and cash equivalents
Cash and cash equivalents in the Balance Sheet
comprise cash at bank and in hand and short-term
deposits with banks that are readily convertible into
cash which are subject to insignificant risk of changes in
value and are held for the purpose of meeting short-term
cash commitments.
3.13Cash flow statement
Cash flows are reported using the indirect method,
whereby net profit before tax is adjusted for the
effects of transactions of a non-cash nature and any
deferrals or accruals of past or future cash receipts or
payments. The cash flows from operating, investing
and financing activities of the company are segregated.
Bank overdrafts are classified as part of cash and cash
equivalent, as they form an integral part of an entity’s
cash management.
3.14Government grants
Government grants are recognised where there is
reasonable assurance that the grant will be received and
all attached conditions will be complied with.
Where the company receives non-monetary grants,
the asset and the grant are accounted at fair value and
recognised in the statement of profit and loss over the
expected useful life of the asset.
3.15Impairment of non financial assets
The carrying amounts of the company’s non-financial
assets, 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 companyed together into the smallest
company of assets that generates cash inflows from
continuing use that are largely independent of the cash
inflows of other assets or companys of assets (the “cash¬
generating unit”).
An impairment loss is recognized in the income
statement if the estimated recoverable amount of an
asset or its cash-generating unit is lower than its carrying
amount. 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. Goodwill that forms part of the
carrying amount of an investment in an associate is not
recognized separately, and therefore is not tested for
impairment separately. Instead, the entire amount of the
investment in an associate is tested for impairment as a
single asset when there is objective evidence that the
investment in an associate may be impaired.
An impairment loss in respect of equity accounted
investee is measured by comparing the recoverable
amount of investment with its carrying amount. An
impairment loss is recognized in the income statement,
and reversed if there has been a favorable change in the
estimates used to determine the recoverable amount.
3.16Employee 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 income statement 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 rates
on government bonds are used. The current service cost
of the defined benefit plan, recognized in the income
statement 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 income. 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 income statement. Actuarial
gains and losses arising from experience adjustments
and changes in actuarial assumptions are charged or
credited to equity in other comprehensive income in the
period in which they arise.
Termination benefits
Termination benefits are recognized as an expense
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 offer made to encourage
voluntary redundancy. Termination benefits for voluntary
redundancies are recognized as an expense if the
company has made an offer 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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