Note 3 Material Accounting Policies
Use of Estimates and Judgement
The preparation of financial statements in conformity with generally accepted accounting principles in India
requires management to make judgments, estimates and assumptions that affect the reported amount of
revenue, expenses, assets and liabilities and disclosure of contingent liabilities on the date of the financial
statements and the results of operations during the reporting year end. Although these estimates and associated
assumptions are based upon historical experiences and various other factors that are considered relevant
besides management's best knowledge of current events and actions, actual results could differ from these
estimates. The estimates and underlying assumptions are reviewed on a periodic basis. Any revision in the
accounting estimates is recognized in the period in which the results are known/materialize.
Revenue Recognition
i. Revenue from sale of goodsis recognized when an entity transfers the control of goods and services to
the customer at an amount to which the entity expects to be entitled following a five-step model.
Sale of goods (including scrap): Revenue from the sale of goods is recognised at the point in time when control
of the goods is transferred to the customer, generally on delivery of the goods. 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 (e.g., warranties). Revenue towards satisfaction of a performance
obligation is measured at the amount of transaction price (net of variable consideration). Taxes (GST) collected
on behalf of the government are excluded from Revenue. The transaction price of goods sold and services
rendered is net of variable consideration on account returns, discounts, customer claims and rebates, etc.
ii. Other incomeincluding rent etc. is recognised on an accrual basis. Interest income is recognised using the
effective interest method. The effective interest rate is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to the gross carrying amount of a financial asset.
lii Sale of Services:In contracts involving the rendering of services, revenue is measured using the
proportionate completion method and are recognized net of service tax or goods and service tax as applicable.
iv. Dividend incomefrom investments is recognised when the shareholder's right to receive payment has
been established.
Property, Plant and Equipment
Property, plant, and equipment (including furniture, fixtures, vehicles, etc.) held for use in the production or
supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost less
accumulated depreciation.
Cost of acquisition is inclusive of freight, duties, taxes and other incidental expenses, net of CENVAT / GST credit,
wherever applicable that is directly attributable to the acquisition of the items.
Freehold land is carried at cost of acquisition.
Cost represents all expenses directly attributable to bringing the asset to its working condition capable of
operating in the manner intended.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate,
only when 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.
Land and buildings acquired/constructed are categorized as Land and buildings.
Intangible Assets
Intangible assets acquired separately-
Intangible assets that are acquired separately are carried at cost less accumulated amortisation and amortised
on a straight-line method over a period of 4 years.
Depreciation and Amortisation
Depreciation on assets belonging to Company and established on leasehold land is charged over the period of
agreement. Improvements to leased premises are depreciated over the balance tenure of leasehold land.
Depreciation is charged on a pro-rata basis at the straight-line method over estimated economic useful lives of
its property, plant and equipment generally in accordance with that provided in the Part C of Schedule II of the
Companies Act, 2013 other than assets mentioned below -
An item of property, plant and equipment is de-recognised upon disposal or when no future economic benefits
are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement
of an item of property, plant and equipment is determined as the difference between the sales proceeds and
the carrying amount of the asset and is recognised in profit or loss.
An intangible asset is de-recognised on disposal, or when no future economic benefits are expected from use or
disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of the asset are recognised in profit or loss when the asset
is de-recognised.
Depreciation is not recorded on capital work-in-progress until construction and installation are complete and the
asset is ready for its intended use.
Impairment of Tangible and Intangible Assets
At each balance sheet date, the Company reviews the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss (if any).
When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the
recoverable amount of the cash-generating unit to which the asset belongs.
If the carrying amount of the asset (or cash-generating unit) exceeds its recoverable amount an impairment loss
is recognised in the Statement of Profit & Loss to the extent the carrying amount exceeds the recoverable
amount.
Inventories
Stores & spares parts and loose tools are stated at cost.
Raw material & components finished goods and work in progress are valued at cost or net realizable value
whichever is lower.
Scrap is valued at net realisable value.
The basis for determining the cost of various inventories is as under:
Finished Goods and Scrap are inclusive of applicable taxes thereon, wherever applicable.
Net realisable value represents the estimated selling price for inventories less all estimated costs of completion
and costs necessary to make the sale.
Cash and Cash Equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and demand deposits with
an original maturity of three months or less and highly liquid investments that are readily convertible into known
amounts of cash and which are subject to an insignificant risk of changes in value net of outstanding bank
overdrafts as they are considered an integral part of the Company's cash management.
Assets Held for Sale
Assets of disposal groups (current and non-current assets) that is available for immediate sale and where the
sale is highly probable of being completed within one year from the date of classification are considered and
classified as assets held for sale.
The assets which are reclassified as current assets as "Assets Held for Sales” are not depreciated or amortised.
Government Grants
Grants are not recognised until there is reasonable assurance that the Company will comply with the conditions
attached to them and that the grants will be received.
Government grants are recognised in the Statement of Profit and Loss on a systematic basis over the years in
which the Company recognises as expenses the related costs for which the grants are intended to compensate
or when performance obligations are met.
The benefit of a government loan at a below-market rate of interest and the effect of this favourable interest is
treated as a government grant. The Loan or assistance is initially recognized at fair value and balance the
government grant is measured as the difference between proceeds received and the fair value of the loan based
on prevailing market interest rates. Later on Grant recognised to the Statement of Profit and Loss as an notional
income on a systematic basis over the years of loan in which the Company also recognises notional finance cost
as an expenses over fair value of the loan, net impact of same become equivalent to overall loan initially received
and payable after expiry of loan tenure as per the accounting policy applicable to financial liabilities.
Financial Instruments
Financial assets and financial liabilities are recognised when we become a party to the contractual provisions of
the instruments.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets
and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value
of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value
through profit or loss are recognised immediately in profit or loss.
Financial assets
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value
through other comprehensive income or profit and loss, depending on the classification of the financial assets.
All investments in the scope of Ind AS 109 are measured at fair value. Equity instruments included within the
FVTPL category, if any, are measured at fair value with all changes recognized in statement of profit or loss.
Impairment of financial assets
The Company applies the expected credit loss model for recognising impairment loss on financial assets
measured at amortised cost, trade receivables, loans & advances and other contractual rights to receive cash
or other financial assets.
Expected credit losses are the weighted average of credit losses with the respective risks of default occurring
as the weights.
De-recognition of financial assets
The Company derecognises a financial asset when the contractual rights to the cash flow from the asset expire,
or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to
another party.
Financial liabilities
Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangements and the definitions of a financial liability and an
equity instrument.
Financial liabilities
Financial liabilities that are not held-for-trading are measured at amortised cost at the end of subsequent
accounting periods.
De-recognition of financial liabilities
The Company derecognises financial liabilities when its obligations are discharged, cancelled or have expired.
Foreign Currency Transactions
Transactions denominated in foreign currencies are normally recorded at the exchange rates prevailing on the
date of the transaction.
Exchange differences arising on foreign currency transaction settled during the year are recognized in the Profit
& Loss Account for the year except to the extent, exchange differences which are regarded as an adjustment to
interest costs on foreign currency borrowings for specific assets/ project asset, are capitalised as part of
borrowing costs.
All the monetary items denominated in foreign currency outstanding at the year-end are translated at exchange
rates prevailing on the date of balance sheet. The resulting exchange differences whether any income or
expenses on account of exchange difference either on settlement or on translation are recognised in Profit &
Loss Account for the year.
In case of Forward contracts, the proportionate differences till end of reporting period between the forward rate
and the exchange rate on the date of the transaction are recognized in the profit & loss account except to the
extent, proportionate differences which are regarded as an adjustment to foreign currency transaction for
specific assets/ project asset, are capitalised as part of borrowing costs.
Borrowing Costs
Borrowing costs, general or specific, that are attributable to the acquisition or construction of qualifying assets
are capitalised as part of the cost of such assets. A qualifying asset is one that necessarily takes a substantial
period of time to get ready for intended use. All other borrowing costs are charged to the statement of profit
and loss.
The company determines the amount of borrowing costs eligible for capitalisation as the actual borrowing costs
incurred on that borrowing during the year less any interest income earned on temporary investment of specific
borrowings pending their expenditure on qualifying assets, to the extent that an entity borrows funds specifically
for the purpose of obtaining a qualifying-assets. In case if the company borrows generally and uses the funds
for obtaining a qualifying asset, borrowing cost eligible for capitalisation rate to the extent the expenditures
incurred on that asset.
Borrowing cost includes exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to the finance cost.
Taxation
Income Tax Expense represents the sum of the tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as
reported in the statement of profit and loss because of items of income or expense that are taxable or deductible
in other years and items that are never taxable or deductible. The Company's current tax is calculated using tax
rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred
tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally
recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be
available against which those deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets
to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period in which
the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the
manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
Current and deferred tax
Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised
in other comprehensive income or directly in equity.
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