Note 2.1: Material accounting policies
a) Material accounting judgements, estimates and assumptions
The preparation of the Company’s financial statements requires management to make judgements, estimates and assumptions that affect the reported
amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty
about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities
affected in future periods.
Judgements:
In the process of applying the Company’s accounting policies, management has made the following judgements, which have the most significant
effect on the amounts recognised in the financial statements:
Useful lives of property, plant and equipment
The Company reviews the useful life of property, plant and equipment at the end of each reporting period. This reassessment may result in change in
depreciation expense in future periods.
Estimates and Assumptions:
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its
assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about
future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company. Such
changes are reflected in the assumptions when they occur.
Recoverability of deferred taxes
In assessing the recoverability of deferred tax assets, management considers whether it is probable that taxable profit will be available against which
the losses can be utilised. The ultimate realisation of deferred tax assets is dependent upon the generation of future taxable income during the periods
in which the temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in
making this assessment.
b) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification.
Assets:
An asset is treated as current when it is:
a) Expected to be realised or intended to be sold or consumed in normal operating cycle.
b) Held primarily for the purpose of trading
c) Expected to be realised within twelve months after the reporting period, or
d) Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months
after the reporting period. All other assets are classified as non-current.
Liabilities:
A liability is current when:
(a) It is expected to be settled in normal operating cycle
(b) It is held primarily for the purpose of trading
(c) It is due to be settled within twelve months after the reporting period, or
(d) There is no unconditional right to defer the settlement of the liability for at least twelve months
after the reporting period All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
Operating cycle: The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash
equivalents. The Company has identified twelve months as its operating cycle.
Property, plant and equipment and capital work in progress are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Such cost includes expenditure
that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct services, any other costs directly attributable to
bringing the assets to its working condition for their intended use and cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the
recognition criteria are met.
The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met.
An item of property, plant and equipment and any significant part initially recognised is de-recognised upon disposal or when no future economic benefits are expected from its use. Any
gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of
profit and loss within other income.
Depreciation: Depreciation is provided using the Straight Line Method as per useful life specified in schedule II to the Companies Act, 2013. Depreciation is calculated on a pro-rata
basis from the date of additions. On assets sold, discarded, etc. during the year, depreciation is provided up to the date of sale/discard. Further, the Schedule II to the Companies Act,
2013 requires that useful life and depreciation for significant components of an asset should be determined seperately. The identification of significant components is matter of technical
judgement and is decided on case to case basis; wherever applicable.
Subsequent costs: The cost of replacing a part of an item of property, plant and equipment is to be recognised in the carrying amount of the item of property, plant and equipment, 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 with the carrying amount of the replaced part
getting derecognised. The cost for day-to-day servicing of property, plant and equipment to be recognised in statement of profit and loss as and when incurred.
Capital work in progress: Capital work in progress comprises the cost of fixed assets that are not ready for their intended use at the reporting date.
d) Intangible assets
Recognition and measurement
Intangible assets that are acquired by the Company to be measured initially at cost. Intangible assets with finite useful lives are measured at cost less accumulated amortisation and
accumulated impairment losses, if any. Software purchased by the Company are amortized on a straight line basis over 5 Years.
Amounts paid towards technical know-how fees for specifically identified projects/products being development expenditure incurred towards product design is carried forward based
on assessment of benefits arising from such expenditure. Such expenditure is amortized over the period of expected future sales from the related product, i.e. the estimated period of 60
to 72 months on straight line basis based on past trends, commencing from the month of commencement of commercial production.
e) Borrowing costs
Borrowing costs consists of interest and amortization of ancillary costs that an entity incurs in connection with the borrowing of funds.
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 capitalised 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.
f) Foreign currencies
Functional and presentational currency
The Company’s financial statements are presented in Indian Rupees which is also the Company’s functional currency. Functional currency is the currency of the primary economic
environment in which a Company operates and is normally the currency in which the Company primarily generates and expends cash. All the financial information presented in ' except
where otherwise stated.
Transactions and balances
Transactions in foreign currencies are initially recorded by the Company at the functional currency spot rates at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement
or translation of monetary items are recognised in statement of profit and loss.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the
fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
g) Derivative (Forward contract)
Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period.
The resulting gain or loss is recognised in profit or loss immediately.
h) Revenue Recognition
Revenue to be recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue to be measured at the
fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government.
Sale of goods
The Company recognized revenue when (or as) a performance obligation was satisfied, i.e. when 'control’ of the goods underlying the particular performance obligation
were transferred to the customer. Further, revenue from sale of goods is recognized based on a 5-Step Methodology which is as follows: Step
1: Identify the contract(s) with a customer
Step 2: Identify the performance obligation in contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract Step
5: Recognise revenue when (or as) the entity satisfies a performance obligation
Revenue is measured based on the transaction price, which is the consideration, adjusted for volume discounts, service level credits, performance bonuses, price concessions and
incentives, if any, as specified in the contract with the customer. Revenue also excludes taxes collected from customers.
Contract assets are recognised when there is excess of revenue earned over billings on contracts. Contract assets are classified as unbilled receivables (only act of invoicing is pending)
when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms. Unearned or deferred revenue is recognised when there is billings in
excess of revenues.
Contracts are subject to modification to account for changes in contract specification and requirements. The Company reviews modification to contract in conjunction with the original
contract, basis which the transaction price could be allocated to a new performance obligation, or transaction price of an existing obligation could undergo a change. In the event
transaction price is revised for existing obligation, a cumulative adjustment is accounted for.
Use of significant judgements in revenue recognition:
a) The Company’s contracts with customers could include promises to transfer products to a customer. The Company assesses the products promised in a contract and identifies distinct
performance obligations in the contract. Identification of distinct performance obligation involves judgement to determine the deliverables and the ability of the customer to benefit
independently from such deliverables.
b) Judgement is also required to determine the transaction price for the contract. The transaction price could be either a fixed amount of customer consideration or variable consideration
with elements such as volume discounts, service level credits, performance bonuses, price concessions and incentives. The transaction price is also adjusted for the effects of the time
value of money if the contract includes a significant financing component. Any consideration payable to the customer is adjusted to the transaction price, unless it is a payment for a
distinct product or service from the customer. The estimated amount of variable consideration is adjusted in the transaction price only to the extent that it is highly probable that a
significant reversal in the amount of cumulative revenue recognised will not occur and is reassessed at the end of each reporting period. The Company allocates the elements of variable
considerations to all the performance obligations of the contract unless there is observable evidence that they pertain to one or more distinct performance obligations.
c) The Company uses judgement to determine an appropriate standalone selling price for a performance obligation. The Company allocates the transaction price to
each performance obligation on the basis of the relative standalone selling price of each distinct product or service promised in the contract.
d) The Company exercises judgement in determining whether the performance obligation is satisfied at a point in time or over a period of time. The Company considers indicators such
as how customer consumes benefits as services are rendered or who controls the asset as it is being created or existence of enforceable right to payment for performance to date and
alternate use of such product or service, transfer of significant risks and rewards to the customer, acceptance of delivery by the customer, etc.
Rendering of services
Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction
at the reporting date. The stage of completion is assessed by reference to surveys of work performed.
Job work and development charges are recognized upon full completion of the job work and development services and when all the significant risks and rewards of ownership of the
goods have been passed to the buyer, on delivery of the goods and no significant uncertainty exists regarding the collection of the consideration.
Interest income
For all debt instruments measured either at amortized cost or at fair value through other comprehensive income, interest income is recorded using the effective interest rate (EIR). EIR is
the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying
amount of the financial asset or to the amortized cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected cash flows by considering
all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses. Interest income is
included in the statement of profit and loss
i) Inventories
Inventories are stated at lower of cost and net realisable value. Cost is determined using the first in, first out basis. The cost of finished goods and work in progress comprises raw materials,
direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion
and the estimated costs necessary to make the sale. The Cost in case of Work-in-Progress and finished goods to be inclusive of allocable manufacturing overheads. The Provision for
obsolescence to be made whenever necessary.
j) Leases
Finance lease
Leases of property, plant and equipment are classified as finance leases where the lessor has substantially transferred all the risks and rewards of ownership to the Company.
Operating lease
Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Company as lessee are classified as operating leases. Payments made under operating
leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease unless the payments are structured to increase in
line with expected general inflation to compensate for the lessor’s expected inflationary cost increases.
Indian Accounting Standard (Ind AS) 116, Leases, was notified as part of the Companies (Indian Accounting Standards) (Amendment) Rules, 2019, issued by the Ministry of Corporate
Affairs, Government of India, vide notification dated March 30, 2019.
k) Employee’s Benefits
Short Term Employee Benefits: All employee benefits expected to be settled wholly within twelve months of rendering the service are classified as short-term employee benefits. When
an employee has rendered service to the Company during an accounting period, the Company recognises the undiscounted amount of short-term employee benefits expected to
be paid in exchange for that service as an expense unless another Ind AS requires or permits the inclusion of the benefits in the cost of an asset. Benefits such as salaries, wages
and short-term compensated absences, bonus and ex-gratia etc. are recognised in statement of profit and loss in the period in which the employee renders the related service.
A liability is recognised for the amount expected to be paid after deducting any amount already paid under short-term cash bonus or profit-sharing plans 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. If the amount already paid exceeds
the undiscounted amount of the benefits, the Company recognises that excess as an asset /prepaid expense to the extent that the prepayment will lead to, for example, a reduction
in future payments or a cash refund.
Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions to a statutory authority and will have no legal or constructive
obligation to pay further amounts.
Retirement benefits in the form of Provident Fund is a defined contribution scheme and contributions paid/payable towards Provident Fund and Employee state insurance scheme (ESI)
are recognised as an expense in the statement of profit and loss during the period in which the employee renders the related service.
Defined benefit plan
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan.
The Company has an obligation towards gratuity, a defined benefit retirement plan covering eligible employees. The plan provides for a lump sum payment to vested employees at
retirement, death while in employment or on termination of employment of an amount based on the respective employee’s salary and the tenure of employment. Vesting occurs upon
completion of five years of service. The Company accounts for the liability for gratuity benefits payable in future based on an independent actuarial valuation report using the projected
unit credit method as at the year end.
The obligations are measured at the present value of the estimated future cash flows. The discount rate is generally based upon the market yields available on Government bonds at the
reporting date with a term that matches that of the liabilities.
Re-measurements, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest and if applicable),
is reflected immediately in Other Comprehensive Income in the statement of profit and loss. All other expenses related to defined benefit plans are recognised in statement of profit and
loss as employee benefit expenses. Re-measurements recognised in Other Comprehensive Income will not be reclassified to statement of profit and loss hence it is treated as part of
retained earnings in the statement of changes in equity. Gains or losses on the curtailment or settlement of any defined benefit plan are recognised when the curtailment or settlement
occurs. Curtailment gains and losses are accounted for as past service costs.
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