3 Material accounting policies
A Property Plant & Equipment
A.1 Initial recognition and measurement
An item of property, plant and equipments 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.
Items of Property, Plant and Equipment are measured at cost less
accumulated depreciation/amortization and accumulated
impairment losses. Cost includes expenditure that is directly
attributable to bringing the asset, inclusive of non-refundable
taxes & duties, to the location and condition necessary for it to be
capable of operating in the manner intended by management.
When parts of an item of property, plant and equipment have
different useful lifes, they are recognized separately.
Items of spare parts, stand-by equipment and servicing equipment
which meet the definition of Property, Plant and Equipment are
capitalized.
Property, Plant and Equipments which are not ready for intended
use as on the date of Balance Sheet are disclosed as 'Capital Work-
In-Progress 'includes value of Machinery lying at Bonded
warehouse as at year end.
The company had applied for the one time transition exemption of
all considering the cost of the transition date i.e. 1st April, 2016 as
the deemed cost under Ind-AS. Hence, regarded thereafter as
historical cost.
A.2 Subsequent costs
Subsequent expenditure is recognized as an increase in the
carrying amount of the asset when it is probable that future
economic benefits deriving from the cost incurred will flow to the
enterprise and the cost of the item can be measured reliably.
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 is derecognized.
The costs of the day-to-day servicing of Property, Plant and
Equipment are recognized in profit or loss as incurred.
A.3 Derecognition
Property, Plant and Equipment are derecognized when no future
economic benefits are expected from their use or upon their
disposal. Gains and losses on disposal of an item of property, plant
and equipment are determined by comparing the proceeds from
disposal with the carrying amount of property, plant and
equipment, and are recognized in the statement of profit and loss.
A.4 Depreciation/amortization
Depreciation is recognized in profit or loss on a straight-line basis
over the estimated useful life of each part of an item of Property,
Plant and Equipment. Leasehold lands are amortized over the
lease term unless it is reasonably certain that the Company will
obtain ownership by the end of the lease term.
Depreciation on additions to/deductions from property, plant and
equipment during the year is charged on pro-rata basis from/up to
the date on which the asset is available for use/disposed.
Depreciation on property, plant and equipment except leasehold
land is provided on their estimated useful life as prescribed by
Schedule II of The Companies Act, 2013.
B Capital work-in-progress
The cost of self-constructed assets includes the cost of materials &
direct labour, any other costs directly attributable to bringing the
assets to the locations and conditions necessary for it to be capable
of operating in the manner intended by management and
borrowing costs.
Expenses directly attributable to construction of property, plant
and equipment incurred till they are ready for their intended use
are identified and allocated on a systematic basis on the cost of
related assets.
C Intangible assets and intangible assets under development
C.1 Recognition and measurement
Intangible assets are recognized as an increase in the carrying
amount of the asset when it is probable that future economic
benefits deriving from the cost incurred will flow to the enterprise
and the cost of the item can be measured reliably.
C.2 Derecognition
An intangible asset is derecognized when no future economic
benefits are expected from its use or upon their disposal. Gains and
losses on disposal of an item of intangible assets are determined by
comparing the proceeds from disposal with the carrying amount of
intangible assets and are recognized in the statement of profit and
loss.
C.3 Amortization
Intangible assets having finite life are amortized on straight line
method in their useful life.
D Inventories
Inventories are valued ‘at lower of cost or net realizable value’
except stock of residual product and scrap which are valued at net
realizable value. The cost is computed on the weighted average
basis. In case of finished goods and stock in process, cost is
determined by considering material, labour, related overheads and
duties thereon.
E Cash and cash Equivalents
Cash and cash equivalent in the balance sheet comprise cash at
banks and cash on hand and short-term deposits with an original
maturity of three months or less, which are subject to insignificant
risk of change in value.
A financial instrument is any contract that gives rise to a financial
asset of one entity and a financial liability or equity instrument of
another entity.
F.1 Financial assets:
Financial assets are recognised when the Company becomes a
party to the contractual provisions of the instrument.
F.1.1 Initial recognition and measurement
All financial assets are recognized initially at fair value
plus or minus, in the case of financial assets not
recorded at fair value through profit or loss, transaction
costs are attributable to the acquisition or issue of the
financial asset, otherwise charged to Statement of Profit
& Loss.
F.1.2 Subsequent measurement
Financial assets are subsequently classified and
measured at:
• Financial assets at amortised cost
• Financial assets at fair value through profit and loss
(FVTPL)
• Financial assets at fair value through other
comprehensive income (FVOCI).
a) Trade Receivables
Trade receivables are initially recognised at fair value.
Subsequently, these assets are held at amortised cost,
using the effective interest rate (EIR) method net of any
expected credit losses wherever applicable. The EIR is
the rate that discounts estimated future cash income
through the expected life of the financial instrument.
b) Debt instruments
i) Measured at amortized cost
A ‘debt instrument’ is measured at the amortized cost if
both the following conditions are met:
(a) The asset is held within a business model whose
objective is to hold assets for collecting contractual
cash flows, and
(b) 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 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 profit
or loss. The losses arising from impairment are
recognized in the profit or loss.
ii) Measured at FVTOCI (Fair Value through OCI)
A ‘debt instrument’ is classified as FVTOCI if both of
the following criteria are met:
(a) The objective of the business model is achieved
both by collecting contractual cash flows and
selling the financial assets, and
(b) The asset’s contractual cash flows represent SPPI.
Debt instruments included within the FVT OCI category
are measured initially as well as at each reporting date at
fair value. Fair value movements are recognized in the
OCI. However, the Company recognizes interest
income, impairment losses & reversals and foreign
exchange gain or loss in the profit and loss. On
derecognition of the asset, cumulative gain or loss
previously recognized in OCI is reclassified from the
equity to profit and loss. Interest earned whilst holding
FVTOCI debt instrument is reported as interest income
using the EIR method.
iii) Measured at FVTPL (Fair value through profit or
loss)
Debt instruments do not meet the criteria for
categorization as at amortized cost or as FVTOCI, are
classified as at FVTPL.
The Company elects to classify the debt instrument,
which otherwise meets amortized cost or FVTOCI
criteria, as at FVTPL. However, such election is
allowed only if doing so reduces or eliminates a
measurement or recognition inconsistency (referred to
as ‘accounting mismatch’). Debt instruments included
within the FVTPL category are measured at fair value
with all changes recognized in the profit and loss.
c) Equity Instruments:
All investments in equity instruments are measured at
fair value.
Equity instruments valued at FVTOCI, and all fair value
changes on the instruments, excluding dividends, are
recognized in the OCI. There is no recycling of the
amounts from OCI to P&L, even on sale of investment
as the company transfers cumulative gain or loss within
the equity.
Equity instruments if classified as FVTPL category are
measured at fair value i.e. at NAV with all changes
recognized in the profit and loss.
F.1.3 Derecognition
A financial asset (or, where applicable, a part of a
financial asset or part of a Group of similar financial
assets) is primarily derecognized (i.e. removed from the
Company’s balance sheet) when:
• The contractual rights to receive cash flows from
the asset have expired, or
• The Company has transferred its contractual rights
to receive cash flows from the asset.
F.1.4 Impairment of Financial Asset
Expected credit losses are recognized for all financial
assets subsequent to initial recognition in Statement of
Profit & Loss other than financials assets in FVTPL
category.
For recognition of impairment loss on financial assets
other than Trade receivables, the company determines
whether there has been a sigificant increase in the credit
risk since initial recogniton. If credit risk has not
increased significantly, 12-month ECL is used to
provide impairmnet loss. However, If credit risk is
increased significantly, lifetime ECL is used.
If, in a subsequent period, credit quality of the
instrument improves such that there is no longer a
significant increase in credit risk since initial
recognition, then the entity reverts to recognising
impairment loss allowance based on 12- Month ECL.
For trade receivables The Company applies ‘simplified
approach’ which requires expected lifetime losses to be
recognised from initial recognition of the receivables.
The Company uses historical default rates to determine
impairment loss on the portfolio of trade receivables. At
every reporting date, these historical default rates are
reviewed and changes in the forward looking estimates
are analysed.
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.
F.2 Financial liabilities
F.2.1 Initial recognition and measurement
All financial liabilities are recognized at fair value and in
case of loans, net of directly attributable cost. Fees of
recurring nature are directly recognised in the Statement
of Profit and Loss as finance cost.
F.2.2 Subsequent measurement
Financial liabilities are carried at amortized cost using
the effective interest method. Amortized cost is
calculated by taking into account any discount or
premium on acquisition and any material transaction
that is an integral part of the EIR. For trade and other
payables maturing within one year from the balance
sheet date, the carrying amounts approximate fair value
due to the short maturity of these instruments.
Financial liabilities carried at fair value through profit or
loss are measured at fair value with all changes in fair
value recognised in the Statement of Profit and Loss.
F.2.3 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 in the respective carrying amounts is
recognized in the statement of profit or loss.
The Company uses forwards to mitigate the risk of changes in
exchange rates. Such derivative financial instruments are
initially recognised at fair value on the date on which a
derivative contract is entered into and are also subsequently
measured at fair value. Derivatives are carried as financial
assets when the fair value is positive and as financial liabilities
when the fair value is negative. Any gains or losses arising
from changes in the fair value of derivatives are taken directly
to Statement of Profit and Loss.
Changes in the fair value of hedging instruments and hedged
items that are designated and qualify as fair value hedges are
recorded in the Statement of Profit and Loss. If the hedging
relationship no longer meets the criteria for hedge accounting,
the adjustment to the carrying amount of a hedged item for
which the effective interest method is used is amortised to
Statement of Profit and Loss over the period of maturity.
G Fair value measurement
The Company measures financial instruments, such as,
derivatives at fair value at each Balance sheet date. Fair value is
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the
presumption that the transaction to sell the asset or transfer the
liability takes place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous
market for the asset or liability.
The principal or the most advantageous market must be accessible
by the Company. The fair value of an asset or a liability is
measured using the assumptions that market participants would
use when pricing the asset or liability, assuming that market
participants act in their economic best interest. 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.
H Impairment of Non-Financial Assets
The Company, in accordance with the Indian Accounting
Standard (Ind AS) 36 “Impairment of Assets”, has adopted the
practice of assessing at each Balance Sheet date whether there is
any indication that an asset may be impaired. If any such
indication exists, then the company provides for the loss for
impairment of Assets after estimating the recoverable amount of
the assets.
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