3 Summary of Material accounting polices
A Foreign currency transactions and balances:
Transactions in foreign currencies are initially recorded by the company at its functional currency spot rates at the date the transaction first qualifies for recognition.
However, for practical reasons, the company uses an average rate if the average approximates the actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currency are translated into the functional currency at the exchange rate at the reporting date. Non monetary assets
and liabilities that are measured at the fair value in a foreign currency are translated into the functional currency at the exchange rate when the fair value was determined.
Non monetary assets and liabilities that are measured based on historical cost in a foreign currency are translated at the exchange rate at the date of transaction.
B 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, maximising the use of
relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements
are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
» Level 1 : Quoted (unadjusted) market prices in active markets for identical assets or liabilities
» Level 2 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
» Level 3 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the company determines whether transfers have occurred between levels in
the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting
In estimating the fair value of an asset or a liability, the company uses market observable data to the extent it is available. Where level 1 inputs are not available, the
company engages third party qualified valuers to perform the valuation. Any change in the fair value of each asset and liability is also compared with relevant external
sources to determine whether the change is reasonable.
For the purpose of fair value disclosures, the company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or
liability and the level of the fair value hierarchy as explained above.
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
Financial assets
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, 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.
Subsequent measurement
For purposes of subsequent measurement, a 'financial asset' is measured at the amortised 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 amortised cost using the effective interest rate (EIR) method. Amortised 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 amortisation is included in finance income in
the profit or loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a company of similar financial assets) is primarily derecognised (i e removed from the
Company’s balance sheet) when:
(a) the rights to receive cash flows from the asset have expired, or
(b) the company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delav to
a third party under a 'pass-through' arrangement; and either
(i) the company has transferred substantially all the risks and rewards of the asset, or
(ii) the company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset
When the company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has
retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of
the asset, the company continues to recognise the transferred asset to the extent of the company's continuing involvement. In that case, the company also recognises an
associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the company has retained.
Impairment of financial assets
Tracte receivables consist of large number of customers, spread across geographical areas. Majority of the customers of the company comprise of Govt agencies, with
whom the company does not perceive any credit risk. As regards the customers from private sector, company carries out financial evaluation on regular basis and
provides for any amount perceived as non realisable, in the books of accounts.
In accordance with Ind AS 109, the company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial
assets and credit risk exposure:
(a) Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, deposits and bank balances.
(b) Trade receivables that result from transactions that are within the scope of Ind AS 115.
The company follows 'simplified approach' for recognition of impairment loss. The application of simplified approach does not require the company to track changes in
credit risk Rather, it recognises impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. For recognition of impairment
loss on other financial assets and risk exposure, the company determines that whether there has been a significant increase in the credit risk since initial recognition.
If credit risk has not increased significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has 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 entitv
reverts to recognising impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12-month ECL is a portion of the
lifetime ECL which results from default events that are possible within 12 months after the reporting date.
ECL is the difference between all contractual cash flows that are due to the company in accordance with the contract and all the cash flows that the entity expects to
receive (i.e., all cash shortfalls), discounted at the original effective interest rate. When estimating the cash flows, an entity is required to consider:
» All contractual terms of the financial instrument (including prepayment, extension and similar options) over the expected life of the financial instrument. However, in rare
cases when the expected life of the financial instrument cannot be estimated reliably, then the entity is required to use the remaining contractual term of the financial
instrument
» Cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms
As a practical expedient, the company uses a provision matrix to determine impairment loss allowance on portfolio of its trade receivables The provision matrix is based
on its historically observed default rates over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical
observed default rates are updated and changes in the forward-looking estimates are analysed.
Investments in equity shares and preference shares of subsidiaries and associates
The company accounts for its investments in equity shares of subsidiaries and associates at cost less accumulated impairment losses (if any) in its financial statements.
Investment in preference shares of subsidiaries, associates and joint ventures are also accounted at cost less accumulated impairment losses if the issuer classifies these
instruments as equity instruments.
Investments in other entities
All Other investments are measured at fair value, with value changes recognised in statement of profit and loss, except for those investments for which the company has
elected to present the value changes in "other comprehensive income". However, dividend on such equity investments are recognised in statement of profit and loss
when the company's right to receive payment is established.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss (“FVTPL”), loans and borrowings, payables, or as derivatives
designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised 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 and derivative financial
instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities designated upon initial recognition as at fair value through profit or 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 risk are recognized in OCI. These gains/ loss are
not subsequently transferred to Statement of Profit or Loss. However, the company may transfer the cumulative gain or loss within equity. All other changes in fair value of
such liability are recognised in the Statement of Profit or Loss. The company has not designated any financial liability as at fair value through profit and loss.
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised 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 amortisation is
included as finance costs in the Statement of Profit and Loss
The company enters into arrangements whereby banks and financial institutions make direct payments to suppliers for raw materials and project materials. The banks and
financial institutions are subsequently repaid by the company at a later date providing working capital timing benefits. These are normally settled within twelve months. The
economic substance of the transaction is determined to be financing in nature and these are recognised as current borrowings. Interest expense on these are recognised
in the finance cost. Payments made by banks and financial institutions to the suppliers is treated as a borrowings and settlement of dues to suppliers by the company is
treated as an operating cash outflow reflecting the substance of the payment. Previous year numbers have been reclassified as necessary.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. An exchange between with a lender of debt
instruments with substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.
Similarly, a substantial modification of the terms of an existing financial liability is accounted for as an extinguishment of the original financial liability and the recognition
of a new financial liability. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in the
Statement of Profit and Loss.
Reclassification of financial assets
The company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which
are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for
managing those assets. Changes to the business model are expected to be infrequent. The company’s senior management determines change in the business model as a
result of external or internal changes which are significant to the company’s operations. Such changes are evident to external parties. 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
reclassification prospectively from the reclassification 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 recognised gains, losses (including impairment gains or losses) or interest.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the Balance Sheet if there is a currently enforceable legal right to offset the recognised
amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
Derivative instruments
The company uses derivative financial instruments, such as forward currency contracts to hedge its foreign currency risks. Such derivative financial instruments are
initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-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 profit or loss.
Changes in the fair value of derivative contracts that economically hedge monetary assets and liabilities in foreign currencies, and for which no hedge accounting is
applied, are recognised in the statement of profit and loss. The changes in fair value of such derivative contracts, as well as the foreign exchange gains and losses relating
to the monetary items, are recognised in the statement of profit and loss
D Property, plant and equipment
i) Recognition and measurement
Items of property, plant and equipment and investment property are measured at cost which includes capitalised borrowing cost less accumulated depreciation and
accumulated impairment losses if any, except for freehold land which is carried at historical cost.
Cost of an item of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts
and rebates, any directly attributable cost of bringing the item to its working condition for its intended use and estimated costs of dismantling and removinq the item and
restoring the site on which it is located.
ii) Subsequent expenditure
Subsequent expenditure relating to property, plant and equipment is capitalized only when it is probable that future economic benefits associated with the expenditure will
flow to the company and the cost of the item can be measured reliably. All other expenses on existing fixed assets, including day-to-day repair and maintenance
expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred.
iii) Depreciation
a) Assets such as freehold land are not depreciated.
b) Other property, plant and equipment are stated at cost less accumulated depreciation and any provision for impairment. Depreciation commences when the assets are
ready for their intended use. Depreciation is calculated on the depreciable amount, which is the cost of an asset less its residual value using the straight line method and
recognised in statement of profit and loss. Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asset on a straight line
basis over its expected useful life. The useful life of the items of Property, plant and equipment estimated by the management for the current and comparative period are
in line with the useful life as per Schedule II of the Companies Act, 2013.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and changes in estimates, if any, are accounted for prospectively.
iv) Gain and loss on disposal of item of PPE
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 net within other income/other expenses in statement of profit and loss. An item of property, plant and equipment and any
significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit and loss when
the asset is derecognised.
v) The residual values, useful lives of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
vi) Investment Property
Investment properties held to earn rentals or for capital appreciation or both are stated in the balance sheet at cost, less any subsequent accumulated depreciation and
subsequent accumulated impairment losses. Subsequent expenditure on major maintenance or repairs includes the cost of the replacement of parts of assets. Where an
asset or part of an asset is replaced and it is probable that future economic benefits associated with the item will be available to the company, the expenditure is
capitalised and the carrying amount of the item replaced is derecognised. All other repairs and maintenance costs are recognised in the statement of profit and loss.
Depreciation is charged on a straight line basis over their estimated useful lives. Any gain or loss on disposal of investment property is determined as the difference
between net disposal proceeds and the carrying amount of the property and is recognised in the statement of profit and loss. Transfer to, or from investment oroDertv is
at the carrying amount of the property. ’
E Intangible assets
i) Recognition and measurement
Costs relating to software, which is acquired, are capitalised and amortised on a straight-line basis over their estimated useful lives in line with Companies Act 2013
ii) Subsequent expenditure
Subsequent expenditure is capitalized only when it increases future economic benefits embodied in the specific asset to which it relates. All other expenditure are charged
to the statement of profit and loss for the period during which such expenses are incurred.
iii) Useful life and residual values are reviewed at the end of each financial year.
F Inventories
Inventories are valued at lower of cost and net realizable value. Raw Materials and other items held for use in the production of inventories are not written down below cost
if the finished products in which they will be incorporated are expected to be sold at or above cost. Cost includes cost of purchase and other costs incurred in brinqinq the
inventories to their present location and condition.
™ 9°0dS 'nCludeS C0St °f direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity, but excluding borrowing
Work-in-progress and finished goods are valued at lower of cost and net realizable value. Cost includes direct materials and labour and a proportion of manufacturing
overheads based on normal operating capacity. Cost of finished goods includes excise duty.
Stores and spares are valued at the lower of cost and net realisable value
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale.
The company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testinq
°'a"a.SSetre'>ulred'the Company estimates the asset's recoverable amount. An asset’s recoverable amount is the higher of an asset's or cash-generating unit's
(CGU) fair va ue less costs of disposal and its value in use. Recoverable amount Is determined for an individual asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets or company's of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount the asset
is considered impaired and is written down to its recoverable amount.
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. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such
transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded
companies or other available fair value indicators. 1
lmt.P?!rmTt l0SSeS’ inC!Udin9 imPairment on inventories, are recognised in the statement of profit and loss. An assessment is made at each reporting date to determine
there ls a"i indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the company estimates the asset’s
or CGU s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's
recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable
amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior periods/
years. Such reversal is recognised in the Statement of Profit and Loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a
revaluation increase.
H Employee benefits
i) Short term employee benefits
Employee benefits payable wholly within twelve months of receiving services are classified as short-term employee benefits. These benefits include salary and waqes
bonus and ex-gratia. The undiscounted amount of short-term employee benefits to be paid in exchange for employee services is recognized as an expense as the related
service is rendered by the employees.
ii) Defined contribution plans
A defined contribution plan is post-employment benefit plan under which an entity pays specified contributions to separate entity and has no obligation to pay any further
amounts. The company makes specified obligations towards employee provident fund and employee state insurance to Government administered provident fund scheme
aad “I scheme which is a defined contribution plan. The company's contributions are recognized as an expense in the statement of profit and loss during the period in
which the employee renders the related service.
iii) Defined benefit plans
The company’s gratuity benefit scheme is a defined benefit plan. The company’s net obligation in respect of a defined benefit plan is calculated by estimating the amount
of future benefit that employees have earned and returned for services in the current and prior periods; that benefit is discounted to determine its present value. The
calculation of company’s obligation under the plan is performed periodically by a qualified actuary using the projected unit credit method.
The discount rates used for determining the present value of the obligation under defined benefit plan are based on the market yields on Government Securities as at the
Balance Sheet date. The company's gratuity scheme is administered by Life Insurance Corporation of India.
When the benefits of the plan are changed or when a plan is curtailed, the resulting change in the benefit that related to past service (‘past service cost’ or 'past service
gam) or the gam or loss on curtailment is recognized immediately in profit or loss. The company recognizes gains or losses on the settlement of a defined benefit plan
when the settlement occurs.
Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and
the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the Balance Sheet with a
corresponding debit or credit to retained earnings through Other comprehensive income (“001”) in the period in which they occur. Remeasurements are not reclassified to
Profit and Loss in subsequent periods
iv) Compensated absences
The employees can carry-forward a portion of the unutilized accrued compensated absences and utilize in future service periods or receive cash compensation on
termination of employment. Since the employee has unconditional right to avail the leave, the benefit is classified as a short term employee benefit. The company records
an obligation for such compensated absences in the period in which the employee renders the services that increase this entitlement. The obligation is measured on the
basis of independent actuarial valuation using the projected unit credit method.
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