2. Significant accounting policies
A summary of the significant accounting policies
applied in the preparation of the financial statements
is as given below. These accounting policies have been
applied consistently to all the periods presented in the
financial statements.
(A) Property, Plant and Equipment
The cost of property, plant and equipment
comprises its purchase price net of any trade
discounts and rebates, any import duties and other
taxes (other than those subsequently recoverable
from the tax authorities), any directly attributable
expenditure on making the asset ready for its
intended use, including relevant borrowing costs
for qualifying assets and any expected costs of
decommissioning. Expenditure incurred after the
property, plant and equipment have been put
into operation, such as repairs and maintenance,
are charged to the Statement of Profit and Loss
in the year in which the costs are incurred.
Major shut-down and overhaul expenditure is
capitalised as the activities undertaken improves
the economic benefits expected to arise
from the asset.
Property, plant and equipment except freehold
land held for use in the production, supply or
administrative purposes, are stated in the balance
sheet at cost less accumulated depreciation and
accumulated impairment losses, if any.
Property, plant and equipment which are not
ready for intended use as on the date of Balance
Sheet are disclosed as "Capital work-in-progress."
Advances paid towards the acquisition of property,
plant and equipment outstanding at each balance
sheet date is classified as capital advances under
"Other Non-Current Assets"
Subsequent expenditure and componentisation
Parts of an item of PPE having different useful lives
and significant value and subsequent expenditure
on Property, Plant and Equipment arising on
account of capital improvement or other factors
are accounted for as separate components 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.
The carrying amount of any component accounted
for as a separate asset is derecognised when
replaced. All other repairs and maintenance are
charged to profit or loss during the reporting period
in which they are incurred.
Depreciation and useful life
Depreciation is provided on a pro-rata basis on the
straight-line method based on estimated useful
life prescribed under Schedule II to the Companies
Act, 2013. Freehold land is not depreciated.
The Company reviews the residual value, useful
lives and depreciation method annually and, if
expectations differ from previous estimates, the
change is accounted for as a change in accounting
estimate on a prospective basis.
An asset's carrying amount is written down
immediately to its recoverable amount if the
asset's carrying amount is greater than its
estimated recoverable amount.
Derecognition
An item of PPE 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 Statement of Profit and Loss.
(B) Intangible assets
Intangible assets with finite useful lives that
are acquired separately are carried at cost less
accumulated amortisation and accumulated
impairment losses. Amortisation is recognised on
a straight-line basis over their estimated useful
lives. The estimated useful life and amortisation
method are reviewed at the end of each reporting
year, with the effect of any changes in estimate
being accounted for on a prospective basis.
Intangible assets with indefinite useful lives that
are acquired separately are carried at cost less
accumulated impairment losses.
Directly attributable costs that are capitalised as
part of the intangible asset include employee costs
and an appropriate portion of relevant overheads.
Capitalised development costs are recorded as
intangible assets and amortised from the point at
which the asset is available for use.
Useful life and amortisation
Intangible assets with finite useful lives that
are acquired separately are carried at cost less
accumulated amortisation and impairment losses.
Amortisation is recognised on a straight-line basis
over the useful lives of the asset from the date of
capitalisation as below:
> Computer software 6-years
The estimated useful life is reviewed at the
end of each reporting period and the effect
of any changes in estimate is accounted
for prospectively.
Derecognition
Intangible assets are derecognised on disposal, or
when no future economic benefits are expected
from use or disposal. Gains or losses arising from
derecognition of an intangible asset are determined
as the difference between the net disposal
proceeds and the carrying amount The Company
has elected to continue with carrying value of all
its intangible assets recognised as on transition
date, measured as per the previous GAAP and
use that carrying value as its deemed cost as of
transition date.
(C) Impairment
At the end of each reporting year, 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). Where 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. Where a reasonable and consistent basis
of allocation can be identified, corporate assets are
also allocated to individual cash-generating units, or
otherwise they are allocated to the smallest group
of cash-generating units for which a reasonable
and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and
intangible assets not yet available for use are tested
for impairment at least annually, and whenever
there is an indication the asset may be impaired.
Recoverable amount is the higher of fair value
less costs to sell and value in use. 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 for which the estimates
of future cash flows have not been adjusted.
If the recoverable amount of an asset (or
cash-generating unit) is estimated to be less
than its carrying amount, the carrying amount of
the asset (or cash-generating unit) is reduced to
its recoverable amount. An impairment loss is
recognised immediately in the Statement of Profit
and Loss. Goodwill and intangible assets that do
not have definite useful life are not amortised
and are tested at least annually for impairment.
If events or changes in circumstances indicate
that they might be impaired, they are tested for
impairment once again.
(D) Inventories
Raw materials
Raw materials are stated at cost. Raw Material cost
is computed on FIFO basis. Cost of raw materials
and traded goods comprises cost of purchases.
Work in progress and finished goods
Cost of work-in-progress and finished goods
comprises direct materials, direct labour and
an appropriate proportion of variable and fixed
overhead expenditure. Fixed overheads are
allocated on the basis of production of finished
goods. Cost of inventories also include all other
costs incurred in bringing the inventories to their
present location and condition. Costs of purchased
inventory are determined after deducting rebates
and discounts. 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.
Work in Progress and Finished Goods are valued
at lower of cost or net realizable on FIFO basis.
Net realisable value represents the estimated
selling price for inventories less all estimated
costs of completion and costs necessary
to make the sale.
Stores and spares
Inventory of stores and spare parts is valued at
cost or net realisable value, whichever is lower.
Provisions are made for obsolete and non-moving
inventories. Unserviceable and scrap items,
when determined, are valued at estimated net
realisable value.
(E) Revenue recognition
Revenue from sale of goods is recognised when
control of the products being sold is transferred to
our customer and when there are no longer any
unfulfilled obligations. The Company recognises
revenues on sale of products, net of discounts,
sales incentives, rebates granted, returns, sales
taxes/GST and duties. Export incentives are
recognised as income as per the terms of the
scheme in respect of the exports made and
included as part of other operating revenue.
Revenue from sales is recognised when control
of the products has transferred, being when
the products are delivered to the customer, the
customer has full discretion over the channel
and price to sell / consume the products, and
there is no unfulfilled obligation that could affect
the customer's acceptance of the products.
Delivery occurs when the products have been
shipped to the specific location, the risks of
obsolescence and loss have been transferred to the
customer, and either the customer has accepted
the products in accordance with the sales contract
or the acceptance provisions have lapsed.
Sale of services
Income from services rendered is recognised
based on agreements/arrangements with the
customers as the service is performed and there
are no unfulfilled obligations.
Dividend and interest income
Dividend income from investments is recognised
when the shareholder's right to receive
payment has been
established (provided that it is probable that the
economic benefits will flow to the Company and
the amount of income can be measured reliably).
Interest income from a financial asset is recognised
when it is probable that the economic benefits
will flow to the Company and the amount of
income can be measured reliably. Interest income
is accrued on a 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.
Foreign exchange translation
The functional currency of the Company is Indian
Rupees which represents the currency of the
primary economic environment in which it operates.
Foreign currency transactions are translated into
the functional currency using the exchange rates
at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement
of such transactions are generally recognised
in profit or loss. Monetary balances arising from
the transactions denominated in foreign currency
are translated to functional currency using the
exchange rate as on the reporting date. Any gains or
loss on such translation, are generally recognised
in profit or loss.
Exchange differences on monetary items are
recognised in Statement of Profit and Loss in the
year in which they arise.
(F) Income taxes
The income tax expense or credit for the period
is the tax payable on the current period's taxable
income based on the applicable income tax rate for
each jurisdiction adjusted by changes in deferred
tax assets and liabilities attributable to temporary
differences and to unused tax losses.
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 and laws
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. Such deferred tax assets and liabilities
are not recognised if the temporary difference
arises from the initial recognition (other than in
a business combination) of assets and liabilities
in a transaction that affects neither the taxable
profit nor the accounting profit. In addition,
deferred tax liabilities are not recognised if the
temporary difference arises from the initial
recognition of goodwill.
The carrying amount of deferred tax assets is
reviewed at each reporting date and reduced
to the extent that it is no longer probable that
sufficient taxable profit will be available to allow
all or part of the deferred tax asset to be utilised.
Unrecognised deferred tax assets are re-assessed
at each reporting date and are recognised to the
extent that it has become probable that future
taxable profits will allow the deferred tax asset
to be recovered.
Deferred tax assets and liabilities are measured at
the tax rates that are expected to apply in the year
when the asset is realised or the liability is settled,
based on tax rates (and tax laws) that have been
enacted or substantively enacted at the reporting
date. Deferred tax relating to items recognised
outside profit or loss is recognised outside profit
or loss (either in other comprehensive income or
in equity). Deferred tax items are recognised in
correlation to the underlying transaction either in
Other Comprehensive Income or directly in equity.
Deferred tax assets and liabilities are offset when
there is a legally enforceable right to offset current
tax assets and liabilities and when the deferred
tax balances relate to the same taxation authority.
Current tax assets and tax liabilities are offset
where the entity has a legally enforceable right
to offset and intends either to settle on a net
basis, or to realise the asset and settle the liability
simultaneously.
Minimum Alternate Tax (MAT)
Minimum Alternative Tax (MAT) paid in accordance
with the tax laws in India, which gives rise to future
economic benefits in the form of adjustment of
future income tax liability, is considered as an asset
if there is convincing evidence that the Company
will pay normal income tax after the set-off of
previous years Losses, if any. Accordingly, MAT
is recognised as an asset in the balance sheet
when the asset can be measured reliably, and
it is probable that the future economic benefit
associated with it will fructify.
(G) Borrowing costs
Borrowing costs, general or specific, that
are directly attributable to the acquisition or
construction of qualifying assets is capitalised as
part of such assets. A qualifying asset is one that
necessarily takes substantial period 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 asset.
In case if the Company borrows generally and
uses the funds for obtaining a qualifying asset,
borrowing costs eligible for capitalisation are
determined by applying a capitalisation rate to the
expenditures 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.
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