2. MATERIAL ACCOUNTING POLICIES
A. BASIS OF PREPARATION AND MEASUREMENT
The Financial Statement of the Company have been
prepared to comply in all material respects with
the Indian Accounting Standards ("Ind AS”) (date of
adoption 1st April, 2022) as prescribed under Section 133
of the Act read with the Companies (Indian Accounting
Standards) Rules, 2015 (as amended from time to time),
presentation requirements of Division II of Schedule III to
the Act, as applicable to the financial statements and
other relevant provisions of the Act.
The Standalone Financial Statements has been
prepared on the historical cost basis except certain
Financial assets and liabilities which are measured at
fair value and Defined benefit plan.
The Company has prepared the Standalone Financial
Statements on the basis that it will continue to operate
as a going concern.
The preparation of financial statements in conformity
with Ind AS requires management to make judgements,
estimates and assumptions, that affect the application
of accounting policies and the reported amounts of
assets, liabilities, income, expenses and disclosures of
contingent assets and liabilities at the date of these
financial statements and the reported amounts of
revenues and expenses for the year/period presented.
Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on
an ongoing basis.
In particular, information about significant areas
of estimation, uncertainty and critical judgements
in applying accounting policies that have the most
significant effect on the amounts recognised in the
financial statements are disclosed in Note 3 below.
B. REVENUE RECOGNITION.
The Company earns revenue primarily from
Manufacturing of Products and providing Services in
the areas of Power Generation, Power Transmission,
Power Distribution and Power Automation.
Revenue is measured at the amount of transaction
price after taking into account the amount of discounts,
incentives, volume rebates, outgoing taxes on sales.
The specific recognition criteria described below must
also be met before revenue is recognised:
Contract Revenue:
The company earns revenue primarily from
Manufacturing of Products and providing Services in
the areas of Power Generation, Power Transmission,
Power Distribution and Power Automation. Revenue
from such contracts is recognized over time because of
the continuous transfer of control to the customer. With
control transferring over time, revenue is recognized
based on the extent of progress towards completion
of the performance obligation. Cost based input
method of progress is used because it best depicts
the transfer of control to the customer that occurs as
costs are incurred.
However, when control of the goods is transferred to the
customer, generally on delivery of the goods and as per
term of agreements/sales order i.e. Ex Works basis or
FOR basis (Free On Road basis), in such cases Revenue
from sale of goods is recognised at a point in time.
No significant element of financing is deemed present
for the sales made with a credit term, which is consistent
with market practice.
Warranty Obligation
The Company typically provides warranties for general
repairs of defects that existed at the time of sale, as
required by law. These assurance-type warranties are
accounted for under Ind AS 37 Provisions, Contingent
Liabilities and Contingent Assets. Refer to the
accounting policy on warranty provisions in section R
'Provisions and Contingencies'.
Duty Drawback and RoDTEP:
Duty drawback and RoDTEP income are recognised
where there is reasonable assurance that the benefit
will be received and all attached conditions will
be complied with. The benefits on account of duty
drawback and RoDTEP are accrued and accounted in
the year of sales and are included in other operating
revenue and the receivables are shown under the head
"Other Current Assets- Others.
Other Income
Revenue in respect of other income is recognised when
no significant uncertainty as to its determination or
realisation exists.
Interest income:
Interest income 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 discounts estimated
future cash receipts through the expected life of the
financial asset to that asset's net carrying amount on
initial recognition. Interest income is included under the
head other income in the statement of profit and loss.
Dividend income
Dividend income is recognised when the company's right
as shareholder to receive the payment is established,
when it is probable that the economic benefits
associated with the dividend will flow to the entity and
the amount of dividend can be reliably measured. This
is generally when company approve the dividend.
Rental Income
Lease income from operating leases where the
Company is a lessor is recognized as income on a
straight line basis over the lease term unless the receipts
are structured to increase in line with expected general
inflation to compensate for the expected inflationary
cost increases. The respective leased assets are
included in the balance sheet based on their nature.
C. CONTRACT BALANCES.
CONTRACT ASSETS
A contract asset is initially recognised for revenue
earned from project business because the receipt of
consideration is conditional on successful completion
of the work. Upon completion of the work and
acceptance by the customer, the amount recognised
as contract assets is reclassified to trade receivables
once the amounts are billed to the customer as per the
terms of the contract. Contract assets are subject to
impairment assessment. Refer to accounting policies
on impairment of financial assets in below section H
Financial instruments -Impairment.
TRADE RECEIVABLES
A receivable represents the Company's right to an
amount of consideration that is unconditional (i.e., only
the passage of time is required before payment of the
consideration is due). Refer to accounting policies of
financial assets in below section H Financial instruments
- initial recognition and subsequent measurement.
CONTRACT LIABILITIES
A contract liability is the obligation to transfer goods
or services to a customer for which the Company has
received consideration (or an amount of consideration is
due) from the customer. If a customer pays consideration
before the Company transfers goods or services to the
customer, a contract liability is recognised when the
payment is made, or the payment is due (whichever is
earlier). Contract liabilities are recognised as revenue
when the Company performs under the contract.
D. PROPERTY, PLANT AND EQUIPMENTS (PPE).
Property, plant and equipment are stated at cost, net of
accumulated depreciation and accumulated impairment
losses, if any. Capital work in progress is stated at cost net
off impairment, if any. Freehold land is stated at cost.
The cost of an item of property, plant and
equipment comprises:
a) its purchase price, including non-refundable
purchase taxes, after deducting trade
discounts and rebates.
b) any costs directly attributable to bringing the
asset to the location and condition necessary for it
to be capable of operating in the manner intended
by the management.
c) the initial estimate of the costs of dismantling
and removing the item and restoring the site on
which it is located.
d) Capitalized borrowing costs
e) Purchased software that is integral to the
functionality of the related equipment is
capitalized as part of that equipment.
If significant parts of an item of property, plant
and equipment have different useful lives, then
they are accounted for as separate items (major
components) of property, plant and equipment and
depreciated accordingly.
All other repair and maintenance costs are recognised
in statement of profit and loss as incurred.
Subsequent expenditure
Subsequent expenditure is capitalised only if it is
probable that the future economic benefits associated
with the expenditure will flow to the Company.
Depreciation methods, estimated useful lives
and residual value
Depreciation is calculated on written down value
method basis using the useful lives as prescribed
under Schedule II to the Companies Act, 2013. If the
management's estimate of the useful life of a property,
plant & equipment at the time of acquisition of the
asset or of the remaining useful life on a subsequent
review is shorter than that envisaged in the aforesaid
schedule, depreciation is provided at a higher rate
based on the management's estimate of the useful life/
remaining useful life.
Depreciation on additions during the year is
provided on pro rata basis with reference to month of
addition/installation.
The residual values are not more than 5% of the original
cost of the asset.
Derecognition
An item of property, plant and equipment and any
significant part initially recognized 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 statement
of profit and loss when the asset is derecognised.
E. INTANGIBLE ASSETS.
Intangible assets are recognised when it is probable
that the future economic benefits that are attributable
to the asset will flow to the Company and the cost of the
asset can be measured reliably. Intangible assets are
stated at original cost net of tax/duty credits availed,
if any, less accumulated amortisation and cumulative
impairment. All directly attributable costs and other
administrative and other general overhead expenses
that are specifically attributable to the acquisition of
intangible assets are allocated and capitalised as a
part of the cost of the intangible assets.
Intangible assets not ready for the intended use on the
date of the Balance Sheet are disclosed as "Intangible
assets under development”
Intangible assets are amortised on written down value
basis over the estimated useful life. The method of
amortisation and useful life are reviewed at the end of
each financial year with the effect of any changes in the
estimate being accounted for on a prospective basis.
F. INVESTMENT PROPERTY.
Recognition and Measurement
Land and Building held to earn rental or for capital
appreciation or both, rather than for use in the
production or supply of goods or services or for
administrative purposes: or sale in the ordinary course
of business is recognised as investment property.
Investment property is measured initially at its cost,
including related transaction costs and where
applicable borrowing costs. Subsequent expenditure is
capitalised to the asset's carrying amount 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 repairs
and maintenance costs are expensed when incurred.
When part of an investment property is replaced, the
carrying amount of the replaced part is derecognised.
The building at Plot J-22, MIDC Kupwad, Sangli, which is
rented to a subsidiary, is shown as Investment Property.
Derecognition
An Investment Property is derecognised upon disposal
or when the investment property is permanently
withdrawn from use and no future economic benefits
are expected from disposal. Any gain or loss on disposal
of an Investment Property is recognised in the Statement
of Profit and loss.
G. IMPAIRMENT OF ASSETS (PPE, Intangible Assets,
Investment Property)
The carrying amount of Intangible assets, investment
property and property, plant and equipment as at the
end of each financial year are reviewed to determine
whether there is any indication that those assets
have suffered an impairment loss if such indication
exists, PPE, investment property and intangible assets
are tested for impairment so as to determine the
impairment loss if any.
Impairment loss is recognised when the carrying
amount of an asset exceeds its recoverable amount.
Recoverable amount is determined as the higher of fair
value less costs to sell and value in use.
H. INVENTORIES.
Raw Materials: Raw Materials are valued at lower of
cost or net realizable value, based on First in First out
method arrived after including Freight inward and other
expenditure directly attribute to acquisition.
Work in Progress and Finished Goods: Work in Progress
and Finished Goods are valued at lower of cost or
net realizable value. Cost of manufactured finished
goods comprises direct material, direct labour and
appropriate proportion of variable and fixed overhead
expenditure, the latter being allocated on the basis of
normal operating capacity.
I. FINANCIAL INSTRUMENTS.
Financial assets and financial liabilities are recognised
when a company becomes 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 and 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 and loss are
recognised immediately in Statement of Profit and Loss.
Transaction cost that are directly attributable to Equity
instrument are deducted from equity. These are not
charged to Profit or Loss. Share issue expenses that are
directly attributable to the issuance of shares (equity
instruments) are deducted from the securities premium.
FINANCIAL ASSETS
a. 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.
b. Subsequent Measurement
All recognised financial assets are subsequently
measured in their entirety at either amortised cost
or fair value, depending on the classification of the
financial assets.
Financial Assets at amortised cost.
Financial assets are subsequently measured at
amortised cost if these financial assets are held
within a business model whose objective is to
hold assets for collecting contractual cash flows
and 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. The losses arising
from impairment are recognised in the statement
of profit and loss. This category generally applies to
trade receivables, loans and other financial assets.
Financial assets at fair value through other
comprehensive income (FCTOCI)
Financial assets are subsequently measured at
fair value through other comprehensive income if
these financial assets are held within a business
model. Fair value movements are recognised in the
other comprehensive income (OCI). However, the
Company recognises interest income, dividend
income, impairment losses and reversals and
foreign exchange gain or loss in the statement of
profit and loss. On de-recognition of the asset,
cumulative gain or loss previously recognised in
OCI is reclassified from the equity to statement of
profit and loss.
Financial assets at fair value through profit
or loss (FVTPL).
FVTPL is a residual category for financial assets.
Any financial assets, which does not meet the
criteria for categorisation as at amortised cost
or as FVTOCI, is classified as at FVTPL. Financial
assets included within the FVTPL category are
measured at fair value with all changes recognised
in the statement of profit and loss.
c. Investments in subsidiaries, joint ventures
and associates.
Investment in subsidiaries, joint ventures and
associates are carried at cost less impairment in
the financial statements.
d. De-recognition.
The Company derecognises a financial asset when
the rights to receive cash flows from the asset
have expired or it transfers the right to receive
the contractual cash flow on the financial assets
in a transaction in which substantially all the risk
and rewards of ownership of the financial asset
are transferred.
FINANCIAL LIABILITIES
a. Initial recognition and measurement.
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss, loans and borrowings,
payables, 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.
b. Subsequent Measurement
The measurement of financial liabilities depends
on their classification, as described below:
Financial Liabilities at fair value through profit
or loss (FVTPL).
Financial liabilities at fair value through profit or
loss include financial liabilities held for trading
and financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Gains or losses on liabilities held for trading are
recognised in the profit or loss.
Financial liabilities at amortised cost.
After initial recognition, interest-bearing loans
and borrowings are subsequently measured at
amortised cost using the EIR(Effective Interest
Rate) method. Gains and losses are recognised
in the statement of profit and loss when the
liabilities are derecognised as well as through the
EIR amortisation process. The EIR amortisation
is included as finance costs in the statement of
profit and loss.
c. Financial guarantee contracts.
Financial guarantee contracts issued by the
Company are those contracts that require a
payment to be made to reimburse the holder for
a loss it incurs because the specified debtor fails
to make a payment when due in accordance with
the terms of a debt instrument. Subsequently,
the liability is measured at the higher of the
amount of loss allowance determined as per
impairment requirements of Ind AS 109 and the
amount recognised less cumulative amount
of income recognised in accordance with the
principles of Ind AS 115.
d. Derecognition.
A financial liability is derecognised 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 de-recognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
statement of profit and loss.
e. 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.
J. IMPAIRMENT.
The Company assessed the expected credit losses
associated with its assets carried at amortised cost
and fair value through other comprehensive income
based on the Company's past history of recovery, credit
worthiness of the counter party and existing and future
market conditions.
For all financial assets other than trade receivables,
expected credit losses are measured at an amount
equal to the 12-month expected credit loss (ECL) unless
there has been a significant increase in credit risk from
initial recognition in which case those are measured
at lifetime ECL. For trade receivables, the Company
has applied the simplified approach for recognition
of impairment allowance as provided in Ind AS 109
which requires the expected lifetime losses from initial
recognition of the receivables.
For contract assets, the Company has applied the
simplified approach for recognition of impairment
allowance as provided in Ind AS 109 which requires the
expected lifetime losses from initial recognition of the
contract assets.
K. BORROWING COSTS.
General and specific borrowing costs that are directly
attributable to the acquisition, construction or
production of a qualifying asset are capitalised during
the period of time that is required to complete and
prepare the asset for its intended use or sale. Qualifying
assets are assets that necessarily take a substantial
period of time to get ready for their intended use or sale.
Interest income earned on the temporary investment
of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs
eligible for capitalisation. Other borrowing costs are
expensed in the period in which they are incurred.
L. CASH AND CASH EQUIVALENTS.
Our cash and cash equivalents consist of cash on hand
and in banks and demand deposits with banks (three
months or less from the date of acquisition). For the
purposes of the cash flow statement, cash and cash
equivalents include cash on hand, in banks and demand
deposits with banks (three months or less from the date
of acquisition), net of outstanding bank overdrafts that
are repayable on demand and are considered part
of our Company's cash management system. In the
statement of assets and liabilities, bank overdrafts are
presented under borrowings within current liabilities.
Deposits with banks with original maturity more than
3 months but less than 12 months are shown in Bank
balances other than cash and cash equivalents.
Margin money deposit is shown in Bank balances other
than cash and cash equivalents.
M. CASH FLOW STATEMENTS.
Cash flows are reported using the indirect method as
per Ind AS 7 Statement of cash flows, whereby net profit
before taxes for the period is adjusted for the effects
of transactions of a non-cash nature, any deferrals or
accruals of past or future operating cash receipts or
payments and item of income or expenses associated
with investing or financing cash flows. The cash flows
from operating, investing and financing activities of the
Company are segregated.
N. EARNINGS PER SHARE (EPS).
a. Basic earnings per share
Basic earnings per share is calculated by dividing:
- the profit attributable to owners
of the company
- by the weighted average number of equity
shares outstanding during the financial
year, adjusted for bonus elements in equity
shares issued and sub-division of face value
of equity shares.
b. Diluted earnings per share
Diluted earnings per share adjusts the figures used
in the determination of basic earnings per share to
take into account:
- the profit attributable to owners
of the company
- the weighted average number of additional
equity shares that would have been
outstanding assuming the conversion of all
dilutive potential equity shares.
O. LEASES.
In accordance with IND AS 116, the Company recognises
a right of use asset and a lease liability at the lease
commencement date. The right of use asset is initially
measured at cost which comprise the initial amount of
lease liability adjusted for any lease payments made
before the commencement date. The right of use asset is
subsequently depreciated using the straight-line method
of the balance lease term. In addition, the right of use
asset is periodically reduced by impairment loss, if any
and adjusted for certain re-measurement of lease liability.
The lease liability is initially measured at the present
value of the lease payments that are not paid at the
commencement date, discounted using the implicit rate
in the lease or the incremental borrowing rate, if that
rate cannot be readily available at the commencement
date of the lease for the estimated term of the obligation.
Lease payments included in the measurement of the
lease liability comprise the amounts expected to be
payable over the period of lease. The lease liability is
measured at amortised cost using effective interest
rate method. It is re-measured when there is a change
in future lease payments arising from change in
the index or rate.
The Company has applied the short-term lease
recognition exemption to its short-term leases (i.e., those
leases that have a lease term of 12 months or less from
the commencement date and do not contain a purchase
option) and low-value assets recognition exemption.
The Company Recognises ROU Asset and Lease
Liability for the Machinery taken on rent by making
suitable assumptions for arriving at lease Liability.
P. EMPLOYEE BENEFIT EXPENSES.
(i) Employment benefits
Short term employee benefits
Short-term employee benefits are expensed as the
related service is provided. A liability is recognised
for the amount expected to be paid 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.
(ii) Post Employment benefits
(a) Defined contribution plans
A defined contribution plan is a post¬
employment benefit plan under which a
Company pays fixed contribution into a
separate entity and will have no legal or
constructive obligation to pay further amounts.
Obligations for contributions to defined
contribution plans are expensed as
the related service is provided. Prepaid
contributions are recognised as an asset to
the extent that a cash refund or a reduction
in future payments is available.
(b) Defined benefit plans
The Companies net obligation in respect
of gratuity is calculated by estimating the
amount of future benefit that employees have
earned in return for their service in the current
and prior periods. That benefit is discounted
to determine its present value, and the fair
value of any plan assets is deducted. The
present value of the obligation under such
defined benefit plan is determined based
on actuarial valuation by an independent
actuary using the Projected Unit Credit
Method, which recognizes each period of
service as giving rise to additional unit of
employee benefit entitlement and measures
each unit separately to build up the final
obligation. The obligation is measured at the
present value of the estimated future cash
flows. 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
reporting date.
Re-measurement of defined benefit plans in
respect of post-employment are charged to
Other Comprehensive Income.
Q. GOVERNMENT GRANTS AND SUBSIDIES
Grants and subsidies from the government are
recognised when there is reasonable assurance that (i)
the Company will comply with the conditions attached
to them, and (ii) the grant / subsidy will be received.
When the grant or subsidy relates to revenue, it is
recognised as income on a systematic basis in the
statement of profit and loss over the periods necessary
to match them with the related costs, which they are
intended to compensate. Where the grant relates to an
asset, it is recognised as deferred income and released
to income in equal amounts over the expected useful
life of the related asset.
When the Company receives grants of non-monetary
assets, the asset and the grant are recorded at fair value
amounts and released to profit or loss over the expected
useful life in a pattern of consumption of the benefit of
the underlying asset i.e. by equal annual instalments.
When loans or similar assistance are provided by
governments or related institutions, with an interest rate
below the current applicable market rate, the effect of
this favourable interest is regarded as a government
grant. The loan or assistance is initially recognised and
measured at fair value and the government grant is
measured as the difference between the initial carrying
value of the loan and the proceeds received. The loan
is subsequently measured as per the accounting policy
applicable to financial liabilities.
R. TAXES.
i. Current income tax
Current income tax assets and liabilities are
measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax
rates and tax laws used to compute the amount are
those that are enacted or substantively enacted,
at the reporting date in the countries where the
company operates and generates taxable income.
Current income tax relating to items recognised
outside profit or loss is recognised outside profit
or loss (either in other comprehensive income
or in equity). Current tax items are recognised in
correlation to the underlying transaction either in
OCI or directly in equity. Management periodically
evaluates positions taken in the tax returns with
respect to situations in which applicable tax
regulations are subject to interpretation and
establishes provisions where appropriate.
ii. Deferred tax (Net)
Deferred income tax is recognised using the
balance sheet approach, deferred tax is
recognised on temporary differences at the
balance sheet date between the tax bases of
assets and liabilities and their carrying amounts
for financial reporting purposes, except when
the deferred income tax arises from the initial
recognition of goodwill or an asset or liability in
a transaction that is not a business combination
and affects neither accounting nor taxable
profit or loss at the time of the transaction.
Deferred income tax assets are recognised for all
deductible temporary differences, carry forward
of unused tax credits and unused tax losses, to the
extent that it is probable that taxable profit will be
available against which the deductible temporary
differences, and the carry forward of unused tax
credits and unused tax losses can be utilised.
The carrying amount of deferred income tax
assets is reviewed at each balance sheet 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 income tax asset
to be utilised.
Deferred income tax assets and liabilities are
measured at the tax rates that are expected to
apply in the period when the asset is realized or the
liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted
at the balance sheet date.
Deferred tax assets and deferred tax liabilities are
offset if a legally enforceable right exists to set off
current tax assets against current tax liabilities
and the deferred taxes relate to the same taxable
entity and the same taxation authority. In view of
the same deferred tax assets and deferred tax
liabilities have been shown separately.
Current and deferred taxes are recognised in the
Statement of Profit and Loss, except when they
relate to items that are recognised outside profit
or loss. In such cases, the tax effects are also
recorded outside profit or loss, either in Other
Comprehensive Income or directly in Equity,
consistent with the underlying transaction or event.
Accordingly:
• Tax on items recognised in Other
Comprehensive Income, such as
remeasurement of defined benefit obligations
or changes in fair value of equity instruments
designated at fair value through OCI, is also
recognised in Other Comprehensive Income.
• Tax on items recognised directly in equity,
such as tax benefits related to share issue
expenses or adjustments on initial recognition
of financial instruments, is recognised
directly in equity.
A deferred tax asset has been recognised on
share issue expenses, as these are allowable
as a deduction over a period of five years
for tax purposes, while the corresponding
expense is adjusted directly against equity for
accounting purposes. The resulting deductible
temporary difference has been recognised as a
deferred tax asset.
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