B. Material Accounting Policy Information
B1 INCOME RECOGNITION
a. Revenue from Contracts with customers:
Revenue from contracts with customers is accounted for and recognized, observing the provisions of Ind
AS 115 “Revenue from Contracts with Customers”.
The Company derives revenue primarily from the sale of goods to the Customer. To recognize the
revenue, the Company applies the following five steps approach:
(1) Identify the contract with a customer: The Company observes the following criteria:
a) Parties to the contract have approved the contract.
b) Parties are committed to performing their respective obligations.
c) Each party’s rights and payment for the contract are identified.
d) A contract has commercial substance.
e) Probable collection of the consideration by the entity.
(2) Identify the performance obligations in the contract: The Company assesses its promise to
transfer goods to a customer to identify separate performance obligations. The Company applies
judgment to determine whether each good promised to a customer is capable of being distinct, and
is distinct in the context of the contract, if not, the promised goods are combined and accounted as
a single performance obligation.
(3) Determine the transaction price: The transaction price is fixed and determined based on the
terms of the contract and the Company’s customary practice and any consideration payable to the
customers including cash amounts, credits, rebates, and other similar allowances is reduced from
the transaction price.
(4) Allocate the transaction price to the performance obligation in the contract. The Company
allocates the transaction price to each performance obligation identified in a contract on a relative
stand-alone selling price basis.
(5) Recognize revenue when a performance obligation is satisfied: Revenue is recognized when (or
as) the Company satisfies a performance obligation by transferring promised goods or services to
a customer (customer obtains control). For each performance obligation, The Company determines
the performance obligation at a point in time when all the following conditions are satisfied:
1. The Company has a present right to pay for the goods.
2. The Customer has a legal title to the goods.
3. The Company has transferred physical possession of the goods.
4. Customer has significant risk and reward of ownership.
5. Customer has accepted the goods.
b. Other Income:
Dividend income from investments is recognized when the company’s right to receive payment has
been established.
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
B2 PROPERTY, PLANT AND EQUIPMENT (PPE)
Property, plant, and equipment (including furniture, fixtures, vehicles, etc.) held for use in the production
or supply of goods or services, or administrative purposes, are stated in the balance sheet at cost less
accumulated depreciation and accumulated impairment losses. The cost of acquisition is inclusive of
freight, duties, taxes, and other incidental expenses. Freehold land is not depreciated.
Management has reviewed the depreciation policy and machineries have been depreciated accordingly.
Properties in the course of construction for production, supply, or administrative purposes are carried at
cost, less any recognized impairment loss. Cost includes items directly attributable to the construction
or acquisition of the item of property, plant, and equipment, and, for qualifying assets, borrowing costs
capitalized by the Company’s accounting policy. Such properties are classified into the appropriate
categories of property, plant, and equipment when completed and ready for intended use. Depreciation
of these assets, on the same basis as other property assets, commences when the assets are ready for
their intended use.
Depreciation is recognized to write off the cost of assets (other than freehold land and properties
under construction) less their residual values over their useful lives, using the straight-line method.
Depreciation is charged on a pro-rata basis at the straight-line method over estimated economic useful
lives of its property, plant, and equipment generally per that provided in Schedule II to the Act.
Depreciation of an asset begins when it is available for use. Depreciation of an asset ceases at the earlier
of the date that the asset is classified as held for sale (or included in a disposal group that it is classified as
held for sale) per Ind AS 105 and the date that the asset is de-recognized. Therefore, depreciation does
not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated.
However, under usage methods of depreciation, the depreciation charge can be zero while there is no
production.
An item of property, plant, and equipment is derecognized upon disposal. Any gain or loss arising on
the disposal of an item of property plant and equipment is determined as the difference between the
sale proceeds and the carrying amount of the asset and is recognized in the statement of profit and loss.
The estimated useful lives, residual values, and depreciation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
B3 INTANGIBLE ASSETS
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated
amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis
over their estimated useful lives. The estimated useful life and amortization method are reviewed at
the end of each reporting period, 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.
B4 IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS
The carrying amount of assets is reviewed at each Balance Sheet date, to assess, if there is any indication
of impairment based on internal/external factors. An asset is impaired when the carrying amount of the
assets exceeds the recoverable amount. The recoverable amount is the higher of fair value less costs of
disposal and value in use. If the recoverable amount of an asset is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable amount.
An impairment loss is charged to the statement of profit and loss Account in the year in which an asset
is identified as impaired.
When an impairment loss subsequently reverses, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been recognized for the
asset in prior years. A reversal of an impairment loss is recognized immediately in the statement of profit
or loss.
B5 INVENTORY
Inventories are valued at the lower of cost, determined on the weighted average basis and Net Realisable
Value (NRV).
The cost of Finished Goods and Work in Progress comprises raw material, direct labour, another direct
cost, and an appropriate proportion of variable and fixed overhead expenditure, the latter being
allocated based on normal operating capacity. Costs of Inventories also include all the costs incurred
in bringing the inventories to their present location and condition. Costs of purchased inventory are
determined after deducting rebates and discounts. NRV is the estimated selling price in the ordinary
course of business less the estimated costs of completion and estimated cost necessary to make the
sale.
B6 FOREIGN CURRENCY TRANSACTION
In preparing the financial statements of the Company, transactions in currencies other than the
company’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing
at the dates of the transactions. At the end of each reporting period, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences in
monetary items are recognized in statements of profit or loss in the period in which they arise.
Foreign currency derivatives are initially recognized at fair value at the date the derivative contracts
are entered into and are subsequently re-measured to their fair value at the end of each reporting
period. The resulting gain or loss is recognized in the statement of profit or loss immediately unless
the derivative is designated and effective as a hedging instrument, in which event the timing of the
recognition in the statement of profit or loss depends on the nature of the hedging relationship and the
nature of the hedged item.
B7 EMPLOYEE BENEFIT
Company’s contributions paid/ payable during the year to Provident Fund and Employees’ State
Insurance Corporation (ESIC) are recognized in the statement of Profit & Loss Account; Provident
Fund contributions are made to a Trust administered by the company. The interest rate payable to
the members of this trust shall not be lower than the statutory rate of interest declared by the Central
Government under the Employees Provident Fund and Miscellaneous Provisions Act, 1952, and shortfall,
if any, shall be made good by the company. The remaining contributions are made to a Government
Administered Employee Pension Fund towards which the company has no further obligations beyond its
monthly contributions.
Defined benefits and other long-term employee benefits are provided based on the actuarial valuation
made at the end of each financial year. Actuarial gains or losses arising from such valuation are charged
to Other Comprehensive Income in the year in which they arise.
B8 RESEARCH AND DEVELOPMENT EXPENDITURE
Expenditure on research activities is recognized as an expense in the period in which it is incurred
where no internally generated asset can be recognized.
B9 FINANCIAL INSTRUMENT
Financial assets and financial liabilities are recognized when the 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 the statement
of profit or 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 are recognized in the statement of profit or loss.
a. Financial Assets
All recognized financial assets are subsequently measured in their entirety at either amortized cost
or fair value, depending on the classification of the financial assets
Investments in debt instruments that meet the following conditions are subsequently measured at
amortized cost (unless the same are designated as fair value through the statement of profit or loss
(FVTPL)):
• The asset is held within a business model whose objective is to hold assets to collect contractual
cash flows; and
• The contractual terms of the instrument give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Debt instruments that meet the following conditions are subsequently measured at fair value
through other comprehensive income (unless the same are designated as fair value through
profit or loss)
• The asset is held within a business model whose objective is achieved both by collecting
contractual cash flows and selling financial assets; and
• The contractual terms of the instrument give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Debt instruments at FVTPL are a residual category for debt instruments and all changes are
recognized in profit or loss.
Investments in equity instruments are classified as FVTPL unless the Company irrevocably elects
on initial recognition to present subsequent changes in fair value in Other Comprehensive Income
(OCI) for equity instruments that are not held for trading.
Interest income, dividend income, and exchange difference (on debt instrument) on Fair Value
Through Other Comprehensive Income (FVTOCI) debt instruments are recognized in statements of
profit or loss, and other changes in fair value are recognized in OCI and accumulated in other equity.
On disposal of debt instruments FVTOCI the cumulative gain or loss previously accumulated in other
equity is reclassified to statement of profit & loss. However, in the case of equity instruments at FVTOCI
cumulative gain or loss is not reclassified to a statement of profit & loss on disposal of investments.
b. Financial Liabilities and Equity Instruments
(1) Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities
or equity by the substance of the contractual arrangements and the definitions of a financial
liability and an equity instrument.
(2) Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity
after deducting all of its liabilities.
(3) Financial liabilities
All financial liabilities are recognized initially at fair value and, in the case of loans and
borrowings and payables, net of directly attributable transaction costs. The carrying amounts
of financial liabilities that are subsequently measured at amortized cost are determined based
on the effective interest method. Interest expense that is not capitalized as part of the costs of
an asset is included in the ‘Finance Costs’ Line item.
The effective interest method is a method of calculating the amortized cost of a financial liability
and of allocating interest expense over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash payments (including all fees and points paid
or received that form an integral part of the effective interest rate, transaction costs, and other
premiums or discounts) through the expected life of the financial liability.
• Loans and borrowings are subsequently measured at amortized costs using the Effective
Interest Rate method.
• Financial liabilities at fair value through profit or loss (FVTPL) are subsequently measured
at fair value.
• Financial guarantee contracts are subsequently measured at the higher of the amount of
loss allowance determined as per impairment requirements of Ind AS 109 and the amount
recognized less cumulative amortization.
• Financial liability is derecognized when the obligation under the liability is discharged or
canceled or expires.
B10 IMPAIRMENT OF FINANCIAL ASSETS (EXPECTED CREDIT LOSS MODEL)
The Company applies the expected credit loss model for recognizing impairment loss on financial assets
measured at amortized cost, debt instruments at FVTOCI, lease receivables, trade receivables, and other
contractual rights to receive cash or other financial asset and financial guarantees not designated at FVTPL
Expected credit losses are the weighted average of credit losses with the respective risks of default
occurring as the weights. Credit loss is the difference between all contractual cash flows that are due to the
Company under the contract/agreement and all the cash flows that the Company expects to receive (i.e.
all cash shortfalls), discounted at the original effective interest rate. The Company estimates cash flows
by considering all contractual terms of the financial instrument, through the expected life of the financial
instrument.
The Company measures the loss allowance for a financial instrument at an amount equal to the lifetime
expected credit losses if the credit risk on that financial instrument has increased significantly since initial
recognition. If the credit risk has not increased significantly, the Company measures the loss allowance at
an amount equal to 12-month expected credit losses. 12-month expected credit losses are the portion of
the lifetime expected credit losses and represent the lifetime cash shortfalls that will result if the default
occurs within 12 months after the reporting date and thus, are not cash shortfalls that are predicted over
the next 12 months.
When assessing whether there has been a significant increase in credit risk since initial recognition,
the Company uses the change in the risk of a default occurring over the expected life of the financial
instrument instead of a change in the amount of the expected credit loss. To achieve that, the Company
compares the risk of a default occurring on the financial instrument as at the reporting date with the risk
of a default occurring on initial recognition and considers reasonable and supportable information, that
is available without undue cost or effort, that is indicative of significant increases in credit risk since initial
recognition
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