B. Material Accounting Policy Information
bi 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.
Depreciation on additions/ deductions is calculated pro-rata from/ to the Date of additions/ deductions.
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.
bs 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.
bio 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
|