Note No. 31: Material Accounting Policies
a. Property, Plant and Equipment
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment loss, if any.
Freehold land is disclosed at cost less impairment, if
any. The cost comprises its purchase price, other non¬
refundable taxes, duties and any directly attributable
costs of bringing the asset to its working condition for its
intended use.
Subsequent expenditure is recognised as an increase in
the carrying amount of the asset when it is probable that
future economic benefits deriving from the cost incurred
will flow to the Company and the cost of the item can be
measured reliably.
The Company identifies and determines cost of each
component of the asset separately, if the component has a
cost which is significant to the total cost of the asset and
has useful life that is materially different from that of the
remaining asset.
The present value of the expected cost for decommissioning
of an asset, if any, after its use is included in the cost of the
respective asset if the recognition criteria for a provision
are met.
The cost of self-constructed assets includes the cost of
material, direct labour, borrowing cost and any other costs
directly attributable to bringing the assets to the location
and condition necessary for it to be capable of operating in
the manner intended by management.
Property, plant and equipment not ready for their intended
use as on the reporting date are disclosed as “Capital
work-in-progress”. Advances given towards acquisition /
construction of property, plant and equipment outstanding
as on the reporting date are disclosed as capital advances
under other non-current assets. Other indirect expenses
incurred related to project, net of income earned during
the project development stage prior to its intended use,
are included in capital work-in-progress.
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. Any gain or loss arising on derecognition of
the asset (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.
b. Intangible Assets
Intangible assets are stated at cost less accumulated
amortisation and impairment loss, if any. The cost
comprises its purchase price, other non- refundable taxes,
duties and any directly attributable costs of bringing the
asset to its working condition for its intended use.
Intangible assets which are not ready for intended use as
on the reporting date are disclosed as “Intangible assets
under development”.
Subsequent expenditure is recognised as an increase in
the carrying amount of the asset when it is probable that
future economic benefits deriving from the cost incurred
will flow to the Company and the cost of the item can be
measured reliably.
Revenue expenditure pertaining to research is charged to
the statement of profit and loss. Development costs of
products are also charged to the statement of profit and
loss unless a product's commercial feasibility has been
established, in which case such expenditure is capitalised.
Intangible asset initially recognised, is derecognised upon
disposal or when no future economic benefits are expected
from its use. Any gain or loss arising on derecognition of
the asset (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.
c. Leases
The Company as a lessee
The Company assesses whether the contract is or contains
a lease, if the contract involves:
• The use of an identified asset,
• The right to obtain substantially all the economic
benefits from use of the identified asset, and
• The right to direct the use of the identified asset.
Lease liabilities
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease
term, with the discount rate determined by reference to
the rate inherent in the lease unless this is not readily
determinable, in which case the Company's incremental
borrowing rate on commencement of the lease is used.
The lease liability is presented separately on the face of
the balance sheet as “Lease liabilities”. The payment of
principal and interest portion of lease liabilities have been
classified within financing activities in the statement of
cash flows.
Right-of-use assets
Right-of-use assets are initially measured at the amount
of the lease liability, reduced for any lease incentives
received, and increased for
• Lease payments made at or before commencement
of the lease
• Initial direct costs incurred and
• The amount of any provision recognised where the
Company is contractually required to dismantle,
remove or restore the leased asset.
Subsequently, the right-of-use assets are measured at
cost less any accumulated depreciation and impairment
losses, if any.
Right-of-use assets are depreciated from the date of
commencement of the lease on a straight line method
over the remaining term of the lease or useful life of the
assets whichever is shorter.
Right-of-use assets are tested for impairment whenever
there is any indication that their carrying amount may not
be recoverable. Impairment loss, if any, is recognised in the
statement of profit and loss.
Modifications to a lease agreement beyond the original
terms and conditions are generally accounted for as a
remeasurement of the lease liability with a corresponding
adjustment to the right-of-use asset. Any gain or loss on
modification is recognised in the statement of profit and loss.
The right of use assets is presented separately on the face
of the balance sheet as “Right-of-use assets”.
d. Inventories
The cost of raw material, packing material, stores and
spares includes purchase price, non-refundable taxes,
duties, freight inward and other costs incurred in bringing
the inventories to their present location and condition.
Trade discounts, rebates and other similar items are
deducted in determining the cost.
The cost of work-in-progress and finished goods includes
all cost of purchases, conversion and other costs incurred
in bringing the inventories to their present location and
condition.
The cost of stock-in-trade includes purchase price, non¬
refundable taxes, duties, freight inward and other costs
incurred in bringing the inventories to their present
location and condition.
Material 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 used are expected to be sold
at or above cost.
Net realisable value is the estimated selling price in the
ordinary course of business, less estimated costs of
completion and other costs necessary to make the sale.
Inventories are valued at the lower of cost and net
realisable value. Cost is determined on moving weighted
average basis.
e. Impairment of Non-Financial Assets
The carrying amount of assets are reviewed at each
reporting date if there is any indication of impairment
based on internal and external factors.
An impairment loss is recognised wherever the carrying
amount of an asset exceeds its recoverable amount. An
asset's recoverable amount is the higher of fair value less
costs of disposal 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. In determining fair value
less cost of disposal, recent market transactions are taken
into account. If no such transaction can be identified, an
appropriate valuation model is used.
A previously recognised impairment loss is further provided
or reversed depending on changes in circumstances.
Where 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 recognised for the asset in prior
periods. A reversal of an impairment loss is recognised as
income immediately.
f. Financial Instruments
Financial assets and financial liabilities are recognised
when a Company becomes a party to the contractual
provisions of the instruments.
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 assets.
These include trade receivables, cash & cash equivalents,
bank balances other than cash & cash equivalents,
investments and other financial assets.
Classification and subsequent measurement
Financial assets are subsequently measured at amortised
cost or fair value through other comprehensive income or
fair value through profit or loss depending on its business
model for managing those financial assets and the asset
contractual cash flow characteristics.
Financial assets at amortised cost
A financial asset is subsequently measured at amortised
cost if it is held within a business model whose objective is
to hold the asset in order to collect contractual cash flows
and the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Financial assets at fair value through other comprehensive
income (FVTOCI)
A financial asset is subsequently measured at fair value
through other comprehensive income if it is held within
a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets
and the contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
The Company may make an irrevocable election to present
subsequent changes in the fair value of equity investment
not held for trading in other comprehensive income.
Financial assets at fair value through profit or loss (FVTPL)
A financial asset which is not classified in any of the above
categories is subsequently measured at fair value through
profit or loss.
Derecognition
The Company derecognises a financial asset only when the
contractual right to the cash flow from the asset expires or
it transfer the financial asset and substantially all the risk
and reward of ownership of the asset to another entity and
does not retain control of the asset.
Impairment of financial assets
Financial assets, other than those at fair value through
profit or loss, are assessed for indicators of impairment at
the end of each reporting period. The Company recognises
a loss allowance for impairment on financial assets. In case
of trade receivables, the Company follows the simplified
approach permitted by Ind AS 109 “Financial Instruments”
for recognition of impairment loss. The application of
simplified approach does not require the Company to
track changes in credit risk. The Company calculates the
impairment loss on trade receivables using a provision
matrix on the basis of its historical credit loss experience.
Financial liabilities
Initial Recognition and Measurement
Financial liabilities include borrowings, lease liability, trade
payables and other financial liabilities.
All financial liabilities are recognised initially at fair value
and in the case of borrowings and trade payables, net of
directly attributable transaction costs.
Classification and subsequent measurement
The financial liabilities are classified as either ‘financial
liabilities at fair value through profit or loss' or ‘financial
liabilities at amortised cost.
Financial liabilities at fair value through profit or loss
Financial liabilities are classified at fair value through profit
or loss if they are held for trading or designated upon initial
recognition as fair value through profit or loss. It includes
derivative financial instruments entered into by the
Company that are not designated as hedging instruments
in hedge relationships. All changes in the fair value of such
liability are recognised in the statement of profit and loss.
Financial liabilities at amortised Cost
Other financial liabilities (including borrowings and trade
payables etc.) are subsequently measured at amortised
cost using effective interest method.
Derecognition
A financial liability is derecognised when the obligation
under the liability is discharged or cancelled or expired.
Any gain or loss arising on derecognition is included in
the statement of profit and loss when the liability is
derecognised.
Offsetting
Financial assets and financial liabilities are offset and the
net amount presented in the balance sheet when, and only
when, the Company currently has a legally enforceable
right to set off the amounts and it intends either to settle
them on a net basis or to realise the asset and settle the
liability simultaneously.
Effective interest method (EIR)
Financial assets and liabilities are subsequently measured
at amortised cost using the effective interest rate 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.
Derivative financial instruments
Initial recognition and subsequent measurement
The Company uses derivative financial instruments, such
as forward currency contracts to hedge its foreign currency
risks. Although these derivatives constitute hedges from
an economic perspective, they do not qualify for hedge
accounting under Ind AS 109 - Financial Instruments and
consequently such derivative financial instruments are
initially recognised at fair value on the date on which a
derivative contract is entered into and are subsequently
remeasured 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 to statement of profit and loss.
Financial liabilities and equity instruments
Classification as debt or equity
Debt and equity instruments issued by the Company
are classified as either financial liabilities or as equity
in accordance with the substance of the contractual
arrangements and the definition of a financial liabilities
and an equity instrument.
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. Equity instruments issued by Company
are recognised at the value of the proceeds. Transaction
costs related to issue of equity instruments is reduced
from equity. Dividend paid on equity instruments is
reduced from equity.
g. Foreign Currency Transactions and Translations
Items included in the financial statements are measured
using the currency of the primary economic environment
in which the Company operates (‘the functional currency').
The Company's financial statements are presented in
Indian rupee (INR) which is also the Company's functional
and presentation currency.
Foreign currency transactions are recorded on initial
recognition in the functional currency, using the exchange
rate between the functional & foreign currency prevailing
at the date of transaction.
Foreign currency denominated monetary assets and
liabilities at the reporting date are translated at the rate
prevailing on reporting date. The difference thereon and
also the exchange difference on settlement of foreign
currency transactions during the year is recognised as
income or expense in statement of profit and loss.
Foreign currency denominated non-monetary assets and
liabilities are carried at historical cost and reported using
the exchange rate at the date of transaction.
h. Cash and Cash Equivalents
Cash and cash equivalents comprise of balances with
banks, cash on hand and short-term deposits with an
original maturity of three months or less, which are subject
to insignificant risk of change in value.
i. Government Grants
Government grants and subsidies are recognised when there
is reasonable assurance that the grant / subsidy will be
received and all attaching conditions will be complied with.
Where the government grant / subsidy relates to revenue,
it is recognised as income on a systematic basis in the
statement of profit and loss over the period necessary to
match them with the related cost, which they are intended
to compensate. Government grant and subsidy receivable
against an expense are deducted from such expense.
Where the grant / subsidy relates to an asset, government
grant and subsidy receivable against an asset are deducted
from the carrying value of such asset. The grant is recognised
as income over the life of a depreciable asset by way of a
reduced depreciation charge.
j. Income Taxes
Income tax expense represents the sum of current and
deferred tax. Tax expense is recognised in the statement
of profit and loss except to the extent that it relates to
items recognised directly in equity or other comprehensive
income, in such case the tax expense is also recognised
directly in equity or in other comprehensive income.
Any subsequent change in income tax on items initially
recognised in equity or other comprehensive income is also
recognised in equity or other comprehensive income, such
change could be for change in tax rate.
Current tax
Current tax is measured at the amount expected to be
paid to or recovered from the tax authorities in accordance
with the provisions of Income Tax Act, 1961 including the
relevant transfer pricing regulations prescribed thereunder,
read with applicable judicial precedents or interpretations,
wherever relevant.
Current tax assets and liabilities are offset when there is a
legally enforceable right to set-off the recognised amounts
and there is an intention to settle the asset and the liability
on a net basis.
Deferred tax
Deferred tax is recognised on temporary differences
between the carrying amount of assets and liabilities in
the balance sheet and the corresponding tax bases used
in the computation of taxable profit and are accounted for
using the balance sheet approach.
Deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are
recognised for all deductible temporary differences and
carry forward tax losses to the extent it is probable that
future taxable profits will be available against which those
deductible temporary differences and carry forward tax
losses can be utilised.
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 liability is settled, based on tax rates and tax
laws that have been enacted or substantially enacted at
the reporting date.
The carrying amount of deferred tax asset is reviewed at
each reporting date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be
available against which the temporary differences can be
utilised.
Deferred tax assets and liabilities are offset when there is
legally enforceable right to set-off current tax assets and
liabilities and when the deferred tax balances relate to the
same taxation authority.
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