3 Summary oF material accounting policies
3.1 Financial assets
(i) Initial recognition and measurement
Financial assets are recognized when the Company becomes a party to
the contractual provisions of the instrument. On initial recognition, a
financial asset is recognized at fair value, in case of financial assets which
are recognized at fair value through profit and loss (FVTPL), its transaction
cost is recognized in the statement of profit and loss. In other cases, the
transaction cost is attributed to the acquisition value of the financial asset.
(ii) Classification and subsequent measurement
The Company classifies financial assets as subsequently measured at
amortised cost, fair value through other comprehensive income (FVTOCI) or
fair value through profit or loss (FVTPL) on the basis of both:
(a) business model for managing the financial assets, and
(b) the contractual cash flow characteristics of the financial asset.
Financial Asset is measured at amortised cost if both of the following
conditions are met:
(i) the financial asset is held within a business model whose objective is to hold
financial assets in order to collect contractual cash flows, and
(ii) 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 asset is measured at fair value through other comprehensive
income (OCI) if both of the following conditions are met:
(i) the financial asset is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling financial
assets, and
(ii) 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 Asset shall be classified and measured at fair value through profit
or loss (FVTPL) unless it is measured at amortised cost or at fair value
through OCI.
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.
(iii) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash on hand, bank
balances and short-term deposits with an original maturity of three months
or less, which are subject to an insignificant risk of changes in value. For the
purpose of the Statement of cash flows, cash and cash equivalents consist
of cash and short-term deposits, as defined above, net of outstanding bank
overdrafts as they are considered an integral part of the Company's cash
management.
(iv) Derecognition
The Company derecognizes a financial asset when the contractual rights to
the cash flows from the financial asset expire, or it transfers the contractual
rights to receive the cash flows from the asset.
(v) impairment oF Financial Asset
The Company assesses at each balance sheet date whether there is objective
evidence that a financial asset or a group of financial assets is impaired. A
financial asset or a group of assets is impaired and impairment losses are
incurred only if objective evidence of impairment as a resuit of one or more
events that occurred after the initial recognition of the asset (a 'loss event')
and that loss event or (events) has an impact on the estimated future cash
flows of the financial asset or group of financial assets that can be reliably
estimated.
Financial assets, other than those at FVTPL, are assessed for indicators of
impairment at the end of each reporting period. In case of trade receivables,
the Company follows the simplified approach permitted by Ind AS 109 -
Financial Instruments- for recognition of impairment loss allowance. The
application of simplified approach does not require the Company to track
changes in credit risk of trade receivable. The Company calculates the
expected credit losses on trade receivables using a provision matrix on the
basis of its historical credit loss experience.
3.2 Financial liabilities
(i) Initial recognition and measurement
A financial liability is recognized when the Company becomes a party to the
contractual provisions of the instrument. Financial liabilities are classified
as measured at amortized cost or FVTPL. A financial liability is classified
as at FVTPL if it is classified as held for trading, or it is a derivative or it is
designated as such on initial recognition.
(ii) Subsequent measurement
Financial liabilities at FVTPL are measured at fair value and net gains and
losses, including any interest expense, are recognized in profit or loss. Other
financial liabilities are subsequently measured at amortized cost using the
effective interest method. Interest expense and foreign exchange gains and
losses are recognized in profit or loss.
(iii) Derecognition
A financial liability is derecognized when the obligation specified in the
contract is discharged, cancelled or expires. The difference between the
carrying amount of the financial liability de-recognised and the consideration
paid and payable is recognised in the statement of profit and loss.
(iv) 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 definitions of a financial liability and an
equity instrument as laid down in Ind AS 109 Financial instruments.
3.3 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 recognized amounts and there is an intention to settle on a net
basis, to realize the assets and settle the liabilities simultaneously.
3.4 Property, Plant and Equipment ('PPE') and Capital Work in Progress
(i) Recognition and measurement
Property, plant and equipment are initially recognised at cost. The initial cost
of Property, plant and equipment comprises its purchase price, including
non-refundable duties and taxes net of any trade discounts and rebates.
The cost of Property, plant and equipment includes interest on borrowings
(borrowing cost) directly attributable to acquisition, construction or
production of qualifying assets. Subsequent to initial recognition, Property,
plant and equipment are stated at cost less accumulated depreciation (other
than freehold land, which are stated at cost) and impairment losses, if any.
Subsequent costs are included in the asset's carrying amount or recognised
as a separate asset, as appropriate, 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.
Assets held under finance leases are depreciated over their expected
useful lives on the same basis as owned assets. However, when there is no
reasonable certainty that ownership will be obtained by the end of the lease
term, assets are depreciated over the shorter of the lease term and useful
lives. The residual values, useful life and depreciation method are reviewed
at each financial year-end to ensure that the amount, method and period
of depreciation are consistent with previous estimates and the expected
pattern of consumption of the future economic benefits embodied in the
items of property, plant and equipment.
An item of property, plant and equipment is derecognised 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 disposal or retirement of an item
of property, plant and equipment is determined as the difference between
sales proceeds and the carrying amount of the asset and is recognised in
profit or loss. Fully depreciated assets still in use are retained in Standalone
financial statements.
Items of property, plant and equipment are measured at cost, less
accumulated depreciation and accumulated impairment losses, if any.
Stores and spares includes tangible items and are expected to be used for a
period more than 1 year.
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.
Any gain or loss on disposal of an item of property, plant and equipment is
recognized in profit or loss.
Plant and Equipment which are not ready for intended use as on the date of
Balance Sheet are disclosed as "Capital work-in-progress".
The residual values, useful lives and method of depreciation of property,
plant and equipment are reviewed at each financial year end and adjusted
prospectively, if appropriate.
(ii) Subsequent expenditure
Subsequent expenditure is capitalized only if 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 entity.
(iii) Depreciation and amortisation
Depreciation on property, plant and equipment is provided using the
Straight line method based on the useful life of the assets as estimated
by the management and is charged to the Statement of Profit and Loss as
per the requirement of Schedule II. The estimate of the useful life of the
assets has been assessed based on technical advice which considered the
nature of the asset, the usage of the asset, expected physical wear and tear,
the operating conditions of the asset, anticipated technological changes,
manufacturers warranties and maintenance support, etc.
Leasehold improvements are amortized over the period of the lease or its
estimated useful life whichever is lower.
Leasehold land is amortized on a straight line basis over the period of lease
(95 years for land at Mahape, 77 years for land at Surat and 71 years for Land
at Ginza Surat).
The Company has used the following useful lives of the property, plant and
equipment to provide depreciation.
(iv) Capital work in progress
PPE 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 reporting date is classified as capital advances under
'other non-current assets' and the cost of assets not put to use before such
date are disclosed under 'Capital work-in-progress'.
3.5 Other intangible assets
(i) Recognition and measurement
Intangible assets acquired separately are measured on initial recognition at
cost.
Other intangible assets are initially measured at cost. Such assets are
recognized where it is probable that the future economic benefits
attributable to the assets will flow to the Company and the cost of the asset
can be measured reliably.
The cost oF an intangible asset comprises:
• its purchase price, including any import duties and other taxes (other than
those subsequently recoverable from the taxing authorities)
• any directly attributable expenditure on making the asset ready for its
intended use.
Intangible assets acquired in a business combination are recognised at fair
value at the acquisition date.
Income and expenses related to the incidental operations, not necessary
to bring the item to be capable of operating in the manner intended by
management, are recognised in the Statement of profit and loss.
Internally generated intangible assets (development costs)
Expenditure on internally developed products is capitalised if it can be
demonstrated that:
(i) It is technically feasible to develop the product for it to be sold
(ii) Adequate resources are available to complete the development
(iii) There is an intention to complete and sell the product
(iv) The Company is able to sell the product
(v) Sale of the product will generate future economic benefits, and
(vi) Expenditure on project can be measured reliably.
Capitalised development costs are amortised over the periods (10 years) the
Company expects to benefit from the products developed. The amortisation
expense is included within the 'depreciation and amortisation expense' in
the standalone statement of profit and loss.
Development expenditure not satisfying the above criteria and expenditure
on the research phase of internal projects are recognised in the standalone
statement of profit and loss as incurred.
The residual values, useful lives and method of amortisation of Other
Intangible assets are reviewed at each financial year end and adjusted
prospectively, if appropriate.
(ii) Subsequent expenditure
After initial recognition, intangible assets are carried at cost less
accumulated amortization and accumulated impairment loss, if any.
Subsequent expenditure is capitalized only when it increases the future
economic benefits embodied in the specific asset to which it relates.
(iii) Amortization
Intangible assets are amortized on a straight line basis over the estimated
useful life. The Company uses a rebuttable presumption that the useful
life of an intangible asset will not exceed ten years from the date when the
asset is available for use. If the persuasive evidence exists to the affect that
useful life of an intangible asset exceeds ten years, the Company amortizes
the intangible asset over the best estimate of its useful life. Such intangible
assets not yet available for use are tested for impairment annually, either
individually or at the cash-generating unit level. All other intangible assets
are assessed for impairment whenever there is an indication that the
intangible asset may be impaired.
The estimated useful life of the assets are as follows:
(iv) Intangible assets under development
Intangibles which are not ready for intended use as on the date of Balance
sheet are disclosed as Intangible assets under development.
Advances paid towards the acquisition of Intangible assets outstanding at
each reporting date is classified as capital advances under 'other non-current
assets' and the cost of assets not put to use before such date are disclosed
under 'Intangible assets under development'.
(v) Non-current assets held for sale
Non-current assets are classified as held for sale when:
(i) They are available for immediate sale
(ii) Management is committed to a plan to sell
(iii) It is unlikely that significant changes to the plan will be made or that the
plan will be withdrawn
(iv) An active programme to locate a buyer has been initiated
(v) The asset or disposal group is being marketed at a reasonable price in
relation to its fair value, and
(vi) A sale is expected to complete within 12 months from the date of
classification.
Non-current assets classified as held for sale are measured at the lower of:
(i) Their carrying amount immediately prior to being classified as held for
sale in accordance with the Company's accounting policy; and
(ii) Fair value less costs of disposal.
Following their classification as held for sale, non-current assets are not
depreciated.
3.6 inventories
Raw materials, packing material, stores and spares have been valued at lower
of cost and net realizable value. However, materials 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 incorporated are expected to be sold
at or above cost. Cost is determined on a FIFO basis.
Work-in-progress and finished goods has been valued at lower of cost and
net realizable value. Cost includes materials and labour and a proportion of
manufacturing overheads based on normal capacity. Cost is determined on
FIFO basis.
Net realizable value is the estimated selling price in the ordinary course of
business, less estimated cost of completion and estimated costs necessary to
make the sale.
3.7 investments
Investments in subsidiaries carried at cost less accumulated impairment
losses, if any. Where an indication of impairment exists, the carrying
amount of the investment is assessed and written down immediately to
its recoverable amount. On disposal of investments in subsidiaries, the
difference between net disposal proceeds and the carrying amounts are
recognized in the Statement of Profit and Loss.
3.8 Revenue From contract with customers
Revenue is recognized to the extent that it is probable that the economic
benefits will flow to the Company and the revenue can be reliably measured.
The Company uses the principles laid down by the Ind-AS 115 to determine
the revenue to be recognized through a five-step approach:
- Identify the contract(s) with customer.
- Identify separate performance obligations in the contract.
- Determine the transaction price.
- Allocate the transaction price to the performance obligations; and
- Recognize revenue when a performance obligation is satisfied.
The Company uses the principles laid down by Ind AS above to recognize
revenue from contracts with customers when it satisfies a performance
obligation by transferring promised goods or services to a customer.
Revenue is recognized to the extent of transaction price allocated to the
performance obligation satisfied. Performance obligation is satisfied at a
point in time when the control of assets (goods or services) is transferred
to a customer. Revenue excludes goods and services tax which is recorded
separately. Revenues are measured at the fair value of the consideration
received or receivable, net of discounts and other indirect taxes.
(i) Sale of goods and Scrap Sales
Revenue from sale of goods is recognised at a point in time when property
in the goods or all significant risks and rewards of their ownership are
transferred to the customer and it is probable that future economic benefits
will flow to the entity. The Company collects applicable taxes on behalf of
the government and therefore, these are not economic benefits flowing to
the Company.
(ii) Rendering of services
The company primarily earns revenue by providing Shipping, Packing,
Storage/Warehousing Charges etc.
3.9 Borrowing cost
Borrowing cost includes interest, amortization of ancillary costs incurred in
connection with the arrangement of borrowings and exchange differences
arising from short term foreign currency borrowings to the extent they are
regarded as an adjustment to the interest cost.
Borrowing costs directly attributable to the acquisition, construction or
production of an asset that necessarily takes a substantial period of time to
get ready for its intended use or sale are capitalized as part of the cost of
the respective asset. All other borrowing costs are expensed in the period in
which they are incurred.
The cost incurred for obtaining financing are deferred and amortised to
interest expense using the effective interest method over the life of the
related financing arrangement.
3.10 Foreign currency transactions
(i) Initial recognition
Foreign currency transactions are recorded in the reporting currency, by
applying to the foreign currency amount the exchange rate between the
reporting currency and the foreign currency at the date of the transaction.
(ii) Conversion
Foreign currency monetary items are translated using the exchange rates
prevailing at the reporting date. Non-monetary items which are carried in
terms of historical cost denominated in a foreign currency are reported using
the exchange rate at the date of the transaction and non-monetary items
which are carried at fair value or other similar valuation denominated in a
foreign currency are reported using the exchange rates that existed when
the values were determined.
(iii) Exchange difference
All exchange differences are accounted for in the Standalone Statement of
Profit and Loss in the period in which they arise.
3.11 Employee benefits
(i) Short-term employee benefits
All employee benefits payable wholly within twelve months of rendering the
service are classified short-term employee benefits and they are recognized
in the year in which the employee renders the related services. For the
amount expected to be paid, the Company recognize an undiscounted
liability if they have a present legal or constructive obligation to pay the
amount as a result of past service provided by employees, and the obligation
can be estimated reliably.
(ii) Post-employment benefits:
Contributions payable to Government administered provident fund scheme,
approved superannuation scheme, which are a defined contribution
schemes, are charged to the standalone statement of profit and loss as
incurred.
The Company's gratuity scheme with Life Insurance Corporation of India
is a defined benefit plan. The Company's net obligation in respect of the
gratuity benefit scheme 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 carried out by an independent actuary at balance sheet
date 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 balance sheet date. When the calculation
results in a benefit to the Company, the recognized asset is limited to the
net total of any unrecognized actuarial losses and past service costs and
the present value of any future refunds from the plan or reductions in
future contributions to the plan. Remeasurements as a result of experience
adjustments and changes in actuarial assumptions are recognised in Other
Comprehensive Income such accumulated re-measurement balances are
never reclassified into the Statement of Profit and Loss subsequently.
(iii) Other long-term employee benefits
Compensated absences which are not expected to occur within twelve
months after the end of the year in which the employee renders the related
services are recognized as a liability at the present value of the estimated
liability for leave as a result of services rendered by employees, which is
determined at each balance sheet date based on an actuarial valuation by an
independent actuary using the projected unit credit method. The discount
rates used for determining the present value of the obligation under other
long term employee benefits, are based on the market yields on Government
of India securities as at the balance sheet date. Re-measurement gains and
losses are recognized immediately in the Statement of profit and loss.
The Company presents the above liability/(asset) as current and non-current
in the balance sheet as per actuarial valuation by the independent actuary.
(iv) Employee Stock Option Plan
Equity-settled plans are accounted at fair value as at the grant date. The
fair value of the share-based option is determined at the grant date using a
market-based option valuation model (Black Scholes Option Valuation Model).
The fair value of the option is recorded as compensation expense amortized
over the vesting period of the options, with a corresponding increase in
Reserves and Surplus under the head Employee Stock Option account. On
exercise of the option, the proceeds are recorded as share capital.
The cumulative expense recognized for equity-settled transactions at each
reporting date until the vesting date reflects the extent to which the vesting
period has expired and the Company's best estimate of the number of equity
instruments that will ultimately vest. The charge or credit to the Statement
of Profit and Loss for a period represents the movement in cumulative
expense recognized as at the beginning and end of that period and is
recognized in employee benefits expense.
Service and non-market performance conditions are not taken into account
when determining the grant date fair value of options, but the likelihood of
the conditions being met is assessed as part of the Company's best estimate
of the number of equity instruments that will ultimately vest.
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