1: Significant Accounting Policies
a) Basis of preparation:
i) Compliance with Ind AS:
The Financial Statements of the Company have been prepared in accordance with Indian Accounting
Standards (Ind AS) notified under the Companies (Indian Accounting Standards) Rules, 2015, as
amended from time to time, hereinafter referred to as Ind AS.
ii) Historical cost convention:
The Financial Statements have been prepared on a historical cost basis, except for the following:
a. certain financial assets and liabilities that are measured at fair value;
b. assets held for sale - measured at lower of carrying amount or fair value less cost to sell;
c. defined benefit plans - plan assets measured at fair value;
b) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/non-current
classification. An asset is treated as current when it is:
• Expected to be realised or intended to be sold or consumed in normal operating cycle
• Held primarily for the purpose of trading
• Expected to be realised within twelve months after the reporting period, or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least
twelve months after the reporting period.
All other assets are classified as non-current
A liability is current when:
• It is expected to be settled in the normal operating cycle
• It is held primarily for the purpose of trading
• It is due to be settled within twelve months after the reporting period, or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after
the reporting period.
The Company classifies all other liabilities as non-current
Deferred tax assets and liabilities are classified as non-current assets and liabilities. The operating
cycle is the time between the acquisition of assets for processing and their realisation in cash and cash
equivalents.
c) Revenue recognition:
i) Timing of recognition:
Revenue from the works executed is recognised when all the significant risks and rewards of
ownership therein are transferred to the buyer as per the terms of the contract, there is no continuing
managerial involvement with the goods, the amount of revenue can be measured reliably and it is
probable that future economic benefits will flow to the entity and specific criteria have been met for
each of the activities of the Company. This generally happens upon dispatch of the goods to customers,
except for export sales which are recognised when significant risk and rewards are transferred to the
buyer as per the terms of contract.
Eligible export incentives are recognised in the year in which the conditions precedent is met and there
is no significant uncertainty about the collectability.
ii) Measurement of revenue:
Revenue is measured at the fair value of the consideration received or receivable, after the deduction of
any trade discounts, volume rebates and any taxes or duties collected on behalf of the Government
which are levied on sales such as sales tax, value added tax, etc.
Revenue includes excise duty as it is paid on production and is a liability of the manufacturer.
Discounts given include rebates, price reductions and other incentives given to customers. The
Company bases its estimates on historical results, taking into consideration the type of customer, the
type of transaction and the specifics of each arrangement.
The Company recognises provision for sales return, based on the historical results, measured on net
basis of the margin of the sale.
The volume discounts are assessed based on anticipated annual purchases.
Interest Income
For all debt instruments measured at amortised cost, interest income is measured using the effective
interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts
over the expected life of the financial instrument or a shorter period, where appropriate, to the gross
carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating
the effective interest rate, the Company estimates the expected cash flows by considering all the
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contractual terms of the financial instrument (for example, prepayment, extension, call and similar
options) but does not consider the expected credit losses.
Dividends
Revenue is recognised when the Company’s right to receive the payment is established, which is
generally when shareholders approve the dividend.
d) Income taxes:
Income tax expense comprises current and deferred tax. It is recognised in the statement of profit and
loss except to the extent that it relates to a business combination, or items recognised directly in equity
or in OCI.
• Current tax
Current 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 country where the company operates and
generates taxable income. Current tax assets and liabilities are offset only if there is a legally
enforceable right to set it off the recognised amounts and it is intended to realise the asset and settle the
liability on a net basis or simultaneously.
Minimum Alternate Tax (MAT) paid in a year is charged to the statement of profit and loss as current
tax. The company recognises MAT credit available as an asset only to the extent that there is
convincing evidence that the company will pay normal income tax during the specified period, i.e., the
period for which MAT credit is allowed to be carried forward. The company reviews the ‘MAT credit
entitlement’ asset at each reporting date and writes down the asset to the extent the company does not
have convincing evidence that it will pay normal tax during the specified period.
• Deferred tax
Deferred tax is provided using the balance sheet method on temporary differences between the tax base
of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting
date.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in
a transaction that is not a business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss;
Taxable temporary differences arising on the initial recognition of goodwill. Deferred tax assets are
recognised for all deductible temporary differences, the carry forward of unused tax credits and any
unused tax losses. Deferred tax assets are recognised 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, except:
when the deferred tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable profit or loss.
The carrying amount of deferred tax assets is reviewed at each reporting 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 tax asset to be utilised. Unrecognised deferred tax assets are re-assessed at each reporting date
and are recognised to the extent that it has become probable that future taxable profits will allow the
deferred tax asset to be recovered.
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 the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the reporting 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.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss.
Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly
in equity.
e) Leases:
The determination of whether an arrangement is (or contains) a lease is based on the substance of the
arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the
arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right
to use the asset or assets, even if that right is not explicitly specified in an arrangement.
Company as a lessee:
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers
substantially all the risks and rewards incidental to ownership to the company is classified as a finance
lease.
Finance leases are capitalised at the commencement of the lease at the inception date fair value of the
leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are
apportioned between finance charges and reduction of the lease liability to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the
statement of profit and loss.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable
certainty that the company will obtain ownership by the end of the lease term, the asset is depreciated
over the shorter of the estimated useful life of the asset and the lease term.
Operating lease payments are recognised as an expense in the statement of profit and loss on a straight¬
line basis over the lease term, unless the payments are structured to increase in line with expected
general inflation to compensate for the expected inflationary cost increase.
Company as a lessor:
Leases in which the company does not transfer substantially all the risks and rewards of ownership of
an asset are classified as operating leases. Rental income from operating lease is recognised on a
straight-line basis over the term of the relevant lease unless the payments to the lessor are structured to
increase in line with expected general inflation to compensate for the lessor’s expected inflationary
cost increases or another systematic basis is available. Initial direct costs incurred in negotiating and
arranging an operating lease are added to the carrying amount of the leased asset and recognised over
the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the
period in which they are earned.
Leases are classified as finance leases when substantially all of the risks and rewards of ownership
transfer from the company to the lessee. Amounts due from lessees under finance leases are recorded
as receivables at the company’s net investment in the leases. Finance lease income is allocated to
accounting periods to reflect a constant periodic rate of return on the net investment outstanding in
respect of the lease
f) Property, Plant and Equipment
i) Tangible assets:
Freehold land is carried at historical cost. All other items of property, plant and equipment are stated at
acquisition cost net of accumulated depreciation and accumulated impairment losses, if any. Historical
cost includes expenditure that is directly attributable to the acquisition of the items.
Subsequent costs are included in the carrying amount of asset 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. All other repairs and maintenance
expenses are charged to the Statement of Profit and Loss during the period in which they are incurred.
Gains or losses arising on retirement or disposal of assets are recognised in the Statement of Profit and
Loss.
Stand-by equipment and servicing equipment are recognised as property, plant and equipment if they
are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes and are expected to be used during more than one period. Property, plant and
equipment which are not ready for intended use as on the date of Balance Sheet are disclosed as
‘Capital work-in-progress’.
Depreciation on Tangible Fixed Assets is provided on Straight Line Method on the basis of useful life
of assets specified in Part C of Schedule II of the Companies Act, 2013
Based on technical evaluation done by the Chartered Engineer, the management believes that the
useful lives as given above, best represent, the period over which management expects to use these
assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part
C of Schedule II of the Companies Act, 2013.
The residual values are not more than 5% of the original cost of the asset.
The residual values, useful lives and method of depreciation of property, plant and equipment are
reviewed at each financial year end and any changes therein are considered as change in estimate and
accounted prospectively.
ii) Intangible assets:
Intangible assets with finite useful lives that are acquired separately are carried at cost less
accumulated amortisation and accumulated impairment losses.
Intangible Assets having finite useful life are amortised on the straight line method as per following
estimated useful life:
Asset category Estimated useful life
Computer software 3 years
The residual values, useful lives and method of amortisation of intangible assets are reviewed at each
financial year end and any changes there in are considered as change in estimate and accounted
prospectively.
Intangible assets having indefinite useful life are tested for impairment at least once in an accounting
year regardless of indicators of impairment.
iii) Investment Property:
Property that is held for long-term rental yields or for capital appreciation or both, and that is not in use
by the Company, is classified as investment property. Land held for a currently undetermined future
use is also classified as an investment property. Investment property is measured initially at its
acquisition cost, including related transaction costs and where applicable borrowing costs and are
carried at cost less accumulated depreciation and accumulated impairment losses.
iv) Capital WIP:
Expenses incurred during project site mobilisation capitalised and recognised in the books as CWIP
and written of over a period of life of the project.
g) Impairment of fixed assets
The carrying amount of assets are reviewed at each Balance Sheet date to assess if there is any
indication of impairment based on internal/ external factors. An impairment loss on such assessment
will be recognised wherever the carrying amount of an asset exceeds its recoverable amount. The
recoverable amount of the assets is net selling price or value in use, whichever is higher. While
assessing value in use, the estimated future cash flows are discounted to the present value by using
weighted average cost of capital. A previously recognised impairment loss is further provided or
reversed depending on changes in the circumstances and to the extent that carrying amount of the
assets does not exceed the carrying amount that will be determined if no impairment loss had
previouslybeenrecognised.
h) Investments and other financial assets:
Classification:
The Company classifies its financial assets in the following measurement categories:
i) Those to be measured subsequently at fair value (either through Other Comprehensive Income, or
through profit or loss), and
ii) Those measured at amortised cost.
The classification depends on the business model of the entity for managing the financial assets and
the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either
be recorded in profit or loss or Other Comprehensive Income.
For investments in debt instruments, it depends on the business model in which the investment is held.
For investments in equity instruments, it depends on whether the Company has made an irrevocable
election at the time of initial recognition to account for the equity investment at fair value through
Other Comprehensive Income.
Initial recognition and measurement:
Financial assets are recognised when the Company becomes a party to the contractual terms of the
instrument
Transaction Cost
Financial assets are recognised initially at fair value plus/minus , 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. Transaction costs of financial assets carried at fair value through profit or loss are
expensed in the Statement of Profit and Loss.
Subsequent measurement:
After initial recognition, financial assets are measured at:
i) Fair value {either through Other Comprehensive Income (FVOCI) or through profit or loss (FVPL)}
or,
ii) Amortised cost
Debt instruments:
Subsequent measurement of debt instruments depends on the business model of the Company for
managing the asset and the cash flow characteristics of the asset.
There are three measurement categories into which the Company classifies its debt instruments:
Measured at amortised cost:
Debt instruments that are held within a business model whose objective is to hold financial assets in
order to collect contractual cash flows that are solely payments of principal and interest, are
subsequently measured at amortised cost using the Effective Interest Rate (EIR) method less
impairment, if any, the amortisation of EIR and loss arising from impairment, if any is recognised in
Profit or Loss.
Measured at fair value through Other Comprehensive Income (OCI):
Debt instruments that are held within a business model whose objective is achieved by both, selling
financial assets and collecting contractual cash flows that are solely payments of principal and interest,
are subsequently measured at fair value through Other Comprehensive Income. Fair value movements
are recognised in the OCI (net of taxes). Interest income measured using the EIR method and
impairment losses, if any are recognised in Profit or Loss. On derecognition, cumulative gain/ (loss)
previously recognised in OCI is reclassified from the equity to Profit or Loss.
Measured at fair value through profit or loss:
A financial asset not classified as either amortised cost or FVOCI, is classified as FVPL. Such
financial assets are measured at fair value with all changes in fair value, including interest income and
dividend income if any, recognised as other income in Profit or Loss.
Equity instruments:
The Company subsequently measures all investments in equity instruments other than subsidiary
companies, associate company and joint venture company at fair value. The Management of the
Company has elected to present fair value gains and losses on such equity investments in Profit or
Loss. Dividends from such investments continue to be recognised in profit or loss as other income
when the right to receive payment is established. Changes in the fair value of financial assets at fair
value through profit or loss are recognised in Profit or Loss. Impairment losses (and reversal of
impairment losses) on equity investments measured at FVOCI are not reported separately from other
changes in fair value.
Impairment of financial assets:
The Company assesses on a forward looking basis the expected credit losses associated with its
financial assets carried at amortised cost and FVOCI debt instruments. The impairment methodology
applied depends on whether there has been a significant increase in credit risk. For trade and lease
receivable only, the Company applies the simplified approach permitted by Ind AS 109 Financial
Instruments, which requires expected lifetime losses to be
Investments in subsidiary companies, associate company and Joint Venture Company:
Investments in subsidiary companies, associate company and Joint Venture Company are 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 subsidiary companies, associate company and Joint Venture
Company, the difference between net disposal proceeds and the carrying amounts are recognised in
Profit or Loss.
De-recognition:
A financial asset is de-recognised only when
i) The Company has transferred the rights to receive cash flows from the financial asset ,or
ii) Retains the contractual rights to receive the cash flows of the financial asset, but assumes a
contractual obligation to pay the cash flows to one or more recipients
Where the entity has transferred an asset, the Company evaluates whether it has transferred
substantially all risks and rewards of ownership of the financial asset. In such cases, the financial asset
is de-recognised. Where the entity has not transferred substantially all risks and rewards of ownership
of the financial asset, the financial asset is not derecognised. Where the entity has neither transferred a
financial asset nor retains substantially all risks and rewards of ownership of the financial asset, the
financial asset is de-recognised if the Company has not retained control of the financial asset. Where
the Company retains control of the financial asset, the asset is continued to be recognised to the extent
of continuing involvement in the financial asset.
Financial liabilities & Equity instruments:
i)Classification as debt or equity - Financial liabilities and equity instruments issued by the Company
are classified according to the substance of the contractual arrangements entered into and the
definitions of a financial liability and an equity instrument.
ii) Initial recognition and measurement - Financial liabilities are recognised when the Company
becomes a party to the contractual provisions of the instrument. Financial liabilities are initially
measured at the fair value.
iii) Subsequent measurement - Financial liabilities are subsequently measured at amortised cost
using the effective interest rate method. Financial liabilities carried at fair value through profit or loss
is measured at fair value with all changes in fair value recognised in Profit or Loss.
iv) De-recognition - A financial liability is de-recognised when the obligation specified in the contract
is discharged, cancelled or expires.
i) Fair Value Measurement
The Company measures financial instruments, such as Derivatives, at fair value at each balance sheet
date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value measurement
is based on the presumption that the transaction to sell the asset or transfer the liability takes place
either:
• In the principal market for the asset or liability, or
• In the absence of the principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the company. The fair value of
an asset or a liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to
generate economic benefits by using the asset in its highest and best use or by selling it to another
market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the Financial Statements are
categorised within the fair value hierarchy, described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable.
External Valuers are involved for valuation of significant assets such as certain items or property, plant
and equipment. For the purpose of fair value disclosure, the Company has determined classes of assets
and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level
of the fair value hierarchy as explained above.
j) Inventories:
Items of Inventories are valued on the basis given below:
i. Raw materials, packing materials, stores and spares: at cost determined on First - in - First - Out
(FIFO) basis or net realisable value whichever is lower.
ii. Process stock and finished goods: RKEC shall generally not hold the finished works on hand
without billing the same. However, in case such a situation occurs, the finished works are valued at
cost or net realisable values whichever is lower.
Cost comprises cost of purchase, costs of conversion and other costs incurred in bringing the inventory
to its present location and condition.
The net realisable value is the estimated selling price in the ordinary course of business less the
estimated cost of completion and estimated cost necessary to make the sale.
Due allowances are made for slow moving and obsolete inventories based on estimates made by the
Company.
k) Cash and cash equivalents:
Cash and cash equivalents include cash in hand, demand deposits with banks and other short-term
(three months or less from the date of acquisition), highly liquid investments that are readily
convertible into cash and which are subject to an insignificant risk of changes in value.
l) Trade receivable:
Trade receivables are initially recognised at fair value of the revenue. Subsequently, trade receivables
are stated at cost less provision for impairment, if any.
Customer credit risk is managed by the Company’s established policy, procedures and control relating
to customer credit risk management. Credit quality of the customer is assessed and individual limits
are defined in accordance with this assessment. Outstanding customer receivables are regularly
monitored.
The Company applies expected credit losses (ECL) model for measurement and recognition of
provision / loss allowance on the Trade receivables.
As a practical expedient, the Company uses a provision matrix to measure ECL on its portfolio of trade
receivables. The provision matrix is prepared based on historically observed default floating rates over
the expected life of trade receivables and is adjusted for forward-looking estimates. At each reporting
date, the historically observed default rates and changes in the forward-looking estimates are updated.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/
expense in Profit or Loss under the head ‘Other expenses’.
m) Offsetting financial instruments:
Financial assets and liabilities are offset and the net amount is reported in the Balance Sheet where
there is a legally enforceable right to offset the recognised amounts and there is an intention to settle
on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right
must not be contingent on future events and must be enforceable in the normal course of business and
in the event of default, insolvency or bankruptcy of the Company or the counterparty.
n) Derivatives and hedging activities:
The Company enters into derivative financial instruments to hedge its exposure to movements in
interest rates and foreign exchange rates. These are not intended for trading or speculative purposes.
i) Financial assets or financial liabilities, at fair value through profit or loss
This category has derivative financial assets or liabilities which are not designated as hedges. Although
the Company believes that these derivatives constitute hedges from an economic perspective, they may
not qualify for hedge accounting under Ind AS 109, Financial Instruments. Any derivative that is either
not designated a hedge, or is so designated but is ineffective as per Ind AS 109, is categorised as a
financial asset or financial liability, at fair value through profit or loss.
Derivatives not designated as hedges are recognised initially at fair value and attributable transaction
costs are recognised in net profit in Profit or Loss, when incurred. Subsequent to initial recognition,
these derivatives are measured at fair value through profit or loss and the resulting exchange gains or
losses are included in other income. Assets | liabilities in this category are presented as current assets |
current liabilities if they are either held for trading or are expected to be realised within 12 months
after the Balance Sheet date.
o) Government Grants:
Grants, in the nature of interest subsidy under the Technology Upgradation Fund Scheme (TUFs), are
accounted for when it is reasonably certain that ultimate collection will be made. The interest subsidy
is reduced from the interest cost.
p) Borrowings:
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are
subsequently measured at amortised cost. Any difference between the proceeds (net of transaction
costs) and the redemption amount is recognised in profit or loss over the period of the borrowings
using the effective interest method. Fees paid on the establishment of loan facilities are recognised as
transaction costs of the loan to the extent that it is probable that some or all of the facility will be
drawn down.
Borrowings are removed from the Balance Sheet when the obligation specified in the contract is
discharged, cancelled or expired. The difference between the carrying amount of a financial liability
that has been extinguished or transferred to another party and the consideration paid, including any
non-cash assets transferred or liabilities assumed, is recognised in profit or loss as other income
/(expense). Borrowings are classified as current liabilities unless the Company has an unconditional
right to defer settlement of the liability for at least 12 months after the reporting period.
q) 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. Investment 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.
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