3. MATERIAL ACCOUNTING POLICIES
i. Current and 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 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.
ii Property Plant and Equipment
a) Property Plant and Equipment are measured at cost less accumulated
depreciation and impairment losses.
b) The cost of property, plant and equipment includes those incurred
directly for the construction or acquisition of the asset and directly
attributable to bringing it to the location and condition necessary for it to
be capable of operating in the manner intended by the management and
includes the present value of expected cost for dismantling/ restoration
wherever applicable.
c) The cost of major spares is recognised in the carrying amount of the item
of property, plant and equipment in accordance with the recognition
criteria set out in the standard. The carrying amount of the replaced part
is derecognised at the time of actual replacement. The cost of the day-to¬
day servicing of the item are recognised in statement of profit and loss
account.
d) Depreciation on all fixed assets is provided under written down value
method over the useful life of assets specified in Part C of Schedule II to
the Companies Act, 2013 and manner specified therein. Assets costing
less than INR 5,000/- are fully depreciated in the year of purchase.
ii. Intangible Assets
a) Intangible asset is recognised when it is probable that future economic
benefits that are attributable to the asset will flow to the enterprise and
the cost of the asset can be measured reliably. Expenditure incurred for
creating infrastructure facilities where the ownership does not rest with
the Company and where the benefits from it accrue to the Company over a
future period is also considered as intangible asset.
b) New product development expenditure, software licenses, technical know¬
how fee, infrastructure and logistic facilities etc., are recognised as
intangible asset upon completion of development and commencement of
commercial production
c) Intangible assets are stated at cost less accumulated amortization and
impairment. Intangible assets are amortized over their respective individual
estimated useful lives on a straight-line basis, from the date that they are
available for use. The estimated useful life of an identifiable intangible asset is
based on a number of factors including the effects of obsolescence, demand,
competition, and other economic factors (such as the stability of the industry,
and known technological advances), and the level of maintenance expenditures
required to obtain the expected future cash flows from the asset. Amortization
methods and useful lives are reviewed periodically including at each financial
year end.
iii. Inventories
Items of inventories are valued at lower of cost or net realisable value after
providing for obsolescence, if any. Cost of inventories comprises of cost of
purchase, cost of conversion and other costs incurred in bringing them to
their respective present location and condition. Cost of raw material is
determined on FIFO method. Appropriate provisions will be made for non¬
moving / slow-moving items.
iv. Foreign Currency Transactions
a) Transactions relating to non-monetary items and purchase and sale of
goods / services denominated in foreign currency are recorded at the
exchange rate prevailing or a rate that approximates the actual rate on
the date of transaction.
b) Assets and liabilities in the nature of monetary items denominated in
foreign currencies are translated and restated at prevailing exchange
rates as at the end of the reporting period.
c) Exchange differences arising on account of settlement / conversion of
foreign currency monetary items are recognised as expense or income in
the period in which they arise.
d) Foreign currency gains and losses are reported on a net basis.
v. Revenue Recognitions
The Company’s contracts with customers include promises to transfer
multiple products and services to a customer. Revenues from customer
contracts are considered for recognition and measurement when the
contract has been approved, by the parties to the contract, the parties to
contract are committed to perform their respective obligations under the
contract, and the contract is legally enforceable. The Company assesses the
services promised in a contract and identifies distinct performance
obligations in the contract. Identification of distinct performance obligations
to determine the deliverables and the ability of the customer to benefit
independently from such deliverables, and allocation of transaction price to
these distinct performance obligations involves significant judgment.
Fixed-price maintenance revenue is recognized ratably on a straight-line
basis when services are performed through an indefinite number of
repetitive acts over a specified period. Revenue from fixed-price maintenance
contract is recognized ratably using a percentage-of-completion method
when the pattern of benefits from the services rendered to the customer and
Company’s costs to fulfil the contract is not even through the period of the
contract because the services are generally discrete in nature and not
repetitive. The use of method to recognize the maintenance revenues
requires judgment and is based on the promises in the contract and nature
of the deliverables.
The Company uses the percentage-of-completion method in accounting for
other fixed-price contracts. Use of the percentage-of-completion method
requires the Company to determine the actual efforts or costs expended to
date as a proportion of the estimated total efforts or costs to be incurred.
Efforts or costs expended have been used to measure progress towards
completion as there is a direct relationship between input and productivity.
The estimation of total efforts or costs involves significant judgment and is
assessed throughout the period of the contract to reflect any changes based
on the latest available information.
Provisions for estimated losses, if any, on incomplete contracts are recorded
in the period in which such losses become probable based on the estimated
efforts or costs to complete the contract.
vi. Employee Benefits
a) Short term Benefits
All employee benefits falling due wholly within twelve months of
rendering the service are classified as short-term employee benefits. The
cost of the benefits like salaries, wages, medical, short term
compensated absences, bonus, exgratia etc., are recognised as an
expense in the period in which the employee renders the related service.
b) Post-employment benefits
1. Defined Contribution Plans
The contribution paid / payable under provident fund scheme, ESI
scheme, and employee pension scheme is recognised as expenditure
in the period in which the employee renders the related service.
2. Defined Benefit Plans
The Company’s obligation towards gratuity is a defined benefit plan.
As there are frequent changes in workers/employees, the company
record retirement benefits on cash basis.
vii. Borrowing Cost
a) Borrowing costs incurred for obtaining assets which take substantial
period to get ready for their intended use are capitalised to the
respective assets wherever the costs are directly attributable to such
assets and in other cases by applying weighted average cost of
borrowings to the expenditure on such assets.
b) Other borrowing costs are treated as expense for the year.
c) Significant transaction costs in respect of long-term borrowings are
amortised over the tenor of respective loans using effective interest
method.
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