I. Corporate Information

Salona Cotspin Limited ("the Company") is a Public Limited Company incorporated in India under the provisions of the Companies Act, 1956. The address of the Company's registered office and principal place of business is disclosed in the introductory section of the Annual Report.

The equity shares of the Company are listed on the National Stock Exchange of India Limited (NSE).

The Company is engaged in the business of manufacturing and sale of Cotton yarn, Knitted fabrics, and Garments. Its products are marketed in both domestic and international markets.

II. Accounting Policies followed by the Company

(a) Basis of preparation

(i) Compliance with Ind AS

The financial statements have been prepared in accordance with the Indian Accounting Standards (“Ind AS”) as notified under Section 133 of the Companies Act, 2013 (“the Act”), read with the Companies (Indian Accounting Standards) Rules, 2015, as amended, and other relevant provisions of the Act. The accounting policies have been applied consistently to all the periods presented in these financial statements.

(ii) Historical cost convention

These financial statements have been prepared on a historical cost basis, except for certain financial assets and liabilities which have been measured at fair value in accordance with the applicable Ind AS requirements.

(iii) Going Concern

The financial statement have been prepared on a going concern basis, assuming that the company will continue in operational existence for the foreseable future.

(iv) Current and non-current classification

All assets and liabilities have been classified as current or non-current as per the Company’s normal operating cycle and other criteria set out in Schedule III to the Act.

(v) Rounding of amounts

All figures appearing in the financial statements and accompanying notes are rounded off to the nearest Rupee in lakhs, in accordance with the requirements of Schedule III to the Act, unless otherwise stated.

(b) Use of estimates and judgments

The preparation of financial statements in conformity with Ind AS requires management to make estimates, judgements, and assumptions that affect the reported amounts of assets, liabilities, income, expenses, and related disclosures at the reporting date.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized prospectively in the period of revision and in future periods, if relevant.

Judgements and estimates are based on historical experience and other factors, including expectations of future events that are considered reasonable under the circumstances. They reflect conditions existing as at the reporting date and, where applicable, events occurring after the reporting date that provide additional evidence about those conditions. Actual results may differ from these estimates.

(c) Property, Plant and Equipment

Property, Plant and Equipment are carried at cost, net of accumulated depreciation and impairment losses, if any. The historical cost includes all expenditure directly attributable to the acquisition of the asset. Costs

relating to repairs and maintenance are expensed to the Statement of Profit and Loss in the period in which they are incurred.

Capital Work-in-progress:

Assets under construction are recorded as Capital Work in Progress (CWIP) until they are ready for their intended use. When an asset is capable of operating in the manner intended by management, the accumulated cost in CWIP is transferred to the appropriate category within Property, Plant, and Equipment.

Costs (net of any related income) incurred during the commissioning phase are capitalised until commissioning activities are completed and the asset is ready for its intended operational use.

Depreciation - Methods, Estimated Useful Lives and Residual Value

Depreciation on Property, Plant and Equipment is charged on the Straight-Line Method, based on the estimated useful lives of the assets. The Company follows the useful lives prescribed under Schedule II of the Companies Act, 2013, as management considers these to be representative of the expected economic lives of the assets.

Useful life considered for calculation of depreciation for various assets class are as follows-

Residual Value and Useful Life

The residual values of assets are not more than 5% of their original cost. Residual values and useful lives of assets are reviewed at the end of each reporting period and adjusted if necessary.

Disposal of Assets

Gains or losses arising on disposal of assets are determined by comparing the sale proceeds with the carrying amount of the asset. Such gains or losses are recognized in the Statement of Profit and Loss.

(d) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, balances with banks, and short-term deposits with original maturities of three months or less, excluding deposits pledged with government authorities and margin money deposits.

For the purposes of the Statement of Cash Flows, cash and cash equivalents also include bank overdrafts that are repayable on demand and form an integral part of the Company's cash management. Such overdraft arrangements often result in the bank balance fluctuating between being positive and overdrawn.

(e) Inventories

Inventories of finished goods, stock-in-trade, and packing materials are valued at a lower cost and net realizable value. Cost includes the cost of purchase, cost of conversion, and other costs incurred to bring the inventories to their present location and condition. The cost is determined by using the First-in First-out (FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. Provisions are made for obsolete, defective, and slow-moving inventories, where necessary.

(f) Financial assets (I) Classification

The Company classifies its financial assets into the following measurement categories:

1. Financial assets measured at fair value

o Fair Value Through Other Comprehensive Income (FVOCI); or

o Fair Value Through Profit or Loss (FVTPL).

2. Financial assets measured at amortised cost.

The classification of financial assets is based on the Company's business model for managing the asset and the contractual terms of the cash flows. Specifically:

• Financial assets are measured at amortised cost if they are held within a business model whose objective is to hold assets to collect contractual cash flows, and the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest.

• Financial assets that do not meet the criteria for amortised cost measurement are measured at fair value, either through OCI or through profit or loss.

(ii) Measurement

At initial recognition, the Company measures a financial asset at its fair value.

• For financial assets not measured at FVTPL, transaction costs directly attributable to the acquisition are added to the asset's carrying amount.

• For financial assets measured at FVTPL, transaction costs are recognised immediately in the Statement of Profit and Loss.

• Subsequent measurement is determined by the classification of the financial asset:

• Amortised cost: Measured using the effective interest rate method, less impairment losses, if any.

(iii) Impairment of Financial Assets

The Company recognises impairment losses on financial assets measured at amortised cost and debt instruments measured at FVOCI using the Expected Credit Loss (ECL) model, as required by Ind AS 109 Financial Instruments.

(g) Impairment of non-financial assets

Assets that have an indefinite useful life are not amortized but are tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Other non-financial assets are tested for impairment whenever events or changes in circumstances suggest that the carrying amount may not be recoverable.

An impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal and its value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent from the cash inflows of other assets or groups of assets (cash-generating units).

Impairment losses recognized in prior periods are reviewed at each reporting date for any indications that the loss has decreased or no longer exists. If such indications exist, the impairment loss is reversed to the extent that the carrying amount of the asset does not exceed the carrying amount that would have been determined, net of depreciation or amortization, had no impairment loss been recognized.

(h) Segment Reporting

The company has only one segment - “Textile Business”

(i) Provisions and contingent liabilities Provisions

• A provision is recorded when:

1. The company has a present legal or constructive obligation from a past event.

2. It is likely that resources will be needed to settle the obligation.

3. The amount can be reliably estimated.

• Provisions are not created for expected future operating losses.

• The amount of a provision is based on management's best estimate of the cost to settle the obligation, discounted to present value using a pre-tax rate that reflects current market conditions and specific risks.

• Any increase in the provision due to the passage of time is recorded as interest expense.

Contingent Liabilities

• A contingent liability is disclosed (but not recorded) when:

• There is a possible obligation from a past event, confirmed only by uncertain future events outside the company's control, or

• There is a present obligation, but the amount cannot be measured reliably, or it is not probable that resources will be needed.

• Contingent liabilities are shown in the notes to the financial statements, not in the balance sheet.

(j) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are exclusive of Goods and Services Tax (GST) and are presented net of returns, trade allowances, rebates, discounts, and value-added taxes.

The Company recognises revenue when:

• The amount of revenue can be measured reliably.

• It is probable that future economic benefits will flow to the Company; and

• The specific recognition criteria for each of the Company's activities, as described in the relevant sections below, are met.

Revenue from the sale of goods is recognised when control of the goods has transferred to the customer, which generally occurs on delivery or as otherwise specified in the sales agreement.

The Company has applied the revenue recognition standard retrospectively, with the cumulative effect of initial application recognised as an adjustment to the opening balance of retained earnings at the date of initial application. Comparative figures have not been restated.

(k) Sale of goods :

The Company's primary source of revenue is from the sale of yarn, fabrics, and garments. The Company has evaluated its revenue recognition practices in accordance with the principles prescribed under Ind AS 115 and concluded that no changes are required to the existing methodology.

• Domestic Sales: For sales to domestic customers, where goods are sold on an ex-factory basis, revenue is recognized at the point in time when control of goods passes to the customer—i.e., when goods are dispatched from the factory gate.

• Franchisee Outlet Sales: For sales through franchisee outlets, revenue is recognized upon sale of goods to the end customers, as this is the point at which the performance obligation is satisfied.

• Export Sales: For export transactions, revenue is recognized on the shipment date, being the point in time when the performance obligation is fulfilled, and control of goods passes to the customer in accordance with the agreed Incoterms.

This policy ensures that revenue is recognized only when control of the goods has been transferred to the customer, and the performance obligations under the contract have been satisfied.

(l) Other operating revenue - Export incentives

Export incentives under various Government schemes, such as RoDTEP, and other applicable schemes, are recognized as income in the year in which the exports are made, provided there is reasonable certainty of compliance with the relevant scheme conditions and of ultimate realization of the benefits. Such incentives are initially recorded as receivable at the time of export and adjusted upon receipt of the actual benefit.

(m) Employee benefits

(I) Short-term Employee Benefits

Short-term employee benefit obligations include wages, salaries, and other non-monetary benefits that are expected to be settled wholly within twelve months after the end of the reporting period in which the employees render the related service. Such benefits are recognised as expenses in the period in which the related service is rendered and are measured at the undiscounted amounts expected to be paid when the obligations are settled. The liability for these benefits is presented under current liabilities in the Balance Sheet.

(ii) Post-employment Benefits

a) Defined Contribution Plan

The Company's contribution to the Provident Fund is recognised as an expense in the Statement of Profit and Loss when the services are rendered by the employees. The Company has no further obligations other than the monthly contribution made to the respective statutory authorities.

b) Defined Benefit Plan - Gratuity (Employees)

The liability for gratuity is determined using the projected unit credit method, based on an actuarial valuation carried out at the end of each financial year, in accordance with Ind AS 19 - Employee Benefits. The obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation at the reporting date. Remeasurements, comprising actuarial gains and losses, are recognised immediately in Other Comprehensive Income.

c) Gratuity - Working Directors

Gratuity payable to working directors is determined in accordance with the formula prescribed under the Payment of Gratuity Act, 1972. Such obligations are unfunded and are recognised as a provision in the financial statements based on the liability ascertained at the reporting date.

(n) Foreign currency transactions and transitions

1. Functional and presentation currency

• The company keeps its books and prepares financial statements in Indian Rupees (INR).

• INR is both the “functional currency” (the currency in which day-to-day operations are measured) and the “presentation currency” (the currency in which financial statements are published).

2. Transactions in foreign currencies

• When the company buys or sells in foreign currencies, it records the transaction at the exchange rate on the date of the transaction.

• If later, payment is made or received, any gain or loss due to the difference between the rate at transaction date and the rate at settlement date is recorded in the Statement of Profit and Loss.

3. Year-end treatment of foreign currency balances

• Any foreign currency receivables, payables, loans, or other monetary balances still outstanding at the financial year-end are converted into INR at the year-end exchange rate.

• The resulting exchange difference (gain or loss) is recognized immediately in the Statement of Profit and Loss.

(o) Income tax

Income tax expense comprises current and deferred tax.

Current tax is the expected tax payable or receivable on the taxable income for the year, using the tax rates and laws enacted or substantially enacted at the reporting date, and includes any adjustments to tax payable in respect of previous years.

Deferred tax is recognized using the liability method on all temporary differences between the carrying amounts of assets and liabilities in the financial statements and their corresponding tax bases. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available for utilization. Deferred tax is measured at the tax rates and laws that have been enacted or substantially enacted by the reporting date.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same authority.

Current and deferred tax relating to items recognized in Other Comprehensive Income or directly in equity are recognized in the same place.

Minimum Alternate Tax (MAT) credit is recognized as a deferred tax asset when there is convincing evidence of realization during the specified period and is reviewed at each reporting date for recoverability.

(p) Earnings Per Share

Basic earnings per share:

Basic earnings per share is calculated by dividing:

- Earnings per share arrived by dividing the Net Profit after tax attributable to the equity shareholders by the number of equity shares.

Diluted earnings per share: Diluted earnings per share adjust the figures used in the determination of basic earnings per share to considered:

-the after-income tax effect of interest and other financing costs associated with dilutive potential equity shares, and

-the weighted average number of additional equity shares that would have been outstanding assuming the conversion of all dilutive potential equity shares.

(q) Critical estimates and judgements -

The preparation of these financial statements requires management to make certain estimates and apply judgement in selecting and implementing accounting policies. These estimates and assumptions are based on current information and experience, but actual results may differ.

Areas involving significant judgement or complexity, and those where changes in assumptions could have a material impact, are highlighted in the relevant notes to these statements. Each note explains the nature of the estimate, the key assumptions made, and the calculation methods applied.

Fair value measurement

Financial Instrument by category and hierarchy the fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The following methods and assumptions were used to estimate the fair values:

1. Fair value of cash and short-term deposits, trade and other short-term receivables, trade payables, other current liabilities, short term loans from banks and other financial institutions approximate their carrying amounts largely due to short term maturities of these instruments.

2. Financial instruments with fixed and variable interest rates are evaluated by the company based on parameters such as interest rates and individual credit worthiness of the counterparty. Based on this evaluation, allowances are taken to account for expected losses of these receivables. Accordingly, fair value of such instruments is not materially different from their carrying amounts.

The fair values for loans and security deposits were calculated based on cash flows discounted using the current lending rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counter party credit risk.

The fair values of non-current borrowings are based on discounted cash flows using a current borrowing rate. They are classified as level 3 fair values in the fair value hierarchy due to the used of unobservable inputs, including own credit risk.

For financial assets and liabilities that are measured at fair value, the carrying amounts are equal to the fair values.

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: techniques which use inputs that have significant effect on the recorded fair value that are not based on observable market data.

(s) Financial risk management

Credit risk

Credit risk refers to the possibility that a counterparty will fail to meet its obligations under a financial instrument or customer contract, resulting in a financial loss to the company. The Company is exposed to credit risk through its operating activities (primarily trade receivables) and financing activities, including foreign exchange transactions and other financial instruments.

At the time of initial recognition of an asset, the Company assesses the probability of default. This assessment continues on an ongoing basis at each reporting date to determine whether there has been a significant increase in credit risk since initial recognition. The evaluation invloves comparing the risk of default at the reporting date with the risk of default at the date of initial recognition, while considering reasonable and supportable forward-looking information such as:

i) Actual or expected significant adverse changes in the business,

ii) Actual or expected significant changes in the counterparty’s operating results,

iii) Financial or economic conditions likely to cause a significant deterioration in the counterparty’s ability to meet its obligations,

iv) A Significant increase in credit risk on other financial instruments held by the same counterparty,

Financial assets are written off when there is no reasonable expectation of recovery - for example, when a debtor fails to engage in a repayment plan with the Company.

(t) Trade Receivables Customer Credit Risk Management

The Company manages customer credit risk in accordance with established policies, procedures, and controls. Trade receivables are non-interest-bearing and are generally subject to credit terms ranging from 7 to 180 days. Credit limits are determined for all customers based on internal rating criteria, and outstanding receivables are regularly monitored. The Company has no significant concentration of credit risk, as its customer base is widely distributed across different economic sectors and geographic regions.

An impairment assessment is performed at each reporting date, individually for major customers and collectively for groups of smaller receivables with similar risk characteristics. The collective assessment is based on historical loss experience. The maximum exposure to credit risk at the reporting date equals the carrying amount of each class of financial assets. The Company does not hold collateral against these receivables. Management considers the concentration of credit risk to be low, given that customers operate in diverse jurisdictions, industries, and largely independent markets.