2. MATERIAL ACCOUNTING POLICIES:A. Current and non-current classification
All the 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 the
Schedule III to the Companies Act, 2013.
ASSETS:
An asset is classified as current when it satisfies any
of the following criteria:
a) It is expected to be realised in, or is intended for
sale or consumption in, the Company's normal
operating cycle;
b) It is held primarily for the purpose of being traded;
c) It is expected to be realised within twelve months
after the reporting date; or
d) It is cash or cash equivalent unless it is restricted
from being exchanged or used to settle a liability
for at least twelve months after the reporting date.
ASSETS HELD FOR SALE:
Current assets are classified as held for sale if their
carrying amount will be recovered principally through
a sale transaction rather than through continuing use.
This condition is regarded as met only when the asset
is available for immediate sale in its present condition
subject only to terms that are usual and customary
for sales of such asset and its sale is highly probable.
Management must be committed to the sale, which
should be expected to qualify for recognition as a
completed sale within one year from the date of
classification.
LIABILITIES:
A liability is classified as current when it satisfies any
of the following criteria:
a) It is expected to be settled in the Company's
normal operating cycle;
b) It is held primarily for the purpose of being traded;
c) It is due to be settled within twelve months after
the reporting date; or
d) The Company does not have an unconditional
right to defer settlement of the liability for at
least twelve months after the reporting date.
Terms of a liability that could, at the option of
the counterparty, result in its settlement by the
issue of equity instruments do not affect its
classification.
All other assets/liabilities are classified as non-current.
Based on the nature of products and the time
between the acquisition of assets for processing
and their realisation in Cash or cash equivalents, the
Company has ascertained its normal operating cycle
as 12 months for the purpose of Current/Non-current
classification of assets and liabilities.
B. Property, plant and equipment (PPE)
PPE is recognised 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. PPE is stated at original cost net
of tax/duty credits availed, if any, less accumulated
depreciation and cumulative impairment, if any. For
qualifying assets, borrowing costs are capitalised in
accordance with the Company's accounting policy.
PPE not ready for the intended uses on the date of
the Balance Sheet are disclosed as "capital work-in¬
progress".
Depreciation method is reviewed at each financial year
end to reflect the expected pattern of consumption of
the future economic benefits embodied in the asset.
The estimated useful life and residual values are also
reviewed at each financial year end and the effect of
any change in the estimates of useful life/residual
value is accounted on prospective basis.
Depreciation on additions to/deductions from, owned
assets is calculated pro rata to the period of use.
Depreciation charge for impaired assets is adjusted
in future periods in such a manner that the revised
carrying amount of the asset is allocated over its
remaining useful life.
Assets acquired under leases are depreciated on a
straight line basis over the lease term. Where there is
reasonable certainty that the Company shall obtain
ownership of the assets at the end of the lease term,
such assets are depreciated based on the useful
life prescribed under Schedule II to the Companies
Act, 2013 or based on the useful life adopted by the
Company for similar assets.
Freehold land is not depreciated.
An item of Property, plant and equipment is
derecognised when it is estimated that Company will
not receive future economic benefits from its use or
upon its disposal. Any gains and losses on disposal
of such item of property, plant and equipment are
determined by comparing the proceeds from disposal
with the carrying amount of property, plant and
equipment, and are recognised in the statement of
profit and loss.
C. Depreciation and amortisation:
Depreciation method, estimated useful lives and
residual values are determined based on technical
parameters/assessment, taking into account the
nature of the asset, the estimated usage of the asset,
the operating conditions of the asset, past history
of replacement, anticipated technological changes,
manufacturers warranties and maintenance support,
etc.
The estimated useful life of Property, Plant &
Equipment is aligned to the useful life specified under
Schedule II to the Companies Act, 2013 except useful
life for computing depreciation in following cases:-
The management believes that these estimated useful
lives are realistic and reflect fair approximation of the
period over which the Property, Plant & Equipment are
likely to be used.
Depreciation on additions to property, plant and
equipment is provided on a pro-rata basis from the
date of acquisition or installation, and in the case of
a new project, from the date of commencement of
commercial production.
Depreciation on an item of property, plant and
equipment sold, discarded, demolished or scrapped, is
provided up to the date on which such item of property,
plant and equipment is sold, discarded, demolished or
scrapped.
Capitalised spares are depreciated over their own
estimated useful life or the estimated useful life of the
parent asset whichever is lower.
The Company reviews the residual value, useful lives
and depreciation method annually and, if expectations
differ from previous estimates, the change is
accounted for as a change in accounting estimate on
a prospective basis.
D. Intangible assets
Intangible assets that are acquired by the Company,
that have finite useful lives, are stated at acquisition
cost, net of accumulated amortisation and
accumulated impairment losses, if any.
Subsequent expenditures related to an item of
intangible assets are added to its carrying amount
when it is probable that future economic benefits
deriving from the cost incurred will flow to the
enterprise and the cost of the item can be measured
reliably.
An intangible asset is derecognised when no future
economic benefits are expected from their use or upon
their disposal. Any gains and losses on disposal of
such intangible assets are determined by comparing
the proceeds from disposal with the carrying amount
of intangible assets and are recognised in the
statement of profit and loss.
Finite life intangible assets are amortised on a
straight line basis over the period of their expected
useful lives.
Changes in the expected useful life or the expected
pattern of consumption of future economic benefits
embodied in the asset are considered to modify the
amortisation period or method, as appropriate, and
are treated as changes in accounting estimates. The
amortisation expense on intangible assets with finite
lives is recognised in the Statement of Profit and Loss
unless such expenditure forms part of carrying value
of another asset.
E. Research and development expenditure on new
products:
(i) Expenditure on research is expensed under
respective heads of account in the period in
which it is incurred.
(ii) Development expenditure on new products
is capitalised as intangible asset, if all of the
following can be demonstrated:
A. The technical feasibility of completing the
intangible asset so that it will be available
for use or sale;
B. The Company has intention to complete the
intangible asset and use or sell it;
C. The Company has ability to use or sell the
intangible asset;
D. The manner in which the probable future
economic benefits will be generated
including the existence of a market for
output of the intangible asset or intangible
asset itself or if it is to be used internally, the
usefulness of intangible assets;
E. The availability of adequate technical,
financial and other resources to complete
the development and to use or sell the
intangible asset; and
F. The Company has ability to reliably measure
the expenditure attributable to the intangible
asset during its development.
G. Development expenditure that does not
meet the above criteria is expensed in the
period in which it is incurred.
H. Intangible assets not ready for the intended
use on the date of the Balance Sheet are
disclosed as "intangible assets under
development".
F. Impairment of assets
As at the end of each accounting year, the Company
reviews the carrying amounts of its PPE, investment
property, intangible assets and investments in
subsidiary company to determine whether there is
any indication that those assets have suffered an
impairment loss. If such indication exists, the said
assets are tested for impairment so as to determine
the impairment loss, if any. The intangible assets with
indefinite life are tested for impairment each year.
Impairment loss is recognised when the carrying
amount of an asset exceeds its recoverable amount.
Recoverable amount is determined:
(i) In the case of an individual asset, at the higher of
the net selling price and the value in use; and
(ii) In the case of a cash generating unit (a group
of assets that generates identified, independent
cash flows), at the higher of the cash generating
unit's net selling price and the value in use.
The amount of value in use is determined as the
present value of estimated future cash flows from the
continuing use of an asset and from its disposal at the
end of its useful life. For this purpose, the discount rate
(pre-tax) is determined based on the weighted average
cost of capital of the Company suitably adjusted for
risks specified to the estimated cash flows of the
asset.
For this purpose, a cash generating unit is ascertained
as the smallest identifiable group of assets that
generates cash inflows that are largely independent
of the cash inflows from other assets or groups of
assets.
If recoverable amount of an asset (or cash generating
unit) is estimated to be less than its carrying amount,
such deficit is recognised immediately in the
Statement of Profit and Loss as impairment loss and
the carrying amount of the asset (or cash generating
unit) is reduced to its recoverable amount.
When an impairment loss subsequently reverses, the
carrying amount of the asset (or cash generating unit)
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 is
recognised for the asset (or cash generating unit)
in prior years. A reversal of an impairment loss is
recognised immediately in the Statement of Profit and
Loss.
G. Financial Instruments1. FINANCIAL ASSETS
Financial assets are recognised when the
Company becomes a party to the contractual
provisions of the instrument.
The company has elected to account for its
investments in subsidiaries , associates and joint
operation at cost less impairment loss , (if any)
All other financial assets are recognised at
fair value on initial recognition except trade
receivables which is initially measured at
Transaction Price.
Financial assets are subsequently classified as
measured at:
• Amortised cost
• Fair value through profit and loss (FVTPL)
• Fair value through other comprehensive
income (FVTOCI)
Financial assets are not reclassified subsequent
to their recognition, except if and in the period
the Company changes its business model for
managing financial assets.
Derecognition
The Company derecognises 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.
Impairment of financial assets
The Company recognises loss allowances for
expected credit losses on:
- Financial assets measured at amortised
cost;
At each reporting date, the Company assesses
whether financial assets carried at amortised
cost has impaired and provisions are made for
impairment accordingly. A financial asset is ‘credit
impaired' when one or more events that have a
detrimental impact on the estimated future cash
flows of the financial asset have occurred.
The Company measures loss allowances at an
amount equal to lifetime expected credit losses,
except for the following, which are measured as
12 month expected credit losses:
- Debt securities that are determined to have
low credit risk at the reporting date; and
- Other debt securities and bank balances
for which credit risk (i.e. the risk of default
occurring over the expected life of the
financial instrument) has not increased
significantly since initial recognition.
Loss allowances for trade receivables are always
measured at an amount equal to lifetime expected
credit losses.
12-month expected credit losses are the portion
of expected credit losses that result from default
events that are possible within 12 months after
the reporting date (or a shorter period if the
expected life of the instrument is less than 12
months).
When determining whether the credit risk of
a financial asset has increased significantly
since initial recognition and when estimating
expected credit losses, the Company considers
reasonable and supportable information that
is relevant and available without undue cost
or effort. This includes both quantitative and
qualitative information and analysis, based on the
Company's historical experience and informed
credit assessment and including forward looking
information.
Measurement of expected credit losses
Expected credit losses are a probability-
weighted estimate of credit losses. Credit losses
are measured as the present value of all cash
shortfalls (i.e. the difference between the cash
flows due to the Company in accordance with the
contract and the cash flows that the Company
expects to receive).
Presentation of allowance for expected credit
losses in the balance sheet
Loss allowances for financial assets measured
at amortised cost are deducted from the gross
carrying amount of the assets.
Write-off
The gross carrying amount of a financial asset is
written off (either partially or in full) to the extent
that there is no realistic prospect of recovery.
This is generally the case when the Company
determines that the debtor does not have
assets or sources of income that could generate
sufficient cash flows to repay the amounts
subject to the write-off.
2. FINANCIAL LIABILITIES
Financial liabilities are recognised when the
Company becomes a party to the contractual
provisions of the instrument. Financial liabilities
are initially measured at the amortised cost
unless at initial recognition, they are classified as
fair value through profit and loss.
Financial liabilities are subsequently measured at
amortised cost using the effective interest rate
(EIR) method. Financial liabilities carried at fair
value through profit or loss are measured at fair
value with all changes in fair value recognised in
the Statement of Profit and Loss.
Derecognition
A financial liability is derecognised when the
obligation specified in the contract is discharged,
cancelled or expires.
3. 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.
4. DERIVATIVE FINANCIAL INSTRUMENTS AND
HEDGING ACTIVITIES
A derivative is a financial instrument which
changes value in response to changes in an
underlying asset and is settled at a future date.
Derivatives are initially recognised at fair value
on the date a derivative contract is entered into
and are subsequently re-measured at their fair
value. The method of recognising the resulting
gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the
nature of the item being hedged. The Company
designates certain derivatives as either:
(a) Hedges of the fair value of recognised
assets or liabilities (fair value hedges); or
(b) Hedges of a particular risk associated with
a firm commitment or a highly probable
forecasted transaction (cash flow hedges).
The Company documents at the inception of the
transaction the relationship between hedging
instruments and hedged items, as well as its
risk management objectives and strategy for
undertaking various hedging transactions. The
Company also documents its assessment, both
at hedge inception and on an on-going basis, of
whether the derivatives that are used in hedging
transactions are effective in offsetting changes
in cash flows of hedged items.
Movements in the hedging reserve are accounted
in other comprehensive income and are shown
within the statement of changes in equity. The
full fair value of a hedging derivative is classified
as a non-current asset or liability when the
remaining maturity of hedged item is more than
12 months and as a current asset or liability
when the remaining maturity of the hedged item
is less than 12 months. Trading derivatives are
classified as a current asset or liability.
(a) Fair value hedges
Changes in the fair value of derivatives that
are designated and qualify as fair value
hedges are recorded in the Statement of
Profit and Loss, together with any changes in
the fair value of the hedged asset or liability
that are attributable to the hedged risk.
(b) Cash flow hedges
The effective portion of changes in the fair
value of derivatives that are designated and
qualify as cash flow hedges is recognised
in other comprehensive income. The
ineffective portion of changes in the fair
value of the derivative is recognised in the
Statement of Profit and Loss. Gains or losses
accumulated in equity are reclassified to the
Statement of Profit and Loss in the periods
when the hedged item affects the Statement
of Profit and Loss.
When a hedging instrument expires or
swapped or unwound, or when a hedge
no longer meets the criteria for hedge
accounting, any accumulated gain or loss
existing in statement of changes in equity
is recognised in the Statement of Profit and
Loss
When a forecasted transaction is no longer
expected to occur, the cumulative gains/
losses that were reported in equity are
immediately transferred to the Statement of
Profit and Loss.
H. Borrowing costs
Borrowing costs include interest expense calculated
using the effective interest method (EIR), finance
charges in respect of assets acquired on finance lease
and exchange differences arising on foreign currency
borrowings to the extent they are regarded as an
adjustment to interest costs.
Borrowing costs net of any investment income from
the temporary investment of related borrowings,
which are attributable to the acquisition, construction
or production of a qualifying asset are capitalised/
inventoried as part of cost of such asset till such time
the asset is ready for its intended use or sale.
A qualifying asset is an asset that necessarily requires
a substantial period of time to get ready for its intended
use or sale. All other borrowing costs are recognised in
profit or loss in the period in which they are incurred.
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 contractual terms of the financial
instrument (for example, prepayment, extension,
call and similar options) but does not consider the
expected credit losses.
I. Income tax
Income tax comprises current and deferred tax. It is
recognised in statement of profit or loss except to the
extent that it relates to an item recognised directly in
equity or in other comprehensive income.
CURRENT TAX
Current tax comprises the expected tax payable or
receivable on the taxable income for the year and any
adjustment to the tax payable or receivable in respect
of previous years. The amount of current tax reflects
the best estimate of the tax amount expected to be
paid or received after considering the uncertainty, if
any, related to income taxes. It is measured using tax
rates (and tax laws) enacted or substantively enacted
by the reporting date.
Current tax assets and current tax liabilities are offset
only if there is a legally enforceable right to set off
the recognised amounts, and it is intended to realise
the asset and settle the liability on a net basis or
simultaneously.
DEFERRED TAX
Deferred tax is recognised in respect of temporary
differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
corresponding amounts used for taxation purposes.
Deferred tax is also recognised in respect of carried
forward tax losses and tax credits. Deferred tax is not
recognised for:
- Temporary differences arising on the initial
recognition of assets or liabilities in a transaction
that is not a business combination and that
affects neither accounting nor taxable profit or
loss at the time of transaction;
- Temporary differences related to investment
in subsidiary to the extent that the Company is
able to control the timing of the reversal of the
temporary differences and it is probable that they
will not reverse in the foreseeable future; and
Deferred tax assets are recognised to the extent
that it is probable that future taxable profits will be
available against which the temporary difference
can be utilised. The existence of unused tax losses
is strong evidence that future taxable profit may
not be available. Therefore, in case of a history of
recent losses the Company recognises a deferred tax
asset only to the extent that it has sufficient taxable
temporary differences or there is convincing other
evidence that sufficient taxable profit will be available
against which such deferred tax asset can be realised.
Deferred tax assets-unrecognised or recognised, are
reviewed at each reporting date and are recognised/
reduced to the extent that it is probable/no longer
probable respectively that the related tax benefit will
be realised.
J. Inventories
Inventories are valued at the lower of cost and net
realisable value after providing for obsolesces and
damages as under:
Cost includes cost of purchase and other costs
incurred in bringing the inventories to their present
location and condition. Cost is determined on first in
first out (FIFO) basis.
Net realisable value is the estimated selling price in
the ordinary course of business, less estimated costs
of completion and the estimated costs necessary to
make the sale.
K. Cash and cash equivalents
Cash and bank balances also include fixed deposits,
margin money deposits, earmarked balances with
banks and other bank balances which have restrictions
on repatriation.
Short term and liquid investments being subject to
more than insignificant risk of change in value, are not
included as part of cash and cash equivalents.
L. Statement of Cash Flows
Statement of Cash Flows is prepared segregating
the cash flows into operating, investing and financing
activities.
Cash flow from operating activities is reported using
indirect method, adjusting the profit before tax
excluding exceptional items for the effects of:
(i) Changes during the period in inventories and
operating receivables and payables, transactions
of a non-cash nature;
(ii) Non-cash items such as depreciation, provisions,
unrealised foreign currency gains and losses; and
(iii) All other items for which the cash effects are
investing or financing cash flows. Cash and cash
equivalents (including bank balances) shown
in the Statement of Cash Flows exclude items
which are not available for general use as at the
date of Balance Sheet.
M. Foreign currency translation
(i) The functional currency and presentation
currency of the Company is Indian Rupee.
(ii) Transactions in currencies other than the
Company's functional currency are recorded on
initial recognition using the exchange rate at the
transaction date.
At each Balance Sheet date, foreign currency
monetary items are reported using the closing rate.
Non-monetary items that are measured in terms of
historical cost in foreign currency are not retranslated.
Exchange differences that arise on settlement of
monetary items or on reporting of monetary items at
each Balance Sheet date at the closing spot rate are
recognised in profit or loss in the period in which they
arise except for:
A. Exchange differences on foreign currency
borrowings relating to assets under construction
for future productive use, which are included in
the cost of those assets when they are regarded
as an adjustment to interest costs on those
foreign currency borrowings; and
B. Exchange differences on transactions entered
into in order to hedge certain foreign currency
risks.
N. Employee benefitsI. DEFINED BENEFIT OBLIGATIONS
(a) Post-employment benefits (Gratuity):
The liability recognised in balance sheet in
respect of gratuity (unfunded) is the present
value of defined benefit obligation at the
end of reporting period less fair value of
plan assets. The defined benefit obligation
is calculated annually by actuaries using
projected unit credit method.
Remeasurement actuarial gains and losses
arising from experience adjustments and
changes in actuarial assumptions are
recognised in the period in which they occur,
directly in other comprehensive income.
They are included in retained earnings in the
statement if changes in equity and in the
balance sheet.
(b) other employee benefits:
The liabilities for earned leave are not
expected to be settled wholly within 12
months after the end of the period in which
the employees render the related service.
They are therefore measured as present
value of expected future payments to be
made in respect of services provided by
employees up to the end of reporting period
using the projected unit credit method.
II. DEFINED CONTRIBUTION PLAN:
Company pays contributions to provident fund,
employee pension scheme and employee state
insurance as per statutes/amounts as advised
by the Authorities. The Company has no further
obligations once the contributions have been
paid. The contributions are accounted for as
defined contribution plan and the contributions
are recognised as employee benefit expense
when they are due.
III. SHORT-TERM BENEFITS:
Liabilities for salaries, including non-monetary
benefits that are expected to be settled wholly
within 12 months after the end of reporting period
in which the employees rendered the related
services are recognised in respect of employee's
service up to the end of reporting period and are
measured at the amount expected to be paid
when the liabilities are settled. These liabilities
are presented as current employee benefit
obligations in the balance sheet.
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