2.4 Significant Accounting Policies:
a) Property, Plant and Equipment
Recognition and measurement
Items of property, plant and equipment, other than Freehold Land, are measured at cost
less accumulated depreciation and any accumulated impairment losses. Freehold land is
carried at cost and is not depreciated.
The cost of an item of property, plant and equipment comprises its purchase price,
including import duties and non-refundable purchase taxes, after deducting trade
discounts and rebates, any directly attributable costs of bringing the asset to its working
condition for its intended use and estimated costs of dismantling and removing the item
and restoring the item and restoring the site on which it is located.
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 derecognition of an item of property, plant and equipment is included
in profit or loss when the item is derecognized.
Subsequent expenditure
Subsequent costs are included in the assets carrying amount or recognized as a separate
asset, as appropriate only if it is probable that the future economic benefits associated
with the item will flow to the Company and that the cost of the item can be reliably
measured. The carrying amount of any component accounted for as a separate asset is
derecognized when replaced. All other repair and maintenance are charged to profit and
loss during the reporting period in which they are incurred.
Depreciation
Depreciation on Property Plant and Equipment is provided on Written down Method
(WDV) using the rates arrived at based on the useful lives of the respective assets
prescribed in Schedule II to the Companies Act, 2013. Depreciation on amounts of
additions to fixed assets during the year or on its disposal/ demolition/ destruction of
property plant and equipment during the year is provided on a pro-rata basis as per
Schedule II. As per Note 7 to the Schedule II to the Companies Act, 2013, the carrying
amount of the fixed assets as on 1st April, 2015 has been depreciated over the remaining
useful life of the asset after retaining the residual value. Wherever the remaining useful
life of the asset is NIL as per Schedule II, the carrying amount as on 1st April, 2015 is
recognized in the opening balance of retained earnings. Depreciation methods, useful
lives and residual values are reviewed at each reporting date and adjusted if appropriate.
b) Borrowing Costs
Interest and other borrowing costs attributable to qualifying assets are capitalized. Other
interest and borrowing costs are charged to revenue.
c) Impairment of non-financial assets
An impairment loss is recognized whenever the carrying value of an asset or a cash¬
generating unit exceeds its recoverable amount. The recoverable amount of an asset or a
cash-generating unit is the higher of its fair value less costs of disposal and its value in
use. An impairment loss, if any, is recognized in the Statement of Profit and Loss in the
period in which the impairment takes place. The impairment loss is allocated first to
reduce the carrying amount of any goodwill (if any) allocated to the cash generating unit
and then to the other assets of the unit, pro rata based on the carrying amount of each
asset in the unit.
d) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and
a financial liability or equity instrument of another entity. Financial instruments also
include derivative contracts such as foreign currency foreign exchange forward contracts,
futures and currency options.
Financial assets
Initial recognition and measurement
All financial assets are recognized initially at fair value plus, 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. Purchases or sales of financial assets
that require delivery of assets within a time frame established by regulation or convention
in the market place (regular way trades) are recognized on the trade date, i.e., the date
that the Company commits to purchase or sell the asset.
Subsequent measurement
For the purpose of subsequent measurement, financial assets are classified in four
categories:
• Debt instruments at amortized cost,
• Debt instruments at fair value through other comprehensive income (FVTOCI)
• Debt instruments, derivatives and equity instruments at fair value through profit
(FVTPL)
• Equity instruments measured at fair value through other comprehensive income
(FVTOCI) except unquoted shares.
on the basis of its business model for managing the financial assets and the contractual
cash flow characteristics of the financial asset.
Equity investments
All equity investments within the scope of Ind-AS 109 are measured at fair value. Equity
instruments which are held for trading are classified as FVTPL. For all other equity
instruments, the Company decides to classify the same either as FVTOCI or FVTPL. The
Company makes such elections on an instrument-by-instrument basis. The classification
is made on initial recognition and is irrevocable. If the Company decides to classify an
equity instrument as at FVTOCI, then all fair value changes on the instrument, excluding
dividends, are recognized in the Other Comprehensive Income (OCI). There is no
recycling of the amounts from OCI to profit and loss, even on sale of investment.
However, the Company may transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with
all changes recognized in the profit and loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or a part of a group of
similar financial assets) is primarily derecognized (i.e., removed from the Company’s
balance sheet) when:
The contractual rights to receive cash flows from the financial asset have expired, or The
Company has transferred its rights to receive cash flows from the asset or has assumed an
obligation to pay the received cash flows in full without material delay to a third party
under a ‘pass-through’ arrangement; and either (a) the Company has transferred
substantially all the risks and rewards of the asset, or (b) the Company has neither
transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset. When the Company has transferred its rights to receive
cash flows from an asset or has entered into a pass-through arrangement, it evaluates if
and to what extent it has retained the risks and rewards of ownership. When it has neither
transferred nor retained substantially all of the risks and rewards of the asset, nor
transferred control of the asset, the Company continues to recognize the transferred asset
to the extent of the Company’s continuing involvement. In that case, the Company also
recognizes an associated liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations that the Company has
retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is
measured at the lower of the original carrying amount of the asset and the maximum
amount of consideration that the Company could be required to repay.
Impairment of financial assets
The Company assess on a forward-looking basis the Expected Credit Losses (ECL)
associated with its financial assets that are debt instruments and are carried at amortized
cost. The impairment methodology applied depends on whether there has been a
significant increase in credit risk.
For trade receivables, the Company applies a simplified approach. It recognizes
impairment loss allowance based on lifetime ECLs at each reporting date, right from its
initial recognition. Trade receivables are tested for impairment on a specific basis after
considering the sanctioned credit limits, security deposit collected etc. and expectations
about future cash flows.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value
through profit or loss, loans and borrowings, payables, or as derivatives designated as
hedging instruments in an effective hedge, as appropriate. Such liabilities, including
derivatives that are liabilities, shall be subsequently measured at fair value.
All financial liabilities are recognized initially at fair value and, in the case of loans and
borrowings and payables, net of directly attributable and incremental transaction cost.
Amortized cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is
included as finance costs in the statement of profit and loss.
The Company’s financial liabilities include trade and other payables, loans and
borrowings including bank overdrafts, financial guarantee contracts and derivative
financial instruments.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged
or cancelled or expires. When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as the derecognition
of the original liability and the recognition of a new liability. The difference in the
respective carrying amounts is recognized in the statement of profit or loss.
Loans and borrowing
After initial recognition, interest-bearing loans and borrowings are subsequently
measured at amortized cost using the EIR method. Gains and losses are recognized in
Statement of Profit and Loss when the liabilities are derecognized as well as through the
EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is
included as finance costs in the Statement of Profit and Loss.
Financial guarantee contracts
Financial guarantee contracts issued by the Company are those contracts that require
specified payments to be made to reimburse the holder for a loss it incurs because the
specified debtor fails to make a payment when due in accordance with the terms of a debt
instrument. Financial guarantee contracts are recognized initially as a liability at fair
value, adjusted for transaction costs that are directly attributable to the issuance of the
guarantee. Subsequently, the liability is measured at the higher of the amount of loss
allowance determined as per impairment requirements of Ind-AS 109 and the amount
recognized less cumulative amortization.
Where guarantees in relation to loans or other payables of subsidiaries are provided for
no compensation, the fair values are accounted for as contributions and recognized as
fees receivable under “other financial assets” or as a part of the cost of the investment,
depending on the contractual terms.
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, or to realize the assets and settle
the liabilities simultaneously.
e) Inventories
Inventories are valued at lower cost and net realizable value. Net realizable 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.
Raw materials, packing materials and stores: Costs include cost of purchase and other
costs incurred in bringing each product to its present location and condition.
Finished goods and work in progress: In the case of manufactured inventories and work
in progress, cost includes all costs of purchases, an appropriate share of production
overheads based on normal operating capacity and other costs incurred in bringing each
product to its present location and condition
If payment for inventory is deferred beyond normal credit terms, then the cost is
determined by discounting the future cash flows at an interest rate determined with
reference to market rates. The difference between the total cost and the deemed cost is
recognized as interest expense over the period of financing under the effective interest
method.
f) Cash and Cash Equivalents
Cash and cash equivalents in the balance sheet includes cash at bank and on hand,
deposits held at call with financial institutions, other short term highly liquid investments,
with original maturities less than three months which are readily convertible into cash
and which are subject to insignificant risk of changes in value.
For the purpose of the statement of cash flows, cash and cash equivalents cash and short¬
term deposits as defined above is net of outstanding bank overdrafts as they are
considered an integral part of the Company’s cash management.
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