NOTE NO: 2 Material Accounting Policies
a) Basis of preparation
These Standalone financial statements have been prepared in accordance with Indian Accounting Standards (referred to as “Ind AS”, under the Companies (Indian accounting Standards) Rules, 2015 notified under section 133 of the Companies Act, 2013 (the Act) as amended thereafter and other relevant provisions of The Act.
The Standalone financial statements have been prepared on an accrual basis and presented on going concern basis and under the historical cost convention on accrual basis except for certain financial assets and liabilities which are measured at fair value or amortized cost at the end of each financial year.
The Standalone financial statement are presented in also Indian Rupees (INR) which is the company's functional currency of the primary economic environment in which the company operates and all figures are rounded off to the nearest thousand except when otherwise indicated.
b) Current and non current classification
All assets and liabilities have been classified as current and non-current as per the company's normal operating cycle and other criteria as set out in Schedule III to the Companies Act, 2013.
c) Use of Accounting judgments, estimates and assumptions:
In preparation of financial statements in conformity with recognition and measurement principle of IND AS requires management to make judgment, estimates and assumptions. These judgments, estimates and assumptions affect the reported accounts of assets and liabilities, disclosures including disclosures of contingent assets and contingent liabilities as on the date of financial statements and the reported amount of revenues and expenses during the period. Actual result may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in future periods which are affected.
Information about significant areas of estimates uncertainty and critical judgment in applying accounting policies that have the most significant effects to the carrying amounts of assets and liabilities within the next financial year are:
d) Revenue Recognition
(a) Revenue (other than those items to which Ind AS 109 Financial Instruments are applicable) is measured at fair value of the consideration received or receivable. Ind AS 115 Revenue from contracts with customers outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance found within Ind ASs.
The Company recognizes revenue from contracts with customers based on a Five-Step Model as set out in Ind AS 115 i.e.:
Step 1: Identification of contract(s) with customers that creates enforceable rights and sets out the criteria that must be met.
Step 2: Identification of the separate performance obligations in the contract with customer to transfer goods or services to the customer.
Step 3: Determination of transaction price for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.
Step 4: Allocation of transaction price to the separate performance obligations in a contract that has more than one performance obligations that depicts the amount of consideration to which the company expects to be entitled to in exchange for satisfying each performance obligation.
Step 5: Recognition of revenue when (or as) each performance obligation is satisfied.
Revenue from contract is recognized (net of goods & services tax) at a point in time when performance obligation in contract is fulfilled in accordance with the terms and conditions with the respective customers.
Revenue is recognized on accrual basis to the extent that it is probable that the economic benefits will flow to the Company and can be reliably measured. Where significant uncertainty exists with regard to realization of revenue at the time of accrual, the underlying revenue is not recognized to that extent. Revenue is measured at the fair value of the consideration received or receivable taking into account contractually defined terms of payment net of goods and service tax, wherever applicable.
b) Interest income is recognized on a time proportionate basis taking into account the amount outstanding and the effective interest rate. Interest on Income Tax refund is accounted for on receipt basis.
c) Dividend income is recognized at the time when right to receive payment is established by the reporting enterprise.
e) Property, plant & equipment
Property, plant & equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses. The cost comprises purchase price including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates, borrowing costs if capitalization criteria are met, directly attributable cost of bringing the asset to its working condition for the intended use.
An item of Property, plant and equipment and any significant part initially recognised is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognized.
The residual values, useful lives and methods of depreciation of Property, plant and equipment are reviewed at each financial year end and adjusted if appropriate.
In respect of new projects, all expenses including interest on specific borrowings incurred up to the date of commencement of commercial production are capitalized. In respect of substantial expansion of business, at the existing locations, only direct costs are capitalized together with the interest on the funds relatable to them up to the date of commercial production.
f) Intangible Asset
Intangible assets are stated at their cost of acquisition. The cost comprises purchase price, borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebates are deducted in arriving at the purchase price.
g) Depreciation and Amortisation
(a) Depreciation on Property, Plant & Equipments (PPE) is provided on Written Down Value (WDV) method over the useful lives as specified under Schedule II of the Companies Act, 2013. The estimated useful lives and residual values of PPE are reviewed at the end of each financial year.
Depreciation on the Property, Plant & Equipment (PPE) added/ disposed off/ discarded during the year is provided from/ upto the date when added/ disposed off/ discarded.
(b) Intangible assets are amortised on straight line basis over the estimated economic life of the assets.
h) Impairment of non- financial asset
The company assesses at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists or when annual impairment testing for an asset is required, the company estimates the asset's recoverable amount. An asset's recoverable amount is the higher of the asset's or cash generating unit's (CGU) fair value less cost of disposal or its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other asset or group of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered as impaired and is written down to its recoverable amount as impairment loss and is recognized in the statement of profit and loss.
i) Inventories
Stores, Spare Parts and Components are valued at cost. For this purpose, cost is ascertained on FIFO basis.
Goods/spares purchased for resale to customers are valued at lower of cost or net realizable value. Provision for obsolescence is made on the stocks, wherever required.
j) Foreign Currency Transactions
The company has determined Indian Rupee (INR) as transaction currency. Accordingly, transactions in foreign currency are recorded at exchange rates prevailing on the date of transaction. Monetary foreign currency assets & liabilities remaining unsettled at the balance sheet date are translated at exchange rate prevailing on that date. Gain/loss arising on account of realization/settlement of foreign currency transactions and on translation of foreign currency assets and liabilities are recognized in the Statement of Profit & loss.
k) Employee Benefits
Employee benefits have been recognized in following ways:
Short term Employee Benefits
Employee benefits payable wholly within twelve months of rendering the service are classified as short-term employee benefits and they are recognized in the period in which the employee renders the related service. The company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for services rendered as a liability (accrued expense) after deducting any amount already paid.
Post-Employment Benefits
(a) Defined Contribution Plan- Provident Fund and Family Pension
The Company contributes to a recognized Provident Fund and Family Pension fund which is a defined contribution scheme. The contribution is accounted for on an accrual basis and recognized in the Statement of profit and loss. The eligible employees of the company are entitled to receive post-employment benefits in respect of provident fund and family pension fund. The contributions made to state managed retirement benefit schemes dealt with as payments to defined contribution schemes where the company's obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.
(b) Defined Benefit Plan-Gratuity
The company's Gratuity benefit scheme is defined benefit plan. The Company's net obligation in respect of a defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs are deducted.
The calculation of the Company's obligation is performed annually by a using discount rate of 7.23% under the projected unit credit method by the company instead of through qualified actuary since such liability is vested in a single employee. The gratuity liability is unfunded.
The Company recognizes actuarial gains or losses arising on defined benefit plan immediately in OCI as prescribed by Ind AS-19.
l) Borrowing Cost
Borrowing cost consists of interest and other costs incurred in connection with the borrowing of funds. Borrowing cost directly attributable to the acquisition and/or construction of a qualifying asset are capitalized during the period of time that is necessary to complete and prepare the asset for its intended use or sale. A qualifying asset is one that necessarily takes substantial time to get ready for its intended use. All other borrowing cost are charged to the Statement of Profit and Loss as incurred.
m) Fair Value Measurement
The Company measures financial instruments and specific investments other than subsidiary, joint venture and associates, at fair value at each balance sheet date.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as below, 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.
For assets and liabilities that are recognized in the balance sheet on a recurring basis, the company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For this purpose, fair value disclosures, 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.
Where there is not feasible, a degree of judgement required in establishing the fair value, judgment includes consideration of inputs such as liquidity risk, credit risk and volatility.
n) Financial Instruments Classification
A financial instrument is any contract that give rise to a financial asset of one entity and financial liability or equity instruments of another entity. The financial asset and the associated liability are measured on a basis that reflects the rights and obligations that the company has retained. Initial recognition and measurement
The Company recognizes financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument. All financial assets and liabilities 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 or issue of the financial assets and financial liabilities.
Subsequent measurement
Non-derivative financial Instruments
(i) Financial assets carried at amortized cost:
Financial assets are subsequently measured at amortised cost if these financial assets are held within a business model whose objective is to hold assets for collecting contractual cash flows and contractual terms of the asset give rise on specified dates to cash flows that are Solely Payments of Principal and Interest (SPPI) on the principal amount outstanding. After initial measurement, such financial assets are subsequently measured at amortised cost using the Effective Interest Rate (EIR) method. Amortised 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 amortisation is included in other income in the statement of profit and loss. The losses arising from impairment are recognised in the statement of profit and loss. This category generally applies to trade receivables, loans and other financial assets.
(ii) Financial assets at fair value through other comprehensive income (FVTOCI):
Financial assets are subsequently measured at fair value through other comprehensive income if these financial assets are held within a business model whose objective is achieved both by collecting contractual cash flows and selling the financial assets and the asset's contractual cash flow represents SPPI.
Financial instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair value. Fair value movements are recognised in the other comprehensive income (OCI). However, the Company recognises interest income, dividend income, impairment losses and reversals and foreign exchange gain or loss in the statement of profit and loss. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassified from the equity to statement of profit and loss.
(iii) Financial assets at fair value through profit or loss (FVTPL):
FVTPL is a residual category for financial assets. Any financial assets, which does not meet the criteria for categorization at amortised cost or as FVTOCI, is classified as at FVTPL. Financial assets included within the FVTPL category are measured at fair value with all changes recognised in the statement of profit and loss.
Equity Instruments
All equity investments (except investments in subsidiaries, joint ventures and associates) in scope of Ind AS 109 are measured at fair value.
Equity instruments which are held for trading and contingent consideration recognized by an acquirer in a business combination to which Ind AS103 applies are classified as at FVTPL. For all other equity instruments, other than investment in Subsidiary, Associates and Joint Ventures,
the company makes an irrevocable election to present in other comprehensive income subsequent changes in the fair value. The Company makes such election 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 recognised in the OCI. There is no recycling of the amounts from OCI to statement of profit and loss, even on sale of investment, however such amount is transferred to Retained earnings.
Investments in subsidiaries, joint ventures and associates
Investment in subsidiaries, joint ventures and associates are carried at cost less accumulated impairment losses 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, associates and joint venture, the difference between net disposal proceeds and the carrying amounts are recognized in the standalone Statement of profit and loss.
Derecognition
The Company derecognizes a financial asset when the rights to receive cash flows from the asset have expired or it transfers the right to receive the contractual cash flow on the financial assets in a transaction in which substantially all the risk and rewards of ownership of the financial asset are transferred.
Financial Liabilities:
The Company's financial liabilities include borrowings, trade and other payables.
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, at fair value through profit or loss, loans and borrowings, payables, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Gains or losses on liabilities held for trading are recognized in the profit or loss.
Financial liabilities at amortized cost
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in the 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 by the company are those contracts that require a payment 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 recognised 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 recognised less cumulative amount of income recognised in accordance with the principles of Ind AS 115.
Derecognition
A financial liability is derecognised 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 recognised in the statement of profit and loss.
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 recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously
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