2 SUMMARY OF MATERIAL ACCOUNTING
POLICIES
2.01 Basis of preparation
These financial statements have been prepared in
accordance with the Indian Accounting Standards (“Ind
AS”) as prescribed by Ministry of Corporate Affairs pursuant
to Section 133 of the Companies Act, 2013 (“the Act”),
read with the Companies (Indian Accounting Standards)
Rules, 2015 (as amended from time to time), presentation
requirements of Division II of Schedule III to the Companies
Act, 2013, (Ind AS compliant Schedule III) and other relevant
provisions of the Act.
The financial statements have been prepared on accrual and
going concern basis following the historical cost convention,
except for certain financial assets and liabilities measured
at fair value. No climate-related matters were identified that
create material uncertainties related to events or conditions
that may cast significant doubt on company's ability to
continue as a going concern.
The Ind AS financial statements are presented in Indian
Rupees (“I NR”) and all values are rounded to the nearest
lakh (INR 00,000), except when otherwise indicated.
Accounting policies have been consistently applied except
where a newly issued standard is initially adopted or revision
to an existing accounting standard requires a change in the
accounting policy hitherto in use.
2.02 Current versus 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 realized or intended to be sold or
consumed in normal operating cycle
- held primarily for purpose of trading
- expected to be realized 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 purpose of trading
- i t 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
All other liabilities are classified as non-current.
Deferred tax assets and deferred tax liabilities are classified
as non-current assets and liabilities.
The operating cycle is the time between the acquisition of
assets for processing and their realization in cash and cash
equivalents. The Company has identified twelve months as
its operating cycle, except for project business. The projects
business comprises long-term contracts which have an
operating cycle exceeding one year. For classification of
current assets and liabilities related to project business, the
Company uses the duration of the contract as its operating
cycle.
2.03 Foreign currencies
Items included in the financial statements are measured
using the currency of the primary economic environment
in which the entity operates (‘the functional currency'). The
Company's financial statements are presented in Indian
rupee (INR), which is also the Company's functional and
presentation currency.
Foreign currency transactions are recorded on initial
recognition in the functional currency, using the exchange
rate prevailing at the date of transaction.
Transactions and balances
Transactions in foreign currencies are initially recorded
by the Company's functional currency at exchange rates
prevailing at the date the transaction first qualifies for
recognition.
At each Balance Sheet date, Monetary assets and liabilities
denominated in foreign currencies are reported at closing
spot rate. Exchange differences arising on settlement or
translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date
when the fair value is determined. The gain or loss arising on
translation of non-monetary items measured at fair value is
treated in line with the recognition of the gain or loss on the
change in fair value of the item (i.e., translation differences
on items whose fair value gain or loss is recognised in other
comprehensive income (“OCI”) or statement of profit and
loss, are also recognised in OCI or statement of profit and
loss, respectively).
2.04 Property, plant and equipment
Property, plant and equipment including capital work in
progress are stated at cost, less accumulated depreciation
and accumulated impairment, if any.
The cost comprises of purchase price, taxes, duties,
freight and other incidental expenses directly attributable
and related to acquisition and installation of the concerned
assets and are further adjusted by the amount of tax credit
availed, wherever applicable. When material parts of plant
and equipment are required to be replaced at intervals, such
cost of replacement is capitalised (if the recognition criteria
is met) in the carrying amount of plant and equipment, the
Company depreciates them separately based on their
specific useful life. Likewise, when a major inspection is
performed, its cost is recognised in the carrying amount of
the plant and equipment as a replacement if the recognition
criteria are satisfied. All other repair and maintenance costs
are recognised in statement of profit and loss as incurred.
Subsequent costs are capitalised on the carrying amount or
recognised as a separate asset, as appropriate, only when
it is probable that future economic benefit associated with
the item will flow to the Company and the cost of items can
be measured reliably.
An item of property, plant and equipment and any material
part initially recognised is derecognised 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 and loss when the asset
is derecognised.
All repair and maintenance are charged to statement of
profit and loss during the reporting period in which they
are incurred.
Advances paid towards the acquisition of property, plant
and equipment outstanding at each balance sheet date is
classified as capital advances under the non-current assets
and the cost of assets not ready to use before such date are
disclosed under ‘Capital work in progress'.
Depreciation on property, plant and equipment is provided
on pro-rata basis on straight-line method using the useful
lives of the assets estimated by management based on
technical evaluation; these lives in certain cases differ
from the lives prescribed under Schedule II of the Act. The
Company has used the following useful lives to provide
depreciation:
Leasehold land and leasehold improvements are
depreciated over the shorter of their useful life or the lease
term. An asset below ' 5,000 is fully depreciated in the year
of capitalization.
The residual values, useful lives and methods of depreciation
of property, plant and equipment are reviewed at each
financial year end and adjusted prospectively, if appropriate.
2.05 Intangible assets
Intangible assets acquired separately are measured initially
at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and
accumulated impairment losses, if any.
Intangible assets are amortized on a straight-line basis over
their estimated useful life as under:
Gains or losses arising from de-recognition of an intangible
asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset
and are recognised in the statement of profit and loss when
the asset is derecognised.
2.06 Revenue recognition
a) Revenue from contract with customers
Revenue from contracts with customers is recognised when
control of the goods is transferred to the customer at an
amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods. The
Company has generally concluded that it is the principal in
its revenue arrangements because it typically controls the
goods before transferring them to the customer.
Sale of Goods
Revenue from sale of goods is recognised at the point in time
when control of the goods is transferred to the customer,
generally on delivery of the goods.
The Company considers whether there are other promises
in the contract that are separate performance obligations
to which a portion of the transaction price needs to be
allocated (e.g., warranties, sales points). In determining
the transaction price for the sale of goods, the Company
considers the effects of variable consideration, the
existence of significant financing components, non-cash
consideration, and consideration payable to the customer
(if any).
Variable consideration
If the consideration in a contract includes a variable amount,
the Company estimates the amount of consideration to which
it will be entitled in exchange for transferring the goods
to the customer. The variable consideration is estimated
at contract inception and constrained until it is highly
probable that a significant revenue reversal in the amount
of cumulative revenue recognised will not occur when the
associated uncertainty with the variable consideration is
subsequently resolved.
- Significant financing component
The Company receives short-term advances from its
customers. Using the practical expedient in Ind AS 115,
the Company does not adjust the promised amount of
consideration for the effects of a significant financing
component if it expects, at contract inception, that the
period between the transfer of the promised goods to the
customer and when the customer pays for those goods will
be one year or less.
- Warranty obligations
The Company typically provides warranties for general
repairs of defects that existed at the time of sale, as required
by law. These assurance-type warranties are accounted
for under Ind AS 37 Provisions, Contingent Liabilities and
Contingent Assets.
Sale of Services
The Company provides installation, engineering & designing
and other services that are either sold separately or bundled
together with the sale of equipment to a customer. The
services can be obtained from other providers and do not
significantly customise or modify the goods.
Contracts for bundled sales of equipment and services
are comprised of two performance obligations because
the promises to transfer equipment and provide services
are capable of being distinct and separately identifiable.
Accordingly, the Company allocates the transaction price
based on the relative stand-alone selling prices of the
equipment and services.
Revenue from installation and engineering & designing
services are recognised at point of time upon completion
of service.
Revenue from services is recognized when the control in
services is transferred as per the terms of the agreement
with customer i.e. as and when services are rendered. The
same is recognised pro-rata over the period of contract.
Long term Contracts
The Company recognise revenue when control of the goods
or services are transferred to the customer, at an amount that
reflects the consideration (i.e. the transaction price) to which
the Company is expected to be entitled in exchange for those
goods or services excluding any amount received on behalf
of third party (such as indirect taxes). An asset created by
the Company's performance does not have an alternate
use and as per the terms of the contract, the Company
has an enforceable right to payment for performance
completed till date. Hence, the Company transfers control
of a good or service over time and, therefore, satisfies a
performance obligation and recognises revenue over
time. The Company recognise revenue at the transaction
price which is determined on the basis of purchase order
entered into with the customer. The Company recognise
revenue for performance obligation satisfied over time only
if it can reasonably measure its progress towards complete
satisfaction of the performance obligation. The Company
would not be able to reasonably measure its progress
towards complete satisfaction of a performance obligation
if it lacks reliable information that would be required to apply
an appropriate method of measuring progress. In those
circumstances, the Company recognise revenue only to
the extent of cost incurred until it can reasonably measure
outcome of the performance obligation.
The Company uses cost-based input method for measuring
progress for performance obligation satisfied over time.
Under this method, the Company recognises revenue in
proportion to the actual project cost incurred as against the
total estimated project cost.
The management reviews and revises its measure of
progress periodically and are considered as change in
estimates and accordingly, the effect of such changes in
estimates is recognised prospectively in the period in which
such changes are determined.
Contract balances
Contact asset
Contract asset is the right to consideration in exchange
for goods or services transferred to the customer. If the
Company performs by transferring goods or services to
a customer before the customer pays consideration or
before payment is due, a contract asset is recognised for
the earned consideration that is conditional.
Trade receivables
A receivable represents the Company's right to an amount
of consideration that is unconditional (i.e., only the passage
of time is required before payment of the consideration
is due). Refer to accounting policies of financial assets -
‘financial instruments - initial recognition and subsequent
measurement' in 2.13 below.
Contract liabilities
A contract liability is the obligation to transfer goods to a
customer for which the Company has received consideration
(or an amount of consideration is due) from the customer. If a
customer pays consideration before the Company transfers
goods to the customer, a contract liability is recognised when
the payment is made, or the payment is due (whichever is
earlier). Contract liabilities are recognised as revenue when
the Company performs under the contract.
b) Export benefits
Export benefits arising from duty drawback scheme and
remission of duties and taxes on export products (RoDTEP)
scheme are recognised on shipment of direct exports.
Revenue from exports benefits is measured at the fair value
of consideration received or receivable.
2.07 Taxes
Tax expense for the year comprises of current income tax
and deferred tax.
Current Income Tax
Current income tax, assets and liabilities are measured
at the amount expected to be paid to or recovered from
the taxation authorities in accordance with the Income Tax
Act, 1961 and the Income Computation and Disclosure
Standards (ICDS) enacted in India by using tax rates and
the tax laws that are enacted at the reporting date.
Current income tax relating to item recognised outside the
statement of profit and loss is recognised outside profit
or loss (either in other comprehensive income or equity).
Current tax items are recognised in correlation to the
underlying transactions either in OCI or directly in equity.
Deferred Tax
Deferred tax is provided using the liability method on
temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting
purposes at the reporting date.
Deferred tax assets and liabilities are recognised for all
taxable temporary differences.
Deferred tax assets are recognised for all deductible
temporary differences, the carry forward of unused tax
credits and any unused tax losses. Deferred tax assets are
recognised to the extent that it is probable that taxable profit
will be available against which the deductible temporary
differences, and the carry forward of unused tax credits
and unused tax losses can be utilised. The carrying amount
of deferred tax assets is reviewed at each reporting date
and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of
the deferred tax asset to be utilised. Unrecognised deferred
tax assets are re-assessed at each reporting date and are
recognised to the extent that it has become probable that
future taxable profits will allow the deferred tax asset to be
recovered.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply in the year when the asset
is realized or the liability is settled, based on tax rates (and
tax laws) that have been enacted or substantively enacted
at the reporting date.
Deferred tax relating to items recognised outside the
statement of profit and loss is recognised outside the
statement of profit and loss (either in other comprehensive
income or in equity). Deferred tax items are recognised in
correlation to the underlying transaction either in OCI or
directly in equity.
The Company offsets tax assets and tax liabilities, where
it has a legally enforceable right to set off the recognized
amounts and where it intends either to settle on a net basis,
or to realize the asset and settle the liability simultaneously.
2.08 Borrowing costs
Borrowing cost includes interest and other costs incurred
in connection with the borrowing of funds and charged to
Statement of Profit and Loss on the basis of effective interest
rate (EIR) method. Borrowing cost also includes exchange
differences to the extent regarded as an adjustment to the
borrowing cost.
Borrowing costs directly attributable to the acquisition,
construction or production of an asset that necessarily takes
a substantial period of time to get ready for its intended use
or sale are capitalized as part of the cost of the respective
asset. All other borrowing costs are recognised as expense
in the period in which they occur.
2.09 Impairment of non- financial assets
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 an asset's or cash-generating unit's (CGU)
fair value less costs of disposal and 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 assets or group
of assets. Where the carrying amount of an asset or CGU
exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset. In
determining fair value less costs of disposal, recent market
transactions are taken into account, if available. If no such
transactions can be identified, an appropriate valuation
model is used.
Impairment losses including impairment on inventories,
are recognised in the statement of profit and loss. After
impairment, depreciation is provided on the revised
carrying amount of the asset over its remaining useful life.
These calculations are corroborated by valuation multiples,
quoted share prices for publicly traded companies or other
available fair value indicators.
The Company bases its impairment calculation on detailed
budgets and forecast calculations, which are prepared
separately for each of the Company's CGUs to which the
individual assets are allocated. These budgets and forecast
calculations generally cover a period of five years. For longer
periods, a long-term growth rate is calculated and applied
to project future cash flows after the fifth year. To estimate
cash flow projections beyond periods covered by the most
recent budgets/forecasts, the Company extrapolates cash
flow projections in the budget using a steady or declining
growth rate for subsequent years, unless an increasing
rate can be justified. In any case, this growth rate does not
exceed the long-term average growth rate for the products,
industries or for the market in which the asset is used.
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