III. Significant Accounting Policy
1.1 Property, Plant & Equipment and depreciation
Recognition and measurement
On transition to Ind AS, the Company has elected to continue with the carrying value of all of its
property, plant and equipment recognised as at 1 April 2022 (transition date) measured as per
the previous GAAP and used those carrying value as the deemed cost of the property, plant and
equipment.
Freehold land is carried at historical cost. All other items of property, plant and equipment are
measured at cost less accumulated depreciation and any accumulated impairment losses. The
cost of an item of property, plant and equipment shall be recognised as an asset if, and only if 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. Any gain or loss on disposal of an item of property, plant
and equipment is recognised in profit or loss. The cost of an item of property, plant and equipment
comprises:
a. its purchase price, including import duties and non-refundable taxes (net of GST), after deducting
trade discounts and rebates.
b. any costs directly attributable to bringing the asset to the location and condition necessary for
it to be capable of operating in the manner intended by management.
c. borrowing costs for long-term construction projects if the recognition criteria are met.
d. 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.
Advances paid towards the acquisition of property, plant and equipment outstanding at each
balance sheet date is classified as capital advances under other non-current assets and the cost
of assets not put to use before such date are disclosed under 'Capital Work-in-Progress'. As per
the technical opinion obtained by the Company, the Property, Plant and Equipment held by the
Company does not involve
Decommissioning cost and the cost of removal of such assets is not material considering the size
of the Company. Considering this aspect, the Company has not made any policies for capitalizing
the decommissioning cost.
Subsequent Expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits
associated with the expenditure will flow to the Company and the cost of the item can be measured
reliably. The carrying amount of any component accounted for as a separate asset is derecognized
when replaced. All other repairs and maintenance are charged to Statement of Profit and Loss
during the reporting period in which they are incurred.
Depreciation
Depreciation on 'Property, Plant & Equipment' generally is provided on the Straight-Line Method over
the useful lives of the assets and residual value in terms of Schedule II of the Companies Act, 2013.
Depreciation for the assets purchased/sold during the period is proportionately charged. Building
constructed on the lease hold land if any, is depreciated over the period of lease or the useful life
in terms of Schedule II of the Companies Act 2013, whichever expires earlier. Leasehold land if any, is
amortized over the period of the lease. Improvements to buildings are amortized over the period of
remaining useful life of the building. The estimated useful lives are as under:
Plant and Machinery 15 years
(including electrical installation)
Furniture and Fixtures 10 years
Office Equipment 5 years
Computers 3 years
Lease Hold Land Period of lease
Buildings 30 years
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 and under such
circumstances the appropriate disclosure is being made in the notes to accounts.
Policy with regard to depreciation of assets taken on lease i.e. Right of Use Assets disclosed under sub
note 1.4 below.
1.2 Intangible Assets and Amortisation
On transition to Ind AS, the Company has elected to continue with carrying value of its intangible
asset recognised as of 1st April, 2022 (transition date) measured as per the previous GAAP and use
that carrying value as its deemed cost as at the date of transition.
Intangible assets are stated at the cost of acquisition/cost of development less accumulated
amortization and impairment loss, if any. Such costs include purchase price/development costs,
eligible borrowing costs and any cost directly attributable to bringing the asset to its working
condition for the intended use net of recoverable taxes, trade discount and rebates. Subsequent
costs are included in the assets carrying value or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the entity
and the cost can be reliably measured.
An item of Intangible Asset 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 or Loss when the asset is derecognised. The residual
values, useful lives and methods of amortisation of Intangible Assets are reviewed at each financial
year end and adjusted prospectively, if appropriate
The Company has estimated the useful life of Intangible Asset of the nature Computer Software
at 15 years/3 years. The estimated useful life of an intangible asset is based on a number of factors
including the effects of obsolescence, demand, competition and other economic factors. The asset
is amortised on a straight line basis over the estimated useful life.
1.3 Impairment of Non-financial Assets
As at each Balance Sheet date, the Company assesses whether there is an indication that a non¬
financial asset may be impaired and also whether there is an indication of reversal of impairment
loss recognised in the previous periods. If any indication exists, or when annual impairment testing
for an asset is required, the Company determines the recoverable amount and impairment loss is
recognised when the carrying amount of an asset exceeds its recoverable amount.
Recoverable amount is determined:
- In case of an individual asset, at the higher of the assets' fair value less cost to sell and value in use;
and
- In case of cash generating unit (a group of assets that generates identified, independent cash flows),
at the higher of cash generating unit's fair value less cost to sell and value in use. In assessing value
in use, the estimated future cash flows are discounted to their present value using pre-tax discount
rate that reflects current market assessments of the time value of money and risk specified to the
asset. In determining fair value less cost to sell, recent market transaction are taken into account. If
no such transaction can be identified, an appropriate valuation model is used.
Impairment losses of continuing operations, including impairment on inventories, are recognised in
the Statement of Profit and Loss, except for properties previously revalued with the revaluation taken
to OCI. For such properties, the impairment is recognised in OCI up to the amount of any previous
revaluation.
When the Company considers that there are no realistic prospects of recovery of the asset, the
relevant amounts are written off. If the amount of impairment loss subsequently decreases and the
decrease can be related objectively to an event occurring after the impairment was recognised,
then the previously recognised impairment loss is reversed through the Statement of Profit and
Loss.
1.4 Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of
the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of
the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys
a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
The Company's lease asset class primarily consists of leases for buildings and machinery.
Company as lessee:
Lease under which the Company assumes substantially all the risks and rewards of ownership are
classified as Finance Leases.
At the date of commencement of the finance lease, the Company recognizes a right-of- use
asset ("ROU") and a corresponding lease liability for all lease arrangements in which it is a lessee,
except for leases with a term of twelve months or less (short-term leases) and leases of low value
assets. For these short term and leases of low value assets the Company recognises the lease
payments as an operating expense on a straight-line basis over the term of the lease.
The right-of-use assets are initially recognised at cost, which comprises the initial amount of the
lease liability adjusted for any lease payments made at or prior to the commencement date of the
lease plus any initial direct costs less any lease incentives. They are subsequently measured at cost
less accumulated depreciation and impairment losses, if any. Right-of-use assets are depreciated
from the commencement date on a straight-line basis over the shorter of the lease term and useful
life of the underlying asset
The lease liability is initially measured at the present value of the future lease payments. The lease
payments are discounted using the interest rate implicit in the lease or, if not readily determinable,
using the incremental borrowing rates. The lease liability is subsequently remeasured by increasing
the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect
the lease payments made
As Lessor:
Leases are classified as Finance Lease or Operating Lease, in the manner stated above. Lease
income is recognised in the Statement of Profit and Loss on straight line basis over the lease term
unless there is another systematic basis which is more representative of the time pattern of the
lease. Revenue from lease rental is disclosed net of indirect taxes, if any.
1.5 Financial Instruments
1.5.1 Financial Assets
1.5.1.1 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 recognised at Fair Value on initial recognition, except for trade receivable which is
initially measured at transaction price. Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial liabilities that are not at
fair value through profit or loss, are added to the fair value on initial recognition.
Regular way purchase and sale of financial assets are accounted for at trade date,
i.e., the date that the Company commits to purchase or sell the asset.
1.5.1.2 Classification of financial assets:
The Company classifies its financial assets in the following measurement categories:
(a) Those to be measured subsequently at fair value (either through other
comprehensive income, or through profit or loss); and
(b) Those measured at amortised cost.
The classification depends on the entity's business model for managing the financial
assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in
profit or loss or other comprehensive income. For investments in debt instruments,
this will depend on the business model in which the investment is held. For
investments in equity instruments, this will depend on whether the Company has
made an irrevocable election at the time of initial recognition to account for the
equity investment at fair value through other comprehensive income.
The Company reclassifies debt investments when and only when its business
model for managing those assets changes.
1.5.1.3 Subsequent Maesurement
Financial assets that are held for collection of contractual cash flows where those
cash flows represent solely payments of principal and interest are measured at
amortised cost.
Financial Assets that are held for collection of contractual cash flows and for
selling the financial assets, where the assets' cash flows represent solely payments
of principal and interest, are measured at fair value through other comprehensive
income (FVOCI). Movements in the carrying amount are taken through OCI, except for
the recognition of impairment gains or losses, interest income and foreign exchange
gains and losses which are recognised in profit and loss. When the financial asset is
derecognised, the cumulative gain or loss previously recognised in OCI is reclassified
from equity to profit or loss and recognised in other income or other expenses (as
applicable). Interest income from these financial assets is included in other income
using the effective interest rate method.
Financial Assets that do not meet the criteria for amortised cost or FVOCI are
measured at fair value through profit or loss. A gain or loss on a debt investment
that is subsequently measured at fair value through profit or loss and is not part
of a hedging relationship is recognised in profit or loss and presented net in the
statement of profit and loss within other income or other expenses (as applicable) in
the period in which it arises. Interest income from these financial assets is included in
other income or other expenses, as applicable.
The Company subsequently measures all equity investments at fair value. Where
the Company's management has selected to present fair value gains and losses
on equity investments in other comprehensive income and there is no subsequent
reclassification of fair value gains and losses to profit or loss. Dividends from such
investments are recognised in profit or loss as other income when the Company's
right to receive payments is established.
1.5.1.4 Impairment of Financial Assets
The Company assesses on a forward-looking basis the expected credit losses
associated with its assets carried at amortised cost and FVOCI debt instruments. The
impairment methodology applied depends on whether there has been a significant
increase in credit risk. For trade receivables only, the Company applies the simplified
approach permitted by Ind AS
109 Financial Instruments, which requires expected lifetime credit losses (ECL) to
be recognised from initial recognition of the receivables. The Company uses historical
default rates to determine impairment loss on the portfolio of trade receivables. At
all reporting date these historical default rates are reviewed and changes in the
forward-looking estimates are analysed.
For other assets, the Company uses 12-month ECL to provide for impairment
loss where there is no significant increase in credit risk. If there is significant increase
in credit risk full lifetime ECL is used.
ECL is the difference between all contractual cash flows that are due to the
company in accordance with the contract and all the cash flows that the entity expects
to receive (i.e., all cash shortfalls), discounted at the original EIR. The ECL impairment
loss allowance (or reversal) recognized during the period in the statement of profit
and loss and the cumulative loss is reduced from the carrying amount of the asset
until it meets the write off criteria, which is generally when no cash flows are expected
to be realised from the asset.
1.5.1.5 Derecognition of financial assets
The company derecognizes financial asset when the contractual rights to cash flows
from the financial asset expires or it transfer the financial asset and the transfer
qualifies for derecognition under Ind AS 109.
1.5.2 Financial Liabilities
1.5.2.1 Measurement
Financial liabilities are initially recognised at fair value, reduced by transaction costs
(in case of financial liability not at fair value through profit or loss), that are directly
attributable to the issue of financial liability. After initial recognition, financial liabilities
are measured at amortised cost using effective interest method. The effective interest
rate is the rate that exactly discounts estimated future cash outflow (including all
fees paid, transaction cost, and other premiums or discounts) through the expected
life of the financial liability, or, where appropriate, a shorter period, to the net carrying
amount on initial recognition. At the time of initial recognition, there is no financial
liability irrevocably designated as measured at fair value through profit or loss.
1.5.2.2 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 de¬
recognition 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 or loss.
1.6 Taxes on Income
Tax expense comprise of current and deferred tax. Current income tax is measured at the amount
expected to be paid to the tax authorities in accordance with the Indian Income Tax Act.
Deferred income taxes reflects the impact of current year timing differences between taxable
income and accounting income for the year and reversal of timing differences of earlier years.
Deferred tax is measured based on the tax rates and the tax laws enacted at the balance sheet
date. Deferred tax assets are recognized only to the extent that there is a reasonable certainty that
sufficient future taxable income will be available against which such deferred tax assets can be
realized.
At each balance sheet date unrecognized deferred tax assets are re-assessed. It recognizes
unrecognized deferred tax assets to the extent that it has become reasonably certain or virtually
certain, as the case may be that sufficient future taxable income will be available against which
such deferred tax assets can be realized.
Income Tax paid (including tax deducted at source, tax paid on self-assessment or otherwise)
and provision for Current Income Tax is presented in the Balance Sheet after setting off the same
against each other.
1.7 Inventories
• Raw materials, components, stores & spares, packing material, semi-finished goods & finished
goods are valued at lower of cost and net realisable value.
• Cost of Raw Materials, components, stores & spares and packing material is arrived at Weighted
Average Cost and Cost of semi-finished good and finished good comprises, raw materials,
direct labour, other direct costs and related production overheads is arrived through Weighted
Average Cost.
• Scrap is valued at net realisable value.
• Due allowances are made in respect of slow moving, non-moving and obsolete inventories
based on estimate made by the Management.
1.8 Employee Benefits
Short Term Employee Benefits
Employee benefits such as salaries, wages, short term compensated absences, expected cost of
bonus, ex-gratia and performance linked rewards such as annual variable pay falling due wholly
within twelve months of rendering the service are classified as short term benefits and are expensed
in the period in which the employee renders the related service
Defined Contribution Plan
Provident fund scheme, employee state insurance scheme and employee pension scheme are
the Company's defined contribution plans. The contribution paid or payable under the scheme is
recognised during the period in which the employee renders the related service.
Defined Benefit Plan
The Company provides for Gratuity, a defined benefit plan covering eligible employees. The Gratuity
Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or
termination of employment, of an amount based on the respective employee's salary and tenure
of employment with the Company.
The Company's contribution towards gratuity is invested in a Group Gratuity Policy with the
Life Insurance Corporation of India. Deficit/Surplus of present value of obligations (under Gratuity
policy) over the fair value of Gratuity plan assets is recognised in the Balance Sheet as an asset or
liability. The same is determined based on an independent actuarial valuation using the Projected
Unit Cost Method. Gains and losses through remeasurement of the net gratuity liability/(asset) are
recognised in Other Comprehensive Income and is reflected in Other Equity and the same is not
eligible to be reclassified subsequently to Profit or Loss. Premium expense incurred to keep in effect
such a group gratuity policy is recognised in the Statement of Profit and Loss as employee benefit
expense in the year such premium falls due.
The company has not framed any policy as regards leave encashment, since the same is not
given as long term employee benefit. There are no other employee benefits.
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