3. Material Accounting Policies
3.1 Presentation and Disclosure of
Financial Statements
An asset has been classified as current when it
satisfies any of the following criteria;
(a) It is expected to be realized 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 realized 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.
A liability has been 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 settlements 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 and liabilities have been
classified as non-current.
Deferred tax assets and liabilities are classified
as non-current assets and liabilities.
Based on the nature of products/activities, the
Company has determined its operating cycle
as twelve months for the above purpose of
classification as current and non-current.
3.2 Fair Value Measurement
The Company measures financial instruments,
such as, investments at fair value at each
balance sheet date.
Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an
orderly transaction between market participants
at the measurement date. The fair value
measurement is based on the presumption that
the transaction to sell the asset or transfer the
liability takes place either:
(a) In the principal market for the asset or
liability, or
(b) In the absence of a principal market, in the
most advantageous market for the asset
or liability.
The fair value of an asset or a liability is measured
using the assumptions that market participants
would use when pricing the asset or liability,
assuming that market participants act in their
best economic interest.
A fair value measurement of a non-financial
asset takes into account a market participant’s
ability to generate economic benefits by using
the asset in its highest and best use or by selling
it to another market participant that would use
the asset in its highest and best use.
The Company uses valuation techniques that are
appropriate in the circumstances and for which
sufficient data are available to measure fair value,
maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
All assets and liabilities for which fair value
is measured or disclosed in the financial
statements are categorised within the fair value
hierarchy, described as follows, based on the
lowest level input that is significant to the fair
value measurement as a whole:
(a) Level 1 — Quoted (unadjusted) market prices
in active markets for identical assets or
liabilities.
(b) Level 2 — Valuation techniques for which the
lowest level input that is significant to the fair
value measurement is directly or indirectly
observable.
(c) 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 recognised in
the financial statements on a recurring basis,
the Company determines whether transfers
have occurred between levels in the hierarchy
by re-assessing categorisation (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 the purpose of 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.
Use of Estimates
The preparation of the financial statements in
conformity with Ind AS requires the Management
to make judgements, estimates and assumptions
considered in the reported amounts of assets
and liabilities (including contingent liabilities) as
of the date of the financial statements and the
reported income and expenses like provision for
employee benefits, provision for doubtful trade
receivables, provision for warranties, allowance
for slow/non-moving inventories, useful life of
Property, Plant and Equipment and provision for
liquidated damages during the reporting year. The
Management believes that the estimates used in
the preparation of the financial statements are
prudent and reasonable. Future results may vary
from these estimates.
3.3 Cash and Cash Equivalents (for the purposes
of Cash Flow Statement)
Cash comprises cash on hand and demand
deposits with banks. Cash equivalents are
short-term (with an original maturity of three
months or less from the date of acquisition),
highly liquid investments that are readily
convertible into known amount of cash and
which are subject to insignificant risk of change
in value.
Cash Flow Statement
Cash flows are reported using the indirect
method, whereby Profit before tax is adjusted
for the effects of transactions of non-cash
nature and any deferrals or accruals of past
or future cash receipts or payments. The cash
flows from operating, investing and financing
activities of the Company are segregated based
on the available information. For the purpose
of the Statement of cash flows, cash and cash
equivalents are considered an integral part of the
cash management of the Company.
3.4 Property, Plant and Equipment
Property, plant and equipment are stated at
historical cost less accumulated depreciation
and impairment losses, if any. Freehold land is
measured at cost and not depreciated. Cost
includes related taxes, duties, freight, insurance,
etc. attributable to the acquisition, installation of
the fixed assets but excludes duties and taxes
that are recoverable from tax authorities.
Machinery Spares including spare parts,
stand-by and servicing equipment are capitalised
as property, plant and equipment if they meet
the definition of property, plant and equipment
i.e. if the company intends to use these for more
than a period of 12 months. These spare parts
capitalized are depreciated as per Ind AS 16.
Subsequent expenditure relating to Property, Plant
and Equipment is capitalised 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.
An item of property, plant and equipment is
derecognised upon disposal or when no future
economic benefits are expected to arise from
the continued use of the asset. Any gain or loss
arising on the disposal or retirement of an item
of property, plant and equipment is determined
as the difference between the sales proceeds and
the carrying amount of the asset and is recognised
in the statement of profit and loss.
Capital Work-in-Progress: Projects under which
assets are not ready for their intended use and
other capital work-in-progress are carried at cost,
net of accumulated impairment loss, if any. Cost
comprises direct cost and attributable interest.
Once it has become available for use, their cost is
re-classified to appropriate caption and subjected
to depreciation.
3.5 Investment Properties
Investment property represents property held
to earn rentals or for capital appreciation
or both.
Investment properties are measured initially at
cost, including transaction costs. Subsequent
to initial recognition, investment properties are
stated at cost less accumulated depreciation
and accumulated impairment loss, if any.
Though the Company measures investment
property using cost-based measurement, the
fair value of investment property is disclosed
in the notes. The fair value of the investment
properties is determined based on the
capitalisation of net income method, where
the market rentals of all the leased units
was considered.
Investment properties are derecognised either
when they have been disposed of or when
they are permanently withdrawn from use and
no future economic benefit is expected from
their disposal. The difference between the net
disposal proceeds and the carrying amount
of the asset is recognised in the statement of
profit and loss in the period of de-recognition.
3.6 Intangible Assets
Intangible assets with finite useful lives that
are acquired separately are carried at cost less
accumulated amortisation and accumulated
impairment losses. Amortisation is recognised
on a straight-line basis over their estimated
useful lives. The estimated useful life and
amortisation method are reviewed at the end
of each reporting period, with the effect of any
changes in estimate being accounted for on a
prospective basis.
3.7 Inventories
Raw materials and stores & spare parts are
valued at weighted average cost. Cost includes
freight, taxes and duties and is net of credit
under GST scheme, where applicable.
Work-in-process and finished goods are valued
at lower of weighted average cost (net of
allowances) and estimated net realisable value.
Cost includes all direct costs and appropriate
proportion of overheads to bring the goods
to the present location and condition. Net
realisable value represents the estimated
selling price for inventories less all estimated
costs of completion and costs necessary to
make the sale.
Due allowance is made for slow/non-moving
items, based on management estimates.
3.8 Revenue and Other Income
Revenue is recognised when control of the
goods or services are transferred to the
customer at an amount that reflects the
consideration to which the Company expects
to be entitled in exchange for those goods or
services, regardless of when the payment is
being made. Revenue towards satisfaction of
a performance obligation is measured at the
amount of transaction price (net of variable
consideration) allocated to that performance
obligation. The transaction price of goods
sold and services rendered is net of variable
consideration on account of various discounts
and schemes offered by the Company as part
of the contract. The Company is the principal
in all of its revenue arrangements since it is the
primary obligor in all the revenue arrangements
as it has pricing latitude and is also exposed to
inventory and credit risks.
However, Goods and Services Tax (GST)
are not received by the Company on its own
account. Rather, it is tax collected on value
added to the commodity by the seller on behalf
of the government. Accordingly, it is excluded
from revenue.
Sale of Goods and Services:
Revenue from sale of goods is recognised
when control of the goods is transferred to the
Customers. Revenue from the sale of goods is
measured at the fair value of the consideration
received or receivable, net of returns and
allowances, trade discounts and volume rebates.
Rendering of Services:
Service revenues are recognised when services
are rendered, and when the outcome of the
transaction can be estimated reliably.
Dividends:
Dividend income is accounted for when the right
to receive it is established as on the date of
Balance Sheet.
Interest Income:
For all investments, Interest income is recognised
on time proportion basis, taking into account the
amount outstanding and the interest rate.
Rental Income:
Rental income arising from operating leases is
accounted for on a straight-line basis over the
lease terms and is included in other income in
the statement of profit or loss due to its operating
nature.
3.9 Employee Benefits
I. Defined Contribution Plan
The Company’s contribution to provident
fund and employee state insurance scheme
are considered as defined contribution plans
and are charged as an expense based on
the amount of contribution required to be
made and when services are rendered by
the employees.
II. Defined Benefit Plan
Gratuity
The Company makes annual contribution
to a Gratuity Fund administered by trustees
and managed by Life Insurance Corporation
of India (LIC). The Company accounts its
liability for future gratuity benefits based
on actuarial valuation, as at the Balance
Sheet date, determined every year using
the Projected Unit Credit method. Actuarial
gains/losses are immediately recognised
in retained earnings through Other
Comprehensive Income in the period in
which they occur. Re-measurements are not
re-classified to profit or loss in subsequent
periods. Past service cost is recognised
immediately to the extent that the benefits are
already vested and otherwise is amortised
on a straight-line basis over the average
period until the benefits become vested.
The defined benefit obligation recognised
in the balance sheet represents the present
value of the Defined Benefit Obligation less
the Fair Value of Plan Assets out of which
the obligations are expected to be settled
and adjusted for unrecognised past service
cost, if any. Any asset arising out of this
calculation is limited to the past service cost
plus the present value of available refunds
and reduction in future contributions.
Net interest is calculated by applying the
discount rate to the net defined benefit
liability or asset. The Company recognises
the changes in Service costs comprising
current service costs, past-service costs
and Net interest expense or income of the
net defined benefit obligation as an expense
in the Statement of Profit and Loss.
III. Long-Term Employee Benefits
The Company makes an annual contribution
to LIC in satisfaction of its liability towards
compensated absence of a long-term nature
based on actuarial valuation on the Balance
Sheet date using the Projected Unit Credit
Method. The Company treats accumulated
leave expected to be carried forward beyond
twelve months, as long-term employee
benefit for measurement purposes. Such
long-term compensated absences are
provided for based on the actuarial valuation
using the projected unit credit method at
the yearend. Re-measurements as a result
of experience adjustments and changes
in actuarial assumptions are recognised in
statement of profit and loss. The Company
presents the leave as a current liability in the
balance sheet, to the extent it does not have
an unconditional right to defer its settlement
for 12 months after the reporting date. Where
Company has the unconditional legal and
contractual right to defer the settlement for
a period beyond 12 months, the same is
presented as non-current liability.
IV. Short-Term Employee Benefits
Short term employee benefits includes
short term compensated absences which
is recognized based on the eligible leave at
Credit on the Balance Sheet date, and the
estimated cost is based on the terms of the
employment contract.
3.10 Foreign Currency Transactions
Initial recognition
Transactions in foreign currencies entered into
by the Company are accounted at the exchange
rates prevailing on the date of the transaction or
at rates that closely approximate the rate at the
date of the transaction.
Measurement as at Balance Sheet Date
Foreign currency monetary items of the
Company outstanding at the Balance Sheet date
are restated at year end exchange rates.
Non-monetary items carried at historical cost
are translated using the exchange rates at the
dates of 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.
Treatment of exchange differences
Exchange differences arising on settlement or
restatement of foreign currency monetary assets
and liabilities of the Company are recognised
as income or expense in the Statement of Profit
and Loss.
3.11 Depreciation and Amortisation
Depreciation on assets (other than freehold land)
has been provided on the straight-line method
as per the useful life prescribed in Schedule II to
the Companies Act, 2013 except in respect of
the following categories of assets, in whose case
the life of the assets has been assessed as under
based on 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.
Depreciation is provided on pro-rata basis from
the date of Capitalisation.
The estimated useful lives, residual values and
depreciation method are reviewed at the end of
each reporting period.
3.12 Taxes on Income
The tax currently payable is based on taxable
profit for the year. Taxable profit differs from
‘profit before tax’ as reported in the statement
of profit and loss because of items of income
or expense that are taxable or deductible in
other years and items that are never taxable
or deductible. The Company’s current tax
is calculated using tax rates that have been
enacted or substantively enacted by the end of
the reporting period.
Deferred tax is recognised on temporary
differences between the carrying amounts of
assets and liabilities in the financial statements
and the corresponding tax bases used in the
computation of taxable profit. Deferred tax
liabilities are generally recognised for all taxable
temporary differences. Deferred tax assets are
generally recognised for all deductible temporary
differences to the extent that it is probable that
taxable profits will be available against which
those deductible temporary differences can be
utilised. Such deferred tax assets and liabilities
are not recognised if the temporary difference
arises from the initial recognition of assets and
liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
Deferred tax assets arising from deductible
temporary differences associated with such
investments and interests are only recognised
to the extent that it is probable that there will
be sufficient taxable profits against which to
utilise the benefits of the temporary differences
and they are expected to reverse in the
foreseeable future.
Current and deferred tax are recognised in profit
or loss, except when they relate to items that
are recognised in other comprehensive income
or directly in equity, in which case, the current
and deferred tax are also recognised in other
comprehensive income or directly in equity
respectively.
|