2.b Material accounting policies
The accounting policies, as set out in the following
paragraphs of this note, have been consistently applied,
to all the periods presented in these financial statements
except where a newly issued accounting standard is
initially adopted or a revision to an existing standard
requires a change in the accounting policy.
The Company adopted Disclosure of Accounting Policies
(Amendments to Ind AS 1) from 1 April 2023. Although the
amendments did not result in any changes in the accounting
policies themselves, that impacted the accounting policy
information disclosed in the financial statements.
The amendments require the disclosure of 'material' rather
than 'significant' accounting policies. The amendments
also provide guidance on the application of materiality
to disclosure of accounting policies, assisting entity to
provide useful, entity specific accounting policy information
that users need to understand other information in the
financial statements.
(i) Current versus non-current classification
Based on the time involved between the acquisition of
assets for processing and their realisation in cash and cash
equivalents, the Company has identified twelve months as
its operating cycle for determining current and non-current
classification of assets and liabilities in the balance sheet.
(ii) Foreign currency transactions and translations
Transactions in foreign currency are initially recorded in
the functional currency i.e. Indian Rupees (Rs.) using the
exchange rate at the date of transaction.
Monetary items (i.e. receivables, payables, loans etc.)
denominated in foreign currency are reported using the
closing exchange rate as on each balance sheet date.
Gains/ (losses) arising on account of realisation/ settlement
of foreign exchange transactions and on translation
of monetary foreign currency assets and liabilities are
recognised in the Statement of Profit and Loss.
Non-monetary items measured in terms of historical cost
in a foreign currency are translated using the exchange
rate at the date of the transaction.
(iii) Fair value measurement
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:
• Level 1 - Quoted (unadjusted) 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 recognised in the
financial statements on a recurring basis, the Company
determines whether transfers have occurred between
levels in the hierarchy by reassessing 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.
Fair value of financial instruments measured at amortised
cost is disclosed in Note 28.
(iv) Investment
Investment in equity shares is measured at fair value
through profit and loss (FVTPL).
(v) 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 assets
Recognition and initial measurement
All financial assets are initially recognised when the
Company becomes a party to the contractual provisions
of the instrument. All financial assets (unless it is a trade
receivable without a significant financing component) are
initially measured 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.
Classification and subsequent measurement
Classification
For the purpose of subsequent measurement, the Company
classifies financial assets in following categories:
• Financial assets at amortised cost
• Financial assets at fair value through other
comprehensive income (FVTOCI)
• Financial assets at fair value through profit
or loss (FVTPL)
A financial asset being ‘debt instrument’ is measured at the
amortised cost if both of the following conditions are met:
• The financial asset is held within a business model
whose objective is to hold assets for collecting
contractual cash flows, and
• The contractual terms of the financial asset give
rise on specified dates to cash flows that are Solely
Payments of Principal and Interest (SPPI) on the
principal amount outstanding.
A financial asset being ‘debt instrument’ is measured at
the FVTOCI if both of the following criteria are met:
• The asset is held within the business model, whose
objective is achieved both by collecting contractual
cash flows and selling the financial assets, and
• The contractual terms of the financial asset give rise
on specified dates to cash flows that are SPPI on the
principal amount outstanding.
On initial recognition of an equity investment that is not
held for trading, the Company may irrevocably elect to
present subsequent changes in the investment’s fair value
in OCI (designated as FVOCI - equity investment). This
election is made on an investment- by- investment basis.
Subsequent measurement
Financial assets at amortised cost
Financial assets at amortised cost are subsequently
measured at amortised cost using the effective interest
method. The amortised cost is reduced by impairment
losses, if any. Interest income and impairment are
recognised in the Statement of Profit and Loss.
Financial assets at FVTPL
These assets are subsequently measured at fair value.
Net gains and losses, including any interest income, are
recognised in the Statement of Profit and Loss.
Financial assets at FVTOCI
These assets are subsequently measured at fair value
through other comprehensive income (OCI). Changes in
fair values are recognised in OCI and on derecognition,
cumulative gain or loss previously recognised in OCI is
reclassified to the Statement of Profit and Loss. Interest
income calculated using EIR and impairment loss, if any,
are recognised in the Statement of Profit and Loss.
Equity investments at FVOCI
These assets are subsequently measured at fair value.
Dividends are recognised as income in Statement of Profit
and Loss unless the dividend clearly represents a recovery
of part of the cost of the investment. Other net gains and
losses are recognised in OCI and are not reclassified to
Statement of Profit and Loss.
Derecognition
The Company derecognises a financial asset when the
contractual rights to the cash flows from the financial asset
expire, or it transfers the rights to receive the contractual
cash flows in a transaction in which substantially all
of the risks and rewards of ownership of the financial
asset are transferred or in which the Company neither
transfers nor retains substantially all of the risks and
rewards of ownership and it does not retain control of the
financial asset.
If the Company enters into transactions whereby it
transfers assets recognised on its balance sheet, but
retains either all or substantially all of the risks and
rewards of the transferred assets, the transferred assets
are not derecognised.
Any gain or loss on derecognition is recognised in the
Statement of Profit and Loss.
Impairment of financial assets
Financial assets that are carried at amortised cost are
assessed for possible impairments basis expected credit
losses taking into account the past history of recovery, risk
of default of the counterparty, existing market conditions
etc. The impairment methodology applied depends on
whether there has been a significant increase in credit risk
since initial recognition.
For trade receivables, the Company provides for expected
credit losses based on a simplified approach as per Ind
AS 109 - Financial Instruments. Under this approach,
expected credit losses are computed basis the probability
of defaults over the lifetime of the asset. The changes
(incremental or reversal) in loss allowance computed using
Expected Credit Loss (ECL) model are recognised as an
impairment gain or loss in the Statement of Profit and Loss.
Write-off
The gross carrying amount of a financial asset is written
off (either partially or in full) to the extent that there is no
realistic prospect of recovery. This is generally the case
when the Company determines that the counterparty does
not have assets or sources of income that could generate
sufficient cash flows to repay the amounts subject to the
write-off. However, financial assets that are written off
could still be subject to enforcement activities in order
to comply with the Company's procedures for recovery
of amounts due.
Recognition and initial measurement
All financial liabilities are initially recognised when the
Company becomes a party to the contractual provisions of
the instrument. All financial liabilities are initially measured
at fair value minus, in the case of financial liabilities not
recorded at fair value through profit or loss, transaction
costs that are attributable to the liability.
Classification and subsequent measurement
Financial liabilities are classified as measured at amortised
cost or FVTPL
A financial liability is classified as FVTPL if it is classified as
held-for-trading, or it is a derivative or it is designated as
such on initial recognition. Financial liabilities at FVTPL are
measured at fair value and net gains and losses, including
any interest expense, are recognised in the Statement of
Profit and Loss.
Financial liabilities other than classified as FVTPL, are
subsequently measured at amortised cost using the
effective interest method. Interest expense is recognised
in Statement of Profit and Loss. Any gain or loss on
derecognition is also recognised in the Statement of
Profit and Loss.
Derecognition
The Company derecognises a financial liability
when its contractual obligations are discharged or
cancelled, or expire.
The Company also derecognises a financial liability
when its terms are modified and the cash flows under
the modified terms are substantially different. In this
case, a new financial liability based on modified terms
is recognised at fair value. The difference between the
carrying amount of the financial liability extinguished and
the new financial liability with modified terms is recognised
in the Statement of Profit and Loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount presented in the balance sheet when, and only
when, the Company currently has a legally enforceable
right to set off the amounts and it intends either to settle
them on a net basis or to realise the assets and settle the
liabilities simultaneously.
(vi) Cash and cash equivalents
Cash and cash equivalents comprises cash at banks and
on hand, cheques on hand and short-term deposits with
an original maturity of three months or less, which are
subject to an insignificant risk of changes in value.
In the cash flow statement, cash and cash equivalents
consist of cash and short term deposits, as defined above,
net of outstanding cash credit facilities and working capital
demand loan, as these are considered an internal part of
the Company’s cash management.
(vii) Property, plant and equipment and intangible assets
The Company has applied for one time transition option
of considering the carrying cost of Property, Plant &
Equipment and Intangible assets on the transition date i.e.
April 1,2016 as the deemed cost under Ind-AS.
Recognition and measurement
Items of property, plant and equipment are measured at
cost less accumulated depreciation and accumulated
impairment losses, if any. Capital work in progress is
stated at cost, net of accumulated impairement loss, if
any. Cost is inclusive of freight, duties, taxes or levies (net
of recoverable taxes) and any directly attributable cost of
bringing the assets to their working condition for intended
use. The cost of an item of property, plant and equipment
are recognised only if it is probable that the expected
future economic benefits that are attributable to the asset
will flow to the Company and the cost of assets can be
measured reliably.
Profit or loss on disposal/ scrapping/ write off/ retirement
from active use of an item of property, plant and equipment
is recognised in the statement of profit and loss.
The cost of improvements to leasehold premises, if
recognition criteria are met, has been capitalised and
disclosed separately as leasehold improvement.
Capital work-in-progress includes cost of property, plant
and equipment outstanding at each balance sheet date.
Advances paid towards the acquisition of property, plant
and equipment outstanding at each balance sheet date is
classified as capital advances and cost of assets not ready
for use at the balance sheet date, are disclosed under
capital work-in-progress.
Subsequent costs
Subsequent costs are included in the asset's carrying
amount or recognised as separate assets, as appropriate,
only when it is probable that the future economic benefits
associated with expenditure will flow to the Company and
the cost of the item can be measured reliably. All other
repairs and maintenance are charged to Statement of
Profit and Loss at the time of incurrence.
Depreciation
Property, plant and equipment are depreciated on a pro¬
rata basis on Straight Line Method (SLM) using the rates
arrived based on useful lives as prescribed in Schedule-
II of the Companies Act, 2013, or useful lives of assets
estimated by the management based on technical advice
in cases where a useful life is different than the useful lives
indicated in Schedule-II of the Companies Act, 2013, which
represents the period over which management expects to
use these assets, as follows:
Depreciation has been charged based on the
following useful lives:
Leasehold land and improvement is depreciated on a
straight line basis over the period of the lease.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are reviewed
by management at each reporting date and adjusted
prospectively, as appropriate.
All the property,plant and equipments are physically
verified over a period of two years.
(viii) Intangible assets
Recognition and measurement
Intangible assets that are acquired are recognised only if
it is probable that the expected future economic benefits
that are attributable to the asset will flow to the Company
and the cost of assets can be measured reliably. The
intangible assets are recorded at cost of acquisition
including incidental costs necessary to make the assets
ready for their intended use and are carried at cost less
accumulated amortisation and impairment losses, if any.
Intangible assets consist of computer softwares and rights
under licensing agreement.
Gain or losses arising from derecognition of an intangible
asset are measured as the difference between the
net disposal proceeds and the carrying amount of the
intangible asset and are recognised in the Statement of
Profit and Loss when the asset is derecognised.
Intangible assets under development is stated at cost, net
of accumulated impairement loss, if any. Advances paid
towards the acquisition of intangible assets outstanding
at each balance sheet date are classified as capital
advances and cost of assets not ready for use at the
balance sheet date, are disclosed under Intangible assets
under development.
Subsequent costs
Subsequent costs are capitalised only when it increases
the future economic benefits embodied in the specific
asset to which it relates. All other expenditure on intangible
assets is recognised in the Statement of Profit and
Loss, as incurred.
Amortisation
Amortisation is calculated to write off the cost of intangible
assets over their estimated useful lives using the straight¬
line method. Amortisation is calculated on a pro-rata basis
for assets purchased/ disposed during the year.
Amortisation method, useful lives and residual values are
reviewed at each reporting date and adjusted prospectively,
if appropriate.
(ix) Leases
The Company as a lessee
The Company’s lease asset classes primarily consist of
leases for land and buildings. The Company assesses
whether a contract contains a lease, at inception of a
contract. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. To
assess whether a contract conveys the right to control the
use of an identified asset, the Company assesses whether:
(i) the contract involves the use of an identified asset (ii) the
Company has substantially all of the economic benefits
from use of the asset through the period of the lease and
(iii) the Company has the right to direct the use of the asset.
At the date of commencement of the 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 low value leases.
For these short-term and low value leases, the Company
recognizes the lease payments as an operating expense
on a straight-line basis over the term of the lease.
Certain lease arrangements includes the options to extend
or terminate the lease before the end of the lease term.
ROU assets and lease liabilities includes these options
when it is reasonably certain that these will be exercised.
The right-of-use assets are initially recognized 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. These are subsequently
measured at cost less accumulated depreciation and
impairment losses.
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. Right of use assets are evaluated for recoverability
whenever events or changes in circumstances indicate
that their carrying amounts may not be recoverable.
For the purpose of impairment testing, the recoverable
amount (i.e. the higher of the fair value less cost to sell
and the value-in-use) is determined on an individual asset
basis unless the asset does not generate cash flows that
are largely independent of those from other assets. In such
cases, the recoverable amount is determined for the Cash
Generating Unit (CGU) to which the asset belongs.
The lease liability is initially measured at amortized cost
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 in the country of domicile
of these leases. Lease liabilities are remeasured with a
corresponding adjustment to the related right of use asset
if the Company changes its assessment whether it will
exercise an extension or a termination option.
Lease liability and ROU asset have been separately
presented in the Balance Sheet and lease payments have
been classified as financing cash flows.
The incremental borrowing rate has been applied to
lease liabilities.
(x) Inventories
Inventories (including raw material, stock- in trade, work in
progress and finished goods) are measured at the lower of
cost and net realisable value. However, raw materials and
other supplies held for use in the production of finished
goods are not written down below cost if the finished
goods in which it will be incorporated are expected to be
sold at or above cost.
The cost of raw material, stock-in-trade (goods purchased
for resale) is being determined at first-in, first-out basis and
includes expenditure incurred in acquiring the inventories
and other costs in bringing them to their present condition
and location. In the case of manufactured inventories
and work-in-progress, cost includes an appropriate
share of fixed production overheads based on normal
operating capacity.
Net realizable value is the estimated selling price in the
ordinary course of business, less estimated costs of
completion and selling expenses. The net realizable value
of work-in-progress is determined with reference to the
selling prices of related finished products.
Obsolete, defective and unserviceable stocks are duly
provided for, wherever required.
(xi) Warranties and returns
Product warranty costs are determined using reasonable
estimates based on costs incurred in the past and are
provided for in the year sale is made. These includes free
replacements, breakages, returns etc. in respect of sewing
machines and domestic appliances
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