MATERIAL ACCOUNTING POLICIES
Accounting Policies have been consistently applied except where a
newly issued accounting standards is initially adopted or a revision to an
existing accounting standard required a change in the accounting policy
hitherto in use.
2.1 Statement of compliance
The standalone financial statements of Somany Ceramics Limited
("the Company") comply with Indian Accounting Standards ("Ind
AS") as prescribed under section 133 of the Companies Act, 2013
("the Act"), as notified under the Companies (Indian Accounting
Standards) Rules, 2015, as amended and other accounting principles
generally accepted in India.
2.2 Basis of preparation and measurement
The financial statements have been prepared under the historical
cost convention on accrual basis except for the followings :
- Non-current borrowings are initially measured at amortized
cost.
- Current investments are measured at fair value at each
reporting date.
- Defined benefit plans and other long-term employee benefits
are measured at fair value net off fair valuation of plan assets
at each reporting date.
- Share based payments are initially measured at fair value.
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, regardless of whether that
price is directly observable or estimated using another valuation
technique. In estimating the fair value of an asset or a liability, the
Company takes into account the characteristics of the asset or
liability, if market participants would take those characteristics into
account when pricing the asset or liability at the measurement date.
In addition, for financial reporting purposes, fair value measurements
are categorised into Level 1, 2 or 3 based on the degree to which
the inputs to the fair value measurements are observable and
the significance of the inputs to the fair value measurement in its
entirety, which are described as follows:
- Level 1 inputs are quoted prices (unadjusted) in active markets
for identical assets or liabilities that the Company can access
at the measurement date;
- Level 2 inputs other than quoted prices included within Level
1, that are observable for the asset or liability, either directly or
indirectly; and
- Level 3 inputs are unobservable inputs for the asset or liability.
2.3 Functional and presentation currency
These financial statements are presented in Indian National Rupee
('), which is the Company’s functional currency. All amounts have
been rounded to the nearest Lakhs, unless otherwise indicated.
2.4 Use of judgements and estimates
In preparing these financial statements, management has made
judgements, estimates and assumptions that affect the application
of the Company’s accounting policies and the reported amounts of
assets, liabilities, income and expenses. Management believes that
the estimates used in the preparation of the financial statements
are prudent and reasonable. Actual results may differ from these
estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to estimates are recognised prospectively.
Judgements
Information about the judgements made in applying accounting
policies that have the most material effects on the amounts
recognised in the financial statements have been given below:
- assessing the lease term (including anticipated renewals) and
the applicable discount rate.
- Classification of financial assets: assessment of business
model within which the assets are held and assessment of
whether the contractual terms of the financial assets are solely
payments of principal and interest on the principal amount
outstanding.
Assumptions and estimation uncertainties
I nformation about assumptions and estimation uncertainties that
have a significant risk of resulting in a material adjustment in the
financial statements for the every period ended is included below:
- Measurement of defined benefit obligations: key actuarial
assumptions;
- Recognition of deferred tax assets: availability of future taxable
profit against which carry-forward tax losses can be used;
- Impairment test: key assumptions underlying recoverable
amounts;
- Useful life and residual value of Property, Plant and Equipment,
Intangible assets and Right of Use assets;
- Recognition and measurement of provisions and contingencies:
key assumptions about the likelihood and magnitude of an
outflow of resources;
- Assessment of recoverability of receivables and advances
which requires significant management judgement based on
financial position of the counter-parties, market information
and other relevant factors.
- Assessment of reliability of inputs considered for fair valuation
of financial assets and liabilities falls under hierarchy Level 3.
- Assessment of appropriate inputs to the Black Scholes Model
for valuation of share based payments including the expected
life of the share option, volatility and dividend yield and making
assumptions about them.
2.5 Classification of Assets and Liabilities as Current and Non-Current
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 realised or intended to be sold or consumed in
normal operating cycle;
- Held primarily for the purpose of trading;
- Expected to be realised within twelve months after the reporting
period, or
- Cash and Cash equivalents unless restricted from being
exchanged or used to settle a liability for at least twelve months
after the reporting period.
An liability is treated as current when it is:
- Expected to be settled in normal operating cycle;
- Held primarily for the purpose of trading;
- Expected 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 assets/liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current.
The Company has ascertained the operating cycle as 12 months for
the purpose of current and non-current classification of assets and
liabilities.
2.6 Property, Plant and Equipment
Recognition and Measurement
Items of property, plant and equipment are stated at cost less
accumulated depreciation and accumulated impairment loss, if any.
Cost includes deemed cost which represents the carrying value of
property, plant and equipment as at 1 April, 2016 measured as per
the previous Generally Accepted Accounting Principles (GAAP).The
cost of assets comprises of purchase price and directly attributable
cost of bringing the assets to working condition for its intended
use including borrowing cost and incidental expenditure during
construction incurred upto the date when the assets are ready for
intended use. Capital work in progress includes cost of assets at
sites, construction expenditure and interest on the funds deployed
on qualifying assets less any impairment loss, if any.
If significant parts of an item of property, plant and equipment have
different useful lives, then they are accounted for as a separate items
(major components) of property, plant and equipment.
Subsequent Measurement
Subsequent expenditure is capitalised only if it is probable that there
is a future economic benefits associated with the expenditure will
flow to the Company.
Depreciation
Depreciation is calculated on Straight Line Method using the rates
arrived at on the basis of estimated useful lives given in Schedule II
of the Companies Act, 2013 except for the following which has been
determined on the basis of technical evaluation.
Depreciation on additions to or on disposal of assets is calculated
on pro-rata basis. Individual assets costing below ' 5,000 are fully
depreciated in the year of purchase.
Leasehold improvements are depreciated over the lease period
or estimated useful life of assets in line with schedule II of the
Companies Act, 2013, which ever is lower.
Depreciation methods, useful lives and residual values are reviewed
in each financial year end and changes, if any, are accounted for
prospectively. The management believes that these estimated
useful lives are realistic and reflect fair approximation of the period
over which the assets are likely to be used.
Capital work-in-progress
Capital work-in-progress comprises of assets in the course of
construction for production or/and supply of goods or services or
administrative purposes, are carried at cost, less any recognised
impairment loss. At the point when an asset is operating at
management's intended use, the cost of construction is transferred
to the appropriate category of property, plant and equipment. Costs
associated with the commissioning of an asset are capitalised
where the asset is available for use and commissioning has been
completed.
De-recognition
An item of property, plant and equipment is de-recognised 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 net disposal proceeds and the
carrying amount of the asset and is recognised in the Statement of
Profit & Loss.
2.7 Intangible assets
Intangible Assets (Other than Goodwill) acquired separately are
stated at cost less accumulated amortization and impairment loss, if
any. Cost includes deemed cost which represents the carrying value
of property, plant and equipment as at 1 April, 2016 measured as
per the previous Generally Accepted Accounting Principles (GAAP).
Intangible assets are amortized on straight line method basis over
the estimated useful life. Estimated useful life of the Software and
designs is considered as 5 years.
Amortization methods, useful lives and residual values are reviewed
at each financial year end and changes, if any, are accounted for
prospectively.
An intangible asset is de-recognised on disposal, or when no future
economic benefits are expected from use or disposal. Gains or
losses arising from derecognition of an intangible asset, measured
as the difference between the net disposal proceeds and the carrying
amount of the asset are recognised in the Statement of Profit & Loss
when the asset is derecognised.
2.8 Impairment of non-financial assets
At each reporting date, the Company reviews the carrying amounts
of its non-financial assets (other than inventories and deferred tax
assets) to determine whether there is any indication on impairment.
If any such indication exists, then the recoverable amount of assets
is estimated.
For impairment testing, assets are grouped together into the smallest
group of assets that generates cash inflows from continuing use
that are largely independent of the cash inflows of other assets or
Cash Generating Unit (CGUs).
The recoverable amount of an asset or CGU is the greater of its value
in use and its fair value less costs to sell. Value in use is based on the
estimated future cash flows, 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 or CGU.
An impairment loss is recognised if the carrying amount of an asset
or CGU exceeds its recoverable amount.
Impairment loss in respect of assets other than goodwill is
reversed only to the extent that the assets carrying amount does
not exceed the carrying amount that would have been determined,
net of depreciation or amortization, if no impairment loss had been
recognized in prior years. A reversal of impairment loss is recognised
immediately in the Statement of Profit & Loss.
2.9 Borrowing Cost
Borrowing costs directly attributable to the acquisition, construction
of qualifying assets are capitalised as part of the cost of such assets
upto the assets are substantially ready for their intended use.
The loan origination costs directly attributable to the acquisition of
borrowings (e.g. loan processing fee, upfront fee) are amortised on
the basis of the Effective Interest Rate (EIR) method over the term of
the loan.
All other borrowing costs are recognised in the Statement of Profit &
Loss in the period in which they are incurred.
2.10 Foreign currency transactions
Transactions in foreign currencies are recorded by the Company at
their respective functional currency at the exchange rates prevailing
at the date of the transaction first qualifies for recognition. Monetary
assets and liabilities denominated in foreign currency are translated
to the functional currency at the exchange rates prevailing at the
reporting date.
Exchange differences arising on settlement or translation of
monetary items are recognised in the Statement of Profit & Loss
with the exception of the following:
Non-monetary items that are measured at historical cost in a foreign
currency are translated using the exchange rates at the date of initial
transactions. Non-monetary items measure at fair value in a foreign
currency are translated using the exchange rates at the date when
the fair value is determined.
2.H Employee benefitsShort term employee benefits
Short-term employee benefits are expensed in the year in which
the related services are provided. A liability is recognised for the
amount expected to be paid if the Company has a present legal or
constructive obligation to pay this amount as a result of past service
provided by the employee and the obligation can be estimated
reliably.
Defined contribution plans
Employee benefits in the form of Provident Fund are defined as
contribution plan and charged as expenses during the period in
which the employees perform the services.
Defined benefit plans
For defined benefit plans, the cost of providing benefits is determined
using the projected unit credit method, with actuarial valuations
being carried out at the end of each annual reporting period. The
present value of the defined benefit obligation is determined by
discounting the estimated future cash outflows using market yields
available on government bonds.
The effect of the remeasurement changes (comprising actuarial
gains and losses) to the asset ceiling (if applicable) and the return
on plan assets (excluding interest), is reflected in the balance sheet
with a charge or credit recognised in other comprehensive income in
the period in which they occur.
Remeasurement gains and losses arising from experience
adjustments and changes in actuarial assumptions are recognised
in the period in which they occur, directly in OCI and such re¬
measurement gain / loss are not reclassified to the Statement of
Profit and Loss in the subsequent periods. They are included in
retained earnings in the statement of changes in equity.
Net interest is calculated by applying the discount rate at the
beginning of the period to the net defined benefit liability or asset.
Defined benefit costs are categorised as follows:
service cost (including current service cost, past service cost,
as well as gains and losses on curtailments and settlements);
net interest expense or income; and
remeasurement
The Company presents the first two components of defined benefit
costs in the Statement of Profit & Loss in the line item employee
benefits expense.
The retirement benefit obligation recognised in the balance sheet
represents the actual deficit or surplus in the Company’s defined
benefit plans. Any surplus resulting from this calculation is limited
to the present value of any economic benefits available in the form
of refunds from the plans or reductions in future contributions to the
plans.
Other long-term employee benefits
The Company has long term employment benefit plans i.e.
accumulated leave. Accumulated leave is encashed to eligible
employees at the time of retirement/termination of services. The
liability for accumulated leave, which is a defined benefit scheme,
is provided based on actuarial valuation as at the Balance Sheet
date, based on Projected Unit Credit Method, carried out by an
independent actuary.
Share Based Payments
The Company recognises compensation expense relating to share-
based payment in statement of profit and loss using fair value in
accordance with Ind AS 102, "Share-based Payment".
The Company initially measures the cost of equity-settled
transactions with employees using Black Scholes model to
determine the fair value of the liability incurred which has been
considered most appropriate model. Estimating fair value for share-
based payment transactions requires determination of the most
appropriate valuation model, which is dependent on the terms and
conditions of the grant. This estimate also requires determination
of the most appropriate inputs to the valuation model including the
expected life of the share option, volatility and dividend yield and
making assumptions about them. The assumptions and models
used for estimating fair value for share-based payment transactions
are disclosed in note no. 47.
2.12 Revenue Recognition
The Company recognizes revenue when it satisfies a performance
obligation in accordance with the provisions of contract with the
customer. Revenue towards satisfaction of a performance obligation
is measured at the amount of transaction price allocated to that
performance obligation. This is achieved when control of the product
has been transferred to the customer, which is generally determined
when title, ownership, risk of obsolescence and loss pass to the
customer and the Company has the present right to payment, all of
which occurs at a point in time upon shipment and delivery of the
product. The Company considers shipping and handling activities
as costs to fulfill the promise to transfer the related products and the
customer payments for shipping and handling costs are recorded as
a component of revenue.
Revenue (other than sale of goods) is recognised to the extent that it
is probable that the economic benefits will flow to the Company and
the revenue can be reliably measured. Claim on insurance companies
and others, where quantum of accrual cannot be ascertained with
reasonable certainty, are accounted for on acceptance basis.
Transaction price represents net value of goods and services provided
to customers after deducting for certain incentives including, but not
limited to discounts, volume rebates, incentive programs etc.
For incentives offered to customers, the Company makes estimates
related to customer performance and sales volume to determine
the total amounts earned and to be recorded as deductions. The
estimate is made in such a manner, which ensures that it is highly
probable that a significant reversal in the amount of cumulative
revenue recognised will not occur. The actual amounts may differ
from these estimates and are accounted for prospectively. No
element of significant financing is deemed present as the sales are
made with a credit term, which is consistent with market practice.
Interest income are recognised on an accrual basis using the
effective interest method.
2.13 Inventories
Inventories are valued at lower of cost and net realizable value. Cost
of manufactured finished goods and work in progress is determined
by taking cost of material consumed, labour and related overheads.
Finished goods, raw materials and packing materials, stock in trade
and stores & spares are valued at weighted average cost method.
Purchases cost of raw materials and packing materials, finished
goods, stock in trade and stores & spares are net of input tax
credits, rebates and discounts. Net realizable value is the estimated
selling price in the ordinary course of business, less estimated
costs of completion and to make the sale. However, materials and
other items held for use in the production of finished goods are not
written down below cost if the finished products in which they will
be incorporated are expected to be sold at or above cost. Provision
for cost of obsolescence and other anticipated losses, wherever
considered necessary, are recognized in the books of account.
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