3 Significant Accounting Policies
3.01 Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable, taking into account
contractually defined terms of payment and excluding taxes or duties collected on behalf of the
government.
Effective April 1, 2018, the Company has applied Ind AS 115: Revenue from Contracts with Customers
which establishes a comprehensive framework for determining whether, how much and when revenue is to
be recognised. Ind AS 115 replaces Ind AS 18 Revenue. The impact of the adoption of the standard on the
financial statements of the Company is insignificant
Sale of Goods:
Revenue from contracts with customers 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. The Company has generally concluded that it is the principal in its
revenue arrangements, since it is the primary obligor in all of its revenue arrangement, as it has pricing
latitude and is exposed to inventory and credit risks. Revenue is stated net of goods and service tax and net
of returns, chargebacks, rebates and other similar allowances. These are calculated on the basis of
historical experience and the specific terms in the individual contracts. In determining the transaction price,
the Company considers the effects of variable consideration, the existence of significant financing
components, noncash consideration, and consideration payable to the customer (if any). The Company
estimates variable consideration at contract inception 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.Other Operating revenue is recognised on accrual
basis.
Export Incentives:
Export entitlements are recognized as income when the right to receive credit as per the terms of the
scheme is established in respect of the exports made and where there is no significant uncertainty
regarding the ultimate collection of the relevant export proceeds.As the Company derives a substantial
portion of its revenue from export of goods, such incentives is recognised as “Other Operating Income”
Rendering of Services:
Revenue from services rendered is recognised in the profit or loss as the underlying services are performed
and is recognised net of service tax and goods and service tax (provided that it is probable that the
economic benefits will flow to the Company and the amount of income can be measured reliably).
Interest Income:
Interest income from a financial asset is recognized when it is probable that the economic benefits will flow
to the Company and the amount of income can be measured reliably. Interest income is accrued on a time
basis, by reference to the principle outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life of the financial asset to that
asset’s net carrying amount on initial recognition.
Dividend Income
Dividend income from investments is recognized when the right to receive payment has been established,
provided that it is probable that the economic benefits will flow to the Company and the amount of income
can be measured reliably.
Impact of COVID-19
The Company has evaluated the impact of COVID-19 resulting from (i) the possibility of constraints to
render services/ provide goods; (ii) onerous obligations; (iii) Constraints in delivering goods due to the
lockdown and restraint in movement of goods. Due to the nature of the pandemic, the Company will
continue to monitor developments to identify significant uncertainties relating to revenue in future periods.
3.02 Property, Plant & Equipment, Intangible Assets and Work -in - Progress
Recognition and Measurement
All items of property, plant and equipment, including freehold land, are initially recorded at cost. Cost of
property, plant and equipment comprises purchase price, non refundable taxes, levies and any directly
attributable cost of bringing the asset to its working condition for the intended use. Expenses directly
attributable to new manufacturing facility during its construction period are capitalized if the recognition
criteria is met. Freehold land has an unlimited useful life and therefore is not depreciated.
The cost of an item of property, plant and equipment is recognized 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. The cost includes the cost of replacing part of the property, plant and equipment and
borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
property, plant and equipment. The accounting policy for borrowing costs is set out in note below.
Items such as spare parts, stand-by equipmentand servicing equipment that meet the definition of property,
plant and equipment are capitalized at cost and depreciated over their useful life. Costs in nature of repairs
and maintenance are recognized in the Statement of Profit and Loss as and when incurred.
When significant parts of plant and equipment are required to be replaced at intervals, the Company
depreciates them separately based on their specific useful lives. Likewise, when a major inspection is
performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the
recognition criteria are satisfied.
Subsequent Measurement
Subsequent to initial recognition, property, plant and equipment other than freehold land are measured at
cost less accumulated depreciation and any accumulated impairment losses. The carrying values of
property, plant and equipment are reviewed for impairment when events or changes in circumstances
indicate that the carrying value may not be recoverable.
Disposal/Write-off
An item of property,plant and equipment is derecognized on disposal, or when no future economic benefits
are expected from use or disposal. Gains or losses arising from derecognition of property, plant and
equipment, measured as the difference between the net disposal proceeds and the carrying amount of the
asset, are recognized in profit or loss when the asset is derecognized.
Capital Work-in-Progress
Capital work-in-progress includes cost of property, plant and equipment that are not ready for their intended
use. Capital work-in-progress included property, plant and equipment are not depreciated as these assets
are not yet available for use.
Transition to Ind AS
For transition to Ind AS, the Company has elected to continue with the carrying value of all its property, plant
and equipment recognized as of April 01,2016 (transition date) measured as per the previous GAAP and use
that carrying value as its deemed cost as of the transition date.
Depreciation
Depreciable amount for assets in the cost of an asset, or other amount substituted for cost, less its estimated
residual value. Depreciation on the property, plant and equipment is provided on straight line method, over
the useful life of the assets, as specified in schedule II to the companies Act, 2013 and is recognised in in the
statement of profit and loss.
Property, plant and equipment which are added / disposed off during the year, depreciation is provided on
pro-rata basis. Building constructed on leasehold land is depreciated based on the useful life specified in
schedule II to the companies Act, 2013 where the lease period of the land is beyond the life of the building. In
other cases, building constructed on leasehold lands are amortised over the primary lease period of the
lands.
Depreciation method, useful lives and residual values are reviewed at each financial year-end and adjusted
if appropriate.
3.03 Intangible Asset
Recognition and Measurement
The items of intangible assets, with finite life, are measured at cost less accumulated amortisation and
impairment losses, if any. Cost of an item of intangible assets comprises its purchase price, including import
duties and non-refundable purchase taxes, after deducting trade discounts and rebates, any cost directly
attributable to bringing the asset to its working condition for its intended use.
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the
specific asset to which it relates. All other expenditure on internally generated goodwill and brands, is
recognised in profit or loss when incurred.
Disposal/Write-off
An intangible asset is derecognized 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 recognized in profit
or loss when the asset is derecognized.
3.03 Intangible Asset (continued)
Transition to Ind AS
On transition to Ind AS, the Company has elected to continue with the carrying values as at 1 April 2016
under previous GAAP of all its intangible assets recognised as at 1 April 2016, measured as per previous
GAAP and use that carrying value as the deemed cost of such intangible assets.
Amortisation
Amortisation is calculated to write-off the cost of intangible assets less their estimated residual values over
their estimated useful lives using the straight-line method, and is included in depreciation and amortisation
in the statement of profit and loss. The estimated useful life of intangibles are as follows:
The estimated useful life and amortization 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.
3.04 Non-current Assets Held for sale
The Company classifies a non-current asset (or disposal group) as held for sale if it satisfies the following
conditions:
- the asset (or disposal group) is available for immediate sale in its present condition
- the management is committed to a plan to sell the asset
- a buyer has been located or atleast a programme is in place to locate a buyer
- the sale is expected to be completed within a year
The asset held for sale is recognized at carrying amount except in cases where the fair value less cost to sell
is lower than the carrying amount.
The company recognizes the impairment lose at write down of the asset to fair value less cost to sell.
3.05 Inventories:
Inventories are valued at the lower of cost and net realisable value.Costs incurred in bringing each product
to its present location and condition are accounted for as follows:
Raw materials and accessories:
Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location
and condition. Cost is determined on first in, first out basis.
Finished goods and work in progress:
Cost includes cost of direct materials and labour and a proportion of manufacturing overheads based on
the normal operating capacity, but excluding borrowing costs. Cost is determined on first in, first out basis.
Trading Goods:
Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location
and condition. Net realisable value is the estimated selling price in the ordinary course of business, less
estimated costs of completion and the estimated costs necessary to make the sale.
3.06 Impairment
i. Impairment of financial instruments
The Company recognises loss allowances for expected credit losses on:
- financial assets measured at amortised cost; and
- financial assets measured at FVOCI- debt investments.
At each reporting date, the Company assesses whether financial assets carried at amortised cost and debt
securities at FVOCI are credit impaired. A financial asset is ‘credit impaired’ when one or more events that
have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit impaired includes the following observable data:
- significant financial difficulty of the borrower or issuer;
- a breach of contract such as a default or being past due for 180 days or more;
- the restructuring of a loan or advance by the Company on terms that the Company would not consider
otherwise;
- it is probable that the borrower will enter bankruptcy or other financial reorganisation; or
- the disappearance of an active market for a security because of financial difficulties.
3.06 Impairment (continued)
The Company measures loss allowances at an amount equal to lifetime expected credit losses, except for
the following, which are measured as 12 month expected credit losses:
- debt securities that are determined to have low credit risk at the reporting date; and
- other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the
expected life of the financial instrument) has not increased significantly since initial recognition.
Loss allowances for trade receivables are always measured at an amount equal to lifetime expected credit
losses. Lifetime expected credit losses are the expected credit losses that result from all possible default
events over the expected life of a financial instrument.12-month expected credit losses are the portion of
expected credit losses that result from default events that are possible within 12 months after the reporting
date (or a shorter period if the expected life of the instrument is less than 12 months).
In all cases, the maximum period considered when estimating expected credit losses is the maximum
contractual period over which the Company is exposed to credit risk.
When determining whether the credit risk of a financial asset has increased significantly since initial
recognition and when estimating expected credit losses, the Company considers reasonable and
supportable information that is relevant and available without undue cost or effort. This includes both
quantitative and qualitative information and analysis, based on the Company’s historical experience and
informed credit assessment and including forward looking information.
The Company assumes that the credit risk on a financial asset has increased significantly if it is more than
180 days past due.
The Company considers a financial asset to be in default when:
- the borrower is unlikely to pay its credit obligations to the Company in full, without recourse by the
Company to actions such as realising security (if any is held); or
- the financial asset is 180 days or more past due.
A. Measurement of expected credit losses
Expected credit losses are a probability weighted estimate of credit losses. Credit losses are
measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to
the Company in accordance with the contract and the cash flows that the Company expects to
receive).As a practical expedient, the Company uses a provision matrix to determine impairment loss
allowance on portfolio of its trade receivables. The provision matrix is based on its historically
observed default rates over the expected life of the trade receivables and is adjusted for forward
looking estimates. At every reporting date, the historical observed default rates are updated and
changes in the forward-looking estimates are analysed.
B. Presentation of allowance for expected credit losses in the balance sheet
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying
amount of the assets.
C. 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 debtor 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.
ii. Impairment of non-financial assets
The Company’s non-financial assets, other than inventories and deferred tax assets, are reviewed at
each reporting date to determine whether there is any indication of impairment. If any such indication
exists, then the asset’s recoverable amount is estimated.
For impairment testing, assets that do not generate independent cash inflows are grouped together
into cash-generating units (CGUs). Each CGU represents the smallest group of assets that generates
cash inflows that are largely independent of the cash inflows of other assets or CGUs.
The recoverable amount of a CGU (or an individual asset) is the higher 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 CGU (or the asset).
The Company’s corporate assets do not generate independent cash inflows. To determine impairment
of a corporate asset, recoverable amount is determined for the CGUs to which the corporate asset
belongs.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its estimated
recoverable amount. Impairment losses are recognised in the Statement of profit and loss. Impairment
loss recognised in respect of a CGU is allocated first to reduce the carrying amount of any goodwill
allocated to the CGU, and then to reduce the carrying amounts of the other assets of the CGU (or group
of CGUs) on a pro rata basis.
In respect of other assets for which impairment loss has been recognised in prior periods, the
Company reviews at each reporting date whether there is any indication that the loss has decreased or
no longer exists. An impairment loss is reversed if there has been a change in the estimates used to
determine the recoverable amount. Such a reversal is made only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation or
amortisation, if no impairment loss had been recognised.
3.07 Financial Instruments
i. Recognition and initial measurement
Trade receivables and debt securities issued are initially recognised when they are originated. All other
financial assets and financial liabilities are initially recognised when the Company becomes a party to
the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value plus, for an item not at fair value
through profit and loss (FVTPL), transaction costs that are directly attributable to its acquisition or
issue.
ii. Classification and subsequent measurement
A. Financial assets
On initial recognition, a financial asset is classified as measured at
- amortised cost
- Fair value through other comprehensive income (FVOCI) - debt investment;
- Fair value through other comprehensive income (FVOCI) - equity investment; or
- Fair value through profit & loss- (FVTPL)
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period
the Company changes its business model for managing financial assets.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not
designated as at FVTPL:
- the asset is held within a business model whose objective is to hold assets to collect 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 on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not
designated as at FVTPL:
- the asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets; and
- the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and Interest 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.
All financial assets not classified as measured at amortised cost or FVOCI as described above are
measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company
may irrevocably designate a financial asset that otherwise meets the requirements to be measured at
amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting
mismatch that would otherwise arise.
B. Financial assets: Business model assessment
The Company makes an assessment of the objective of the business model in which a financial asset is held
at a portfolio level because this best reflects the way the business is managed and information is provided to
management. The information considered includes:
- the stated policies and objectives for the portfolio and the operation of those policies in practice. These
include whether management’s strategy focuses on earning contractual interest income, maintaining
a particular interest rate profile, matching the duration of the financial assets to the duration of any
related liabilities or expected cash outflows or realising cash flows through the sale of the assets;
- how the performance of the portfolio is evaluated and reported to the Company’s management;
- the risks that affect the performance of the business model (and the financial assets held within that
business model) and how those risks are managed;
- how managers of the business are compensated - e.g. whether compensation is based on the fair
value of the assets managed or the contractual cash flows collected; and
- the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales
and expectations about future sales activity.
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not
considered sales for this purpose, consistent with the Company’s continuing recognition of the assets.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair
value basis are measured at FVTPL.
C. Financial assets: Assessment whether contractual cash flows are solely payments of principal
and interest.
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on
initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit
risk associated with the principal amount outstanding during a particular period of time and for other
basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the
Company considers the contractual terms of the instrument. This includes assessing whether the
financial asset contains a contractual term that could change the timing or amount of contractual cash
flows such that it would not meet this condition. In making this assessment, the Company considers:
- contingent events that would change the amount or timing of cash flows;
- terms that may adjust the contractual coupon rate, including variable interest rate features;
- prepayment and extension features; and
- terms that limit the Company’s claim to cash flows from specified assets (e.g. non recourse features).
A prepayment feature is consistent with the solely payments of principal and interest criterion if the
prepayment amount substantially represents unpaid amounts of principal and interest on the principal
amount outstanding, which may include reasonable additional compensation for early termination of the
contract. Additionally, for a financial asset acquired at a significant discount or premium to its contractual
par amount, a feature that permits or requires prepayment at an amount that substantially represents the
contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable
additional compensation for early termination) is treated as consistent with this criterion if the fair value of the
prepayment feature is insignificant at initial recognition.
D. Financial assets: Subsequent measurement and gains and losses
Financial assets at FVTPL These assets are subsequently measured at fair value. Net gains
and losses, including any interest or dividend income, are
recognised in profit or loss.
Financial assets at amortised cost These assets are subsequently measured at amortised cost using
the effective interest method. The amortised cost is reduced by
impairment losses. Interest income, foreign exchange gains and
losses and impairment are recognised in profit or loss. Any gain or
loss on derecognition is recognised in profit or loss.
D.1 Financial assets: Subsequent measurement and gains and losses
Debt investments at FVOCI These assets are subsequently measured at fair value. Interest
income under the effective interest method, foreign exchange
gains and losses and impairment are recognised in profit or loss.
Other net gains and losses are recognised in OCI. On
derecognition, gains and losses accumulated in OCI are
reclassified to profit or loss.
Equity investments at FVOCI These assets are subsequently measured at fair value. Dividends
are recognised as income in profit or 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 profit or loss.
E. Financial liabilities: Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial liability is classified as
at 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 profit or loss. Other financial liabilities are subsequently measured at
amortised cost using the effective interest method. Interest expense and foreign exchange gains and losses
are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.
iii Derecognition
A. Financial assets
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 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.
B. Financial liabilities
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 the
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 profit or loss.
iv. Offsetting
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 asset and settle the liability simultaneously.
3.08 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 of foreign currency monetary items at the Balance Sheet date:
Foreign currency monetary items (other than derivative contracts) of the Company and its net investment in
non-integral foreign operations outstanding at the Balance Sheet date are restated at the year-end rates.
Treatment of exchange differences:
Exchange differences arising on settlement / restatement of short-term foreign currency monetary assets
and liabilities of the Company are recognized as income or expense in the Statement of Profit and Loss.
3.09 Employee Benefits
a) Short Term Employee Benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are recorded as
expense as the related service is provided. Benefits such as salaries, short term compensated
absences etc., and the expected cost of bonus is recognized in the period in which the employee
renders the related services. A liability is recognized for benefits accruing to employees in respect of
wages and salaries, annual leave and sick leave in the period the related service is rendered at the
undiscounted amount of the benefits expected to be paid in exchange for the related service
b) Post-Employment Benefits
The Company participates in various employee benefit plans. Pensions and other post-employment
benefits are classified as either defined contribution plans or defined benefit plans. Under a defined
contribution plan, the Company’s only obligation is to pay a fixed amount with no obligation to pay
further contributions if the fund does not hold sufficient assets to pay all employee benefits. The related
actuarial and investment risks are borne by the employee. The expenditure for defined contribution
plans is recognised as an expense during the period when the employee provides service. Under a
defined benefit plan, it is the Company’s obligation to provide agreed benefits to the employees. The
related actuarial and investment risks are borne by the Company. The present value of the defined
benefit obligations is calculated by an independent actuary using the projected unit credit method.
Defined contribution plans
Employees receive benefits from a provident fund and employee state insurance funds. The employer
and employees each make periodic contributions to the plan as per local regulations. The Company
has no further payment obligations once the contributions have been paid. The contributions are
accounted for as defined contribution plans and the contributions are recognised as employee benefit
expenses in the Statement of Profit and Loss as they fall due based on the amount of contribution
required to be made.
Defined Benefit plans
In accordance with the Payment of Gratuity Act, 1972, applicable for Indian companies, the Company
provides for a lump sum payment to eligible employees, at retirement or termination of employment
based on the last drawn salary and years of employment with the Company. Company’s liability
towards Gratuityare actuarially determined at each balance sheet date using the projected unit credit
method. Actuarial gains and losses are recognized in the Statement of Profit and Loss in the period of
occurrence.
3.10 Borrowing Cost
Borrowing costs consists of interest, ancillary costs and other costs in connection with the borrowing
of funds and exchange differences arising from foreign currency borrowings to the extent they are
regarded as an adjustment to interest costs.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets
are capitalised as part of the cost of such assets upto the assets are substantially ready for their
intended use or sale.
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.
Investment income earned on the temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All
other borrowing costs are recognised in the statement of profit and loss in the period in which they are
incurred.
3.11 Leases
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 of consideration. To assess whether a contract conveys the right to control the use of
an identified asset, the Company assesses whether
a. the Contract involves the use of an identified asset
b. the Company has substantially all of the economic benefits from use of the asset through the
period of lease
c. the Company has the right to direct the use of asset
Leases as Lessor
Leases for which the Company is a lessor is classified as a finance or operating lease. When ever
the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee,
the contract is classified as a finance lease. All other leases are classified as operating leases. The
Company recognises lease payments received under operating leases as income on a straight¬
line basis over the lease term. In case of a finance lease, finance income is recognised over the
lease term based on a pattern reflecting a constant periodic rate of return on the lessor’s net
investment in the lease. When the Company is an intermediate lessor it accounts for its interests
in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease
with reference to the right-of-use asset arising from the head lease, not with reference to the
underlying asset. If a head lease is a short term lease to which the Company applies the
exemption described above, then it classifies the sub-lease as an operating lease
Leases as Lessee
As at the date of commencement of the lease, the Company recognises a right of use
asset(“ROU”) and a corresponding lease liability for all lease arrangements in which it is a lessee,
except for the leases with a term of twelve month or less (short term leases) and low value leases.
For these short term leases, the Company recognises the lease payments as an operating
expense on a straight line basis over the period of lease.
Certain lease arrangements include the options to extend or terminate the lease before the end of
the lease term. ROU assets and lease liabilities include these options when it is reasonably
certain that they will be exercised. ROU 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 and related prepaid amount plus any initial direct costs less any
lease incentives. They are subsequently measured at cost less accumulated depreciation and
impairment losses
ROU 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. They are subsequently measured at cost less
accumulated depreciation and impairment losses. ROU 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. ROU 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 market . Lease liabilities are remeasured with a corresponding
adjustment to the related right of use asset if the Company changes its assessment if whether it
will exercise an extension or a termination option.The Right-of-Use asset has been disclosed
within the same line item as that within which the corresponding underlying asset would be
presented. Where the Right-of-Use asset meets the definition of Investment Property such items
has been presented in Balance sheet as Investment Property. Lease liability have been
separately presented in the Balance Sheet and lease payments have been classified as financing
cash flows
The following is the summary of practical expedients elected on initial application:
1. Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial
application
2. Used hindsight in determining the lease term where the contract contains options to extend or
terminate the lease
3. Applied a single discount rate to a portfolio of leases of similar assets in similar economic
environment with a similar end date
4. Applied the exemption not to recognize right-of-use assets and liabilities for leases with less than
12 months of lease term on the date of initial application
3.12 Earnings per Share
Basic earnings per share is computed by dividing the profit / (loss) after tax (including the post-tax effect of
extraordinary items, if any) by the weighted average number of equity shares outstanding during the year.
Diluted earnings per share is computed by dividing the profit / (loss) after tax (including the post-tax effect of
extraordinary items, if any) as adjusted for dividend, interest and other charges to expense or income
relating to the dilutive potential equity shares, by the weighted average number of equity shares considered
for deriving basic earnings per share and the weighted average number of equity shares which could have
been issued on the conversion of all dilutive potential equity shares. Potential equity shares are deemed to
be dilutive only if their conversion to equity shares would decrease the net profit per share from continuing
ordinary operations. Potential dilutive equity shares are deemed to be converted as at the beginning of the
period, unless they have been issued at a later date. The dilutive potential equity shares are adjusted for the
proceeds receivable had the shares been actually issued at fair value (i.e. average market value of the
outstanding shares). Dilutive potential equity shares are determined independently for each period
presented. The number of equity shares and potentially dilutive equity shares are adjusted for share splits /
reverse share splits and bonus shares, as appropriate.
3.13 Income Tax
a. Current Tax
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.
b. Minimum Alternate Tax (‘MAT’)
Minimum Alternate Tax (‘MAT’) under the provisions of the Income-tax Act, 1961 is recognised as
current tax in the Statement of Profit and Loss. The credit available under the Income-tax Act, 1961 in
respect of MAT paid is recognised as an asset only when and to the extent there is convincing evidence
that the Company will pay normal income tax during the period for which the MAT credit can be carried
forward for set-off against the normal tax liability. MAT credit recognised as an asset is reviewed at each
Balance Sheet date and written down to the extent the aforesaid convincing evidence no longer exists.
c. Deferred Tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the financial statements and 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 utilized. Such deferred tax assets and liabilities not recognised if the temporary differences
arises from the initial recognition (other than in a business combination) of assets and liabilities in a
transaction that affects neither the taxable profit not the accounting profit. In addition, deferred tax
liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in
subsidiaries and associates, and interests in joint ventures, except where the Company is able to
control the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences
associated with such investments and interest are only recognised to the extent that it is probable that
there will be sufficient taxable profits against which to utilize the benefits of the temporary differences
and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the period
in which the liability is settled or the asset is realized, based on tax rates (and tax laws) that have been
enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow
from the manner in which the Company expects, at the end of the reporting period, to recover or settle
the carrying amount of its assets and liabilities.
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