2. SIGNIFICANT ACCOUNTING POLICIES
A. Revenue recognition:
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.
Revenue from the sale of goods is recognized at the point in time when control of the
asset is transferred to the customer, generally on the delivery of the goods.
The Company satisfies the performance obligation and recognises revenue over time, if
one of the criteria prescribed under Ind AS 115 - "Revenue from Contracts with
Customers" is satisfied. If a performance obligation is not satisfied over time, then
revenue is recognized at a point in time at which the performance obligation is satisfied.
The Company recognises revenue for performance obligation satisfied over time only if it
can reasonably measure its progress towards complete satisfaction of the performance
obligation. The Company would not be able to reasonably measure its progress towards
complete satisfaction of a performance obligation if it lacks reliable information that
would be required to apply an appropriate method of measuring progress. In those
circumstances, the Company recognises revenue only to the extent of cost incurred until it
can reasonably measure outcome of the performance obligation.
The Company considers whether there are other promises in the contract that are
separate performance obligations to which a portion of the transaction price needs to be
allocated. In determining the transaction price, the Company considers the effects of
variable consideration, the existence of significant financing component and
consideration payable to the customer like return and trade discounts.
Sales are disclosed excluding net of sales returns and Goods and Service Tax (GST).
Income from operations includes revenue earned on account of job work income which is
accounted as per the terms agreed with the customers. Export benefits available under
prevalent schemes are accounted to the extent considered receivable.
Other income is comprised primarily of interest income, gain / loss on investments and
exchange gain/loss on foreign currency transactions. Interest income is recognized using
the effective interest method.
Rental income from investment properties and subletting of properties is recognised on a
straight line basis over the term of the relevant leases.
B. Foreign Currency Transactions
i. Functional and presentation currency
Items included in the financial statements of the Company are measured using the
currency of the primary economic environment in which the Company operates (“the
functional currency”). The financial statements are presented in Indian rupee, which
is the Company's functional and presentation currency.
ii. Foreign currency transactions and balances
Foreign currency transactions are recorded in the functional currency by applying to
the foreign currency amount the exchange rate between the functional currency and
the foreign currency on the date of the transaction (spot exchange rate).
All monetary items denominated in foreign currency are converted into the functional
currency at the year-end exchange rate. The exchange differences arising on such
conversion and on settlement of the transactions are recognised in the statement of
profit and loss.
Non-monetary items in terms of historical cost denominated in a foreign currency are
reported using the exchange rate prevailing on the date of the transaction.
C. Property, Plant and Equipment:
i. Recognition and measurement
Leasehold land and Building are carried at Fair Value. All other items of property, plant
and equipment are measured at cost less accumulated depreciation and any accumulated
impairment losses. Cost includes expenditure that is directly attributable to the
acquisition of the items.
Income and expenses related to the incidental operations, not necessary to bring the item
to the location and condition necessary for it to be capable of operating in the manner
intended by management, are recognized in the Statement of Profit and Loss.
If significant parts of an item of property, plant and equipment have different useful life,
then they are accounted and depreciated for as separate items (major components) of
property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognized in
the Statement of Profit and Loss.
On transition to Ind AS, the Company has elected to continue with the carrying value of all
of its property, plant and equipment recognized as at April 1, 2016 measured as per the
Previous GAAP and use that carrying value as the deemed cost (except to the extent of any
adjustment permissible under other accounting standard) of the property, plant and
equipment.
ii. Subsequent Expenditure
Subsequent expenditure is capitalized only if it is probable that the future economic
benefits associated with the expenditure will flow to the Company.
iii. Depreciation
Depreciation or amortisation is provided from the date the assets are ready to be put to
use, using straight line method over the estimated useful life of the assets.
Leasehold land is being amortised over the life of the lease. Depreciation on assets under
construction commences only when the assets are ready for their intended use.
For determining the appropriate depreciation rates, plant and machinery falling under
the category of continuous process plant has been identified on the basis of technical
opinion obtained. Depreciation on additions to and disposals of the property, plant and
equipment and intangible assets during the period has been provided on pro-rata basis,
according to the period each such asset was used during the period except in case of low
value items not exceeding INR 10,000/- which are depreciated fully in the period of
addition. Depreciation on addition or extension to the existing property, plant and
equipment which becomes integral part of that asset is provided on pro-rata basis
according to the remaining useful life of the existing asset.
*Depreciation on ‘work rolls, intermediate rolls and back up rolls' are calculated based on
their proportionate usage which is technically evaluated by the company management.
Depreciation method, useful life and residual value are reviewed periodically and, when
necessary, revised. No further charge is provided in respect of assets that are fully written
down but are still in use.
D. Intangible Assets:
Intangible assets include computer software which is stated at cost less accumulated
amortisation.
On transition to Ind AS, the Company has opted to continue with the carrying values
measured under the previous GAAP as at 1st April, 2016 its intangible assets and used
that carrying value as the deemed cost of the intangible assets on the date of transition i.e.
1st April, 2016.
E. Investment property
Investment properties are those that are held for long-term rental yields or for capital
appreciation or both. Investment property is measured initially at its cost, including
related transaction costs. Subsequent expenditure is capitalised to the asset's carrying
amount only when it is probable that future economic benefits associated with the
expenditure will flow to the Company in a period exceeding 1 year and the cost of the
item can be measured reliably. All other repairs and maintenance costs are expensed
when incurred.
Investment properties are depreciated using the straight-line method over their
estimated useful lives. The useful life has been determined based on technical evaluation
performed by the management's expert.
On transition to Ind AS, the Company has elected to continue with the carrying value of all
of its investment properties recognised as at 1st April, 2016 measured as per the previous
GAAP and use that carrying value as the deemed cost of investment properties.
F. Leases:
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.
Company as a lessee
(A) Lease Liability
At the commencement date, the Company measures the lease liability at the
present value of the lease payments that are not paid at that date. The lease
payments shall be discounted using incremental borrowing rate.
(B) Right-of-use assets
Initially recognised at cost, which comprises the initial amount of the lease liability
adjusted for any lease payments made at or prior to the commencement date of
the lease plus any initial direct costs less any lease incentives.
Subsequent measurement
(A) Lease Liability
Company measure the lease liability by (a) increasing the carrying amount to
reflect interest on the lease liability; (b) reducing the carrying amount to reflect
the lease payments made; and (c) remeasuring the carrying amount to reflect any
reassessment or lease modifications.
(B) Right-of-use assets
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 under
lying asset.
Impairment
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.
Short term Lease
Short term lease is that, at the commencement date, has a lease term of 12 months or less.
A lease that contains a purchase option is not a short-term lease. If the company elected
to apply short term lease, the lessee shall recognise the lease payments associated with
those leases as an expense on either a straight-line basis over the lease term or another
systematic basis. The lessee shall apply another systematic basis if that basis is more
representative of the pattern of the lessee's benefit.
As a lessor
Leases for which the company is a lessor is classified as a finance or operating lease.
Whenever, the terms of the lease transfers 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.
Lease income is recognised in the statement of profit and loss on straight line basis over
the lease term.
G. 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.
a) Recognition, initial measurement and derecognition
Financial assets and financial liabilities are recognized when the Company becomes a
party to the contractual provisions of the financial instrument and are measured
initially at fair value adjusted by transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities (other than financial
assets and financial liabilities at fair value through profit and loss)
The transaction costs directly attributable to the acquisition of financial assets and
financial liabilities at fair value through profit and loss are immediately recognised in
the statement of profit and loss.
A financial asset (or, where applicable, a part of a financial asset or part of a Company
of similar financial assets) is primarily derecognized (i.e. removed from the
Company's balance sheet) when:
- The rights to receive cash flows from the asset have expired, or
- The Company has transferred its rights to receive cash flows under an eligible
transaction.
A financial liability is derecognised when the obligation under the liability is
discharged or cancelled or expires.
b) Classification and subsequent measurement of financial assets
For the purpose of subsequent measurement, financial assets are classified into the
following categories upon initial recognition:
- Debt instruments at amortised cost
- Debt instruments at fair value through other comprehensive income (FVTOCI)
- Debt instruments, derivatives and equity instruments at fair value through profit or
loss (FVTPL)
• Equity instruments measured at fair value through other comprehensive income
(FVTOCI)
• Equity instruments measured at fair value profit or loss (FVTPL)
Debt instruments at amortised cost
A ‘debt instrument' is measured at the amortised cost if both the following conditions
are met:
a. The asset is held within a business model whose objective is to hold assets for
collecting contractual cash flows, and
b. Contractual terms of the asset give rise on specified dates to cash flows that are
solely payments of principal and interest (“SPPI”) on the principal amount
outstanding.
After initial measurement, such financial assets are subsequently measured at
amortised cost using the effective interest rate (the “EIR”) method. The effective
interest rate is the rate that exactly discounts future cash receipts or payments
through the expected life of the financial instrument, or where appropriate, a
shorter period.
Amortised cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR. The EIR
amortisation is included in finance income in the statement of profit and loss. The
losses arising from impairment are recognised in the statement of profit and loss.
Debt instruments at fair value through other comprehensive income
A ‘debt instrument' is classified as at the FVTOCI if both of the following criteria are
met:
a. The objective of the business model is achieved both by collecting contractual cash
flows and selling the financial assets, and
b. The asset's contractual cash flows represent SPPI.
The Company does not have any debt instruments classified in FVOCI category.
Debt instruments at fair value through profit or loss
FVTPL is a residual category for debt instruments. Any debt instrument, which does
not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified
as at FVTPL.
The Company does not have any debt instruments classified in FVTPL category.
Equity instruments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity
instruments which are held for trading are classified as at FVTPL. For all other equity
instruments, the Company may make an irrevocable election to present in the OCI
subsequent changes in the fair value. The Company makes such election on an
instrument-by-instrument basis. The classification is made on initial recognition and
is irrevocable.
Equity instruments included within the FVTPL category are measured at fair value
with all changes recognized in the statement of profit and loss.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair
value changes on the instrument, excluding dividends, are recognized in OCI. There is
no recycling of the amounts from the OCI to the statement of profit and loss, even on
sale of the investment. However, the Company may transfer the cumulative gain or
loss within categories of equity.
c) Classification and subsequent measurement of financial liabilities
All financial liabilities are recognised initially at its fair value adjusted by directly
attributable transaction costs.
The measurement of financial liabilities depends on their classification, as described
below:
- Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held
for trading and financial liabilities designated upon initial recognition as at fair value
through profit or loss. Financial liabilities are classified as held for trading if they are
incurred for the purpose of repurchasing in the near term. The Company does not
have any financial liabilities classified at fair value through profit or loss.
- Financial liabilities measured at amortised cost
After initial recognition, interest-bearing loans and borrowings are subsequently
measured at amortised cost using the EIR method.
Gains and losses are recognised in the statement of profit and loss when the liabilities
are derecognised.
Amortised cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation
is included as finance costs in the statement of profit and loss.
H. Impairment:
i. Non - financial assets
At each balance sheet date, the Company assesses whether there is any indication that
any property, plant and equipment and intangible assets with finite life may be impaired.
If any such impairment exists, the recoverable amount of an asset is estimated to
determine the extent of impairment, if any. Where it is not possible to estimate the
recoverable amount of an individual asset, the Company estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
ii. Financial assets
In accordance with Ind AS 109, the Company applies the expected credit loss (“ECL”)
model for measurement and recognition of impairment loss on financial assets and credit
risk exposures. The Company follows ‘simplified approach' for recognition of impairme nt
loss allowance on trade receivables. Simplified approach does not require the Company to
track changes in credit risk. Rather, it recognises impairment loss allowance based on
lifetime ECL at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the
Company determines that whether there has been a significant increase in the credit risk
since initial recognition. If credit risk has not increased significantly, 12-month ECL is
used to provide for impairment loss. However, if credit risk has increased significantly,
lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves
such that there is no longer a significant increase in credit risk since initial recognition,
then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
ECL is the difference between all contractual cash flows that are due to the Company in
accordance with the contract and all the cash flows that the entity expects to receive (i.e.,
all cash shortfalls),discounted at the EIR of the instrument. Lifetime ECL are the expected
credit losses resulting from all possible default events over the expected life of a financial
instrument. The 12-month ECL is a portion of the lifetime ECL which results from default
events that are possible within 12 months after the reporting date.
ECL impairment loss allowance (or reversal) recognised during the period is recognised
as income/ expense in the statement of profit and loss.
I. Taxes on Income:
Income Tax expense comprises of current and deferred tax. Income Tax expense is
recognized in net profit in the Statement of Profit and Loss except to the extent that it
relates to items recognized directly in equity, in which case it is recognized in other
comprehensive income.
(i) Current Tax
Current Tax is the amount of income taxes payable (recoverable) in respect of the
taxable profit (tax loss) for a period. Current tax for current and prior periods is
recognized at the amount expected to be paid to or recovered from the tax authorities,
using the tax rate and tax laws that have been enacted or substantively enacted by the
Balance Sheet date
Current tax assets and liabilities are offset if, and only if, the Company:
a) has a legally enforceable right to set off the recognized amounts; and
b) intends either to settle on a net basis, or to realize the asset and settle the liability
simultaneously.
Deferred tax is recognized in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used
for taxation purposes.
Deferred tax assets are recognized for unused tax losses, unused tax credits and
deductible temporary differences to the extent that it is probable that future taxable
profits will be available against which they can be used. Deferred tax assets are reviewed
at each reporting date and are reduced to the extent that it is no longer probable that the
related tax benefit will be realized; such reductions are reversed when the probability of
future taxable profits improves. Unrecognized deferred tax assets are reassessed at each
reporting date and recognized to the extent that it has become probable that future
taxable profits will be available against which they can be used.
The measurement of deferred tax reflects the tax consequences that would follow from
the manner in which the Company expects, at the reporting date, to recover or settle the
carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if:
a) the entity has a legally enforceable right to set off current tax assets against current
tax liabilities; and
b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by
the same taxation authority on the same taxable entity.
J. Fair value measurement
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:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous market for the asset or
liability
The principal or the most advantageous market must be accessible by the Company.
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 economic best 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:
• Level 1 — Quoted (unadjusted) market 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
K. Inventories:
i. Finished and Semi-Finished Products produced and purchased by the company are
carried at Cost and net realizable value, whichever is lower.
ii. Work in Progress is carried at lower of cost and net realizable value.
iii. Raw Material is carried at lower of cost and net realizable value.
iv. Stores and Spares parts are carried at cost. Necessary provision is made and
expensed in case of identified obsolete and nonmoving items.
Cost of Inventory is generally ascertained on the ‘Weighted average' basis. Work in
progress, Finished and semi-finished products are valued at on full absorption cost basis.
Cost Comprises expenditure incurred in the normal course of business in bringing such
inventories to its location and includes, where applicable, appropriate overheads based
on normal level of activity. Packing Material is considered as finished goods. Consumable
stores are written off in the year of Purchase.
L. Cash and Cash Equivalents:
Cash and cash equivalents comprise cash on hand and demand deposits, together with
other short-term, highly liquid investments (original maturity less than 3 months) that
are readily convertible into known amounts of cash and which are subject to an
insignificant risk of changes in value.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash
and short-term deposits, as defined above, net of outstanding bank overdrafts and cash
credits as they are considered an integral part of the Company's cash management.
M. Employee benefits:
A. Short term employee benefits:
All employee benefits payable wholly within twelve months of rendering the service are
classified as short term employee benefits. Benefits such as salaries, wages, performance
incentives, etc. are recognized at actual amounts due in the period in which the employee
renders the related service.
B. Post-employment benefits
Defined contribution plans:
The Company contributes on a defined contribution basis to Employees' Provident Fund
towards post-employment benefits, all of which are administered by the respective
Government authorities. The Company has no further obligation beyond making its
contribution, which is expensed in the period to which it pertains.
Defined benefit plans:
i. Superannuation plan:
The Superannuation scheme is administered through the Life Insurance Corporation of
India (LIC). The liability for the defined benefit plans funded by way of payment of
premium as determined by the LIC of India and the same is administered by LIC and the
Company has no further obligation beyond making its contribution, which is expensed in
the period to which it pertains.
ii. Gratuity plan:
The Company administers the gratuity scheme being unfunded liability. The liability for
the defined benefit plan of Gratuity is determined on the basis of an actuarial valuation by
an independent actuary at the year end, which is calculated using projected unit credit
method. The net interest cost is calculated by applying the discount rate to the net
balance of the defined benefit obligation and the fair value of plan assets. This cost is
included in employee benefit expense in the statement of profit and loss. Remeasurement
gains and losses arising from experience adjustments and changes in actuarial
assumptions are recognized in the period in which they occur, directly in the Other
Comprehensive Income. They are included in retained earnings in the statement of
changes in equity and in the balance sheet. Changes in the present value of the defined
benefit obligation resulting from plan amendments or curtailments are recognised
immediately in the statement of profit and loss as past service cost.
Leave Entitlements (long-term employee benefit):
The employees of the company are entitled to leave as per the leave policy of the
Company. The unfunded liability in respect of unutilized leave balances is provided based
on an actuarial valuation carried out by an independent actuary, which is calculated using
projected unit credit method as at the year end and charged to the statement of profit and
loss.
N. Borrowing costs:
General and specific borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset are capitalised during the period of time
that is required to complete and prepare the asset for its intended use or sale. Qualifying
assets are assets that necessarily take a substantial period of time to get ready for their
intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending
their expenditure on qualifying assets is deducted from the borrowing costs eligible for
capitalisation.
Other borrowing costs are expensed in the period in which they are incurred.
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