52 SUMMARY OF OTHER ACCOUNTING POLICIES
Other than the Material Accounting Policies given, this note provides a list of other accounting policies
adopted in the preparation of these financial statements. The Accounting Policies have been consistently
applied to all the years presented, unless otherwise stated.
52.1 Property, Plant and Equipment
Historical cost includes expenditure that is directly attributable to the acquisition of the property,
plant and equipment.
On transition to Ind AS as at April 1, 2017, the company elected to consider the fair value of all of its property,
plant and equipment in its opening Ind AS Balance Sheet as deemed cost of property, plant and equipment.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as
appropriate, only when 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 carrying amount of any component
accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are
charged to profit or loss during the reporting period in which they are incurred.
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each
reporting period.
An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in profit or loss within other gains/(losses).
52.2 Leases
Lease liabilities include the net present value of the following lease payments:
- Fixed payments (including in-substance fixed payments), less any lease incentives receivable
- Variable lease payment that are based on an index or rate, initially measured using the index or rate as
at the commencement date
- amounts expected to be payable by the Company under residual value guarantee
- the exercise price of a purchase option if the group is reasonably certain to exercise that option, and
- payments of penalties for terminating the lease, if the lease term reflects the company
exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement
of the liability.
Lease liabilities are remeasured with a corresponding adjustment to the related ROU asset if the Company
changes its assessment of whether it will exercise an extension or a termination option.
Lease payments are allocated between principal and finance cost. The finance cost is charged to the
statement of profit and loss over the lease period so as to produce a constant periodic rate of interest on
the remaining balance of the liability for each period.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily
determined, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would
have to pay to borrow the funds necessary to obtain asset of similar value to the right-to-use asset in a
similar economic environment with similar terms, security and conditions.
To determine the incremental borrowing rate, the Company uses a build-up approach that starts with a
risk-free interest rate adjusted for general credit risk for leases held by the Company.
52.3 Goodwill and other Intangible Assets
On transition to Ind AS as at April 1, 2017, the company has elected to consider the fair value of all such
intangible assets in its opening Ind AS Balance Sheet as deemed cost of intangible assets.
An intangible asset is derecognised 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 statement of
profit and loss when the asset is derecognised.
52.4 Financial Instruments
Financial assets and financial liabilities are recognised when the company becomes a party to the contractual
provisions of the instruments.
Financial assets and financial liabilities are initially measured at fair value. 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 or loss) are added to or deducted from the fair value of
the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are
recognised immediately in statement of profit and loss.
52.5(A)Investments and other financial assets:
(i) Classification
The Company classifies its financial assets in the following measurement categories:
- those to be measured subsequently at fair value (either through other comprehensive income, or
through profit or loss)
- those to be measured at amortized cost.
The classification depends on the entity's business model for managing the financial assets and the
contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or other
comprehensive income. For investments in equity instruments that are not held for trading, this will
depend on whether the Company has made an irrevocable election at the time of initial recognition to
account for the equity investment at fair value through other comprehensive income.
(ii) Recognition
Regular way purchases and sales of financial assets are recognised on trade-date, being the date on
which the Company commits to purchase or sell the financial asset.
(iii) Measurement
At initial recognition, the Company measures a financial asset (excluding trade receivables which do
not contain a significant financing component) at its fair value plus, in the case of a financial asset not
at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of
the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are
expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining whether
their cash flows are solely payment of principal and interest.
The Company measures all equity investments at fair value. Where the management has
elected to present fair value gains and losses on equity investments in other comprehensive
income, there is no subsequent reclassification of fair value gains and losses to profit or loss
following the derecognition of the investment. Dividends from such investments are recognised
in profit or loss as other income when the Company's right to receive payments is established.
Changes in the fair value of financial assets at fair value through profit or loss are recognised in other
gain/ (losses) in the statement of profit and loss. Impairment losses (and reversal of impairment losses)
on equity investments measured at FVOCI are not reported separately from other changes in fair value.”
(iv) Impairment of financial assets
The Company assesses on a forward looking basis the expected credit losses associated with its assets
carried at amortised cost. The impairment methodology applied depends on whether there has been
a significant increase in credit risk. Note 36.5 details how the Company determines whether there has
been a significant increase in credit risk.
In accordance with Ind AS 109 - Financial Instruments, the Company applies expected credit loss (ECL)
model for measurement and recognition of impairment loss. The Company follows 'simplified approach'
for recognition of impairment loss allowance on trade receivable.
For trade receivables, the Company applies the simplified approach required by Ind AS 109, which
requires expected lifetime losses to be recognised from initial recognition of the receivables.
(v) Derecognition of financial assets
A financial asset is derecognised only when:
- the Company has transferred the rights to receive cash flows from the financial asset or
- retains the contractual rights to receive the cash flows of the financial asset, but assumes a
contractual obligation to pay the cash flows to one or more recipients.
Where the Company has transferred an asset, it evaluates whether it has transferred substantially all
risks and rewards of ownership of the financial asset. In such cases, the financial asset is derecognised.
Where the Company has not transferred substantially all risks and rewards of ownership of the financial
asset, the financial asset is not derecognised.
Where the Company has neither transferred a financial asset nor retains substantially all risks and
rewards of ownership of the financial asset, the financial asset is derecognised if it has not retained
control of the financial asset. Where the Company retains control of the financial asset, the asset is
continued to be recognised to the extent of continuing involvement in the financial asset.
(vi) Foreign exchange gains and losses
The fair value of financial assets denominated in a foreign currency is determined in that foreign
currency and translated at the spot rate at the end of each reporting year.
For foreign currency denominated financial assets that are measured at amortised cost and fair value
through profit and loss (“FVTPL”), the exchange difference are recognised in statement of profit and loss.
52.5(B) Financial liabilities and equity instruments
(i) Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as
equity in accordance with the substance of the contractual arrangements and the definitions of a
financial liability and an equity instrument.
(ii) Equity Instrument
An equity instrument is a contract that evidences residual interest in the assets of the company after
deducting all of its liabilities. Equity instruments recognised by the Company are recognised at the
proceeds received net off direct issue cost.
(iii) Financial liabilities
All financial liabilities are subsequently measured at amortised cost using the effective interest
method or at FVTPL.
(iv) Financial liabilities at FVTPL
Financial liabilities are designated at FVTPL where it forms part of a contract containing one or more
embedded derivatives, and Ind AS 109 permits the entire combined contract to be designated as at FVTPL.
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement
recognised in the Statement of profit and loss.
(v) Financial liabilities subsequently measured at amortised cost
Financial liabilities that are not held-for-trading and are not designated as at FVTPL are measured at
amortised cost at the end of subsequent accounting year. The carrying amounts of financial liabilities that
are subsequently measured at amortised cost are determined based on the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial liability and
of allocating interest expense over the relevant year. The effective interest rate is the rate that exactly
discounts estimated future cash payments (including all fees and points paid or received that form an
integral part of the effective interest rate, transaction costs and other premiums or discounts) through
the expected life of the financial liability, or (where appropriate) a shorter year, to the net carrying
amount on initial recognition.
(vi) Foreign exchange gains and losses
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost
at the end of each reporting year, the foreign exchange gains and losses are determined based on the
amortised cost of the instruments and are recognised in Statement of Profit and Loss.
The fair value of financial liabilities denominated in a foreign currency is determined in that foreign
currency and translated at the spot rate at the end of the reporting year. For financial liabilities that are
measured as at FVTPL, the foreign exchange component forms part of the fair value gains or losses and
is recognised in the Statement of profit and loss.
(vii) Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company's obligations
are discharged, cancelled or have expired. The difference between the carrying amount of the
financial liability derecognised and the consideration paid and payable is recognised in statement of
profit and loss.
(viii) Offsetting of Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet
if there is a currently enforceable legal right to offset the recognised amounts and there is an intention
to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
52.5(C) Derivative financial instruments
The Company enters into a variety of derivative financial instruments to manage its exposure to interest
rate and foreign exchange rate risks, including foreign exchange forward contracts.
Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are
subsequently remeasured to their fair value at the end of each reporting year. The resulting gain or loss is
recognised in the Statement of profit and loss immediately unless the derivative is designated and effective
as a hedging instrument, in which event the timing of the recognition in Statement of profit and loss depends
on the nature of the hedging relationship and the nature of the hedged item. Derivatives are carried as
financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
52.5(D)Embedded derivatives
Derivatives embedded in non-derivative host contracts that are not financial assets within the scope of Ind
AS 109 are treated as separate derivatives when their risks and characteristics are not closely related to
those of the host contracts and the host contracts are not measured at FVTPL.
52.6 Foreign Currency transactions and translations
(i) Functional and presentation currency
Items included in the financial statements 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 (INR), which is Stove Kraft Limited's functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates
at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation of monetary assets and liabilities denominated in foreign
currencies at year end exchange rates are generally recognised in profit or loss.
Foreign exchange gains and losses are presented in the statement of profit and loss on a net basis
within other gains/(losses).
Non-monetary items that are measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was determined. Translation differences on assets and
liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation
differences on non-monetary assets and liabilities such as equity instruments held at fair value through
profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation
differences on non-monetary assets such as equity investments classified as at fair value through other
comprehensive income are recognised in other comprehensive income.
52.7 Inventories
Cost of raw materials and traded goods comprises cost of purchases. Cost of inventories also include all
other costs incurred in bringing the inventories to their present location and condition. Costs are assigned
to individual items of inventory on the basis of weighted average cost. Cost of work-in-progress and
finished goods comprises direct materials, direct labour and an appropriate proportion of variable and
fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs of
purchased inventory are determined after deducting rebates and discounts.
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs
of completion and the estimated costs necessary to make the sale.
52.8 Trade Receivables
Trade receivables are amounts due from customers for goods sold or services rendered in the ordinary
course of business and reflects company's unconditional right to consideration (that is, payment is
due only on the passage of time). Trade receivables are recognised initially at the transaction price as
they do not contain significant financing components. The Company holds the trade receivables with
the objective of collecting the contractual cash flows and therefore measures them subsequently at
amortised cost using the effective interest method, less loss allowance.
52.9 Cash and cash equivalents
Cash and cash equivalents comprises cash on hand and at banks and short-term deposits with an
original maturity of three months or less that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value.
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