Note 1.2: Material accounting policies
This note provides list of the material accounting policies applied in the preparation of these standalone
financialstatements.
1.2.1 Basis of preparationof Financial Statements
i) Compliance with Indian Accounting Standards (Ind AS)
The financial statements of the Company are prepared in accordance with Indian Accounting Standards
(Ind AS) under historical cost convention on accrual basis except for certain financial instruments
which are measured at fair values, the provisions of the Companies Act 2013(the Act) and guidelines
issued by the Securities & Exchange Board of India (SEBI). The Ind AS are prescribed under section 133
of the Act, read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and relevant
amendment rules issued thereafter:
ii) USE OF ESTIMATES
The preparation of financial statements in conformity with Indian Accounting Standards (Ind AS)
requires management to make judgments, estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the
reporting period and reported amounts of revenues and expenses during the period. Although these
estimates are based upon management's best knowledge of current events and actions, uncertainty
about these assumptions and estimates could result in the outcomes requiring a material adjustment
to the carrying amounts of assets or liabilities in future periods.
Application of accounting policies that require critical accounting estimates involving complex and
subjective judgments and the use of assumptions in these financial statements have been disclosed
in Note 2.3.
iii) Functional and Presentation Currency
The financial statements are presented in Indian Rupees, which is the functional currency of the
Company and the currency of the primary economic environment in which the Company operates. All
values are rounded to the nearest Lakhs (INR 00,000) except when otherwise indicated
(iv) Historical cost convention
The financial statements are prepared on accrual basis of accounting under historical cost convention
in accordance with generally accepted accounting principles in India and the relevant provisions
of the Companies Act, 2013 including Indian Accounting Standards notified there under, except for
certain financial instruments which are measured at fair values at the end of each reporting period, as
explained in the accounting policies below. Historical cost is generally based on the fair value of the
consideration given in exchange for goods and services.
(v) Operating Cycle
All assets and liabilities have been classified as current or non-current according to the Company's
operating cycle and other criteria set out in the Act. Based on the nature of products and the time
between the acquisition of assets for processing and their realisation in cash and cash equivalents,
the Company has ascertained its operating cycle as twelve months for the purpose of current non¬
current classification of assets and liabilities.
1.2.2 Summary of Material Accounting Policies
a) Revenue Recognition Sale of Goods
Revenue from sale of goods 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. The Company assesses promises in the contract that are
separate performance obligations to which a portion of transaction price is allocated.
Revenue is measured based on the transaction price as specified in the contract with the customer. It
excludes discounts, incentives, volume rebates, goods & services tax and amounts collected on behalf
of third parties. In determining the transaction price, the Company considers below, if any:
Variable consideration:
This includes discounts, incentives, volume rebates, etc. It is estimated at contract inception and
constrained until it ishighly 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. It is reassessed at end of each reporting period.
Consideration payable to a customer:
Such amounts are accounted as reduction of transaction price and therefore, of revenue unless
the payment to thecustomer is in exchange for a distinct good that the customer transfers to the
Company.
Further, in accordance with Ind AS 37, the Company recognises a provision for onerous contract when
the unavoidable costs of meeting the obligations under a contract exceed the economic benefits to be
received
Export benefits
Export benefits arising from DutyDrawback scheme, Merchandise Export Incentive Scheme, ROSL and
ROSCTL are recognized on shipment of direct exports.
Revenue from exports benefits measured at the fairvalue of consideration received or receivable net
of returns and allowances, cash discounts, trade discountsand volume rebates.
Revenue from rendering of services
Revenue from rendering of services is recognised when the performance obligation to render the
services arecompleted as per contractually agreed terms.
Interest income:
Interest income from a financial asset is recognised when it is probable that the economic benefitswill
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 amortised cost and at the effective interest rate applicable
b) Inventories
(i) Finished goods and work-in-progress are valued at lower of cost or net realizable value. Cost
of inventories comprises of cost of purchase, cost of conversion, depreciation, other overheads
to the extent applicableand other costs incurred in bringing them to their respective present
location and condition.
By products are valued at net realizable value.
(ii) Stock in trade: cost includes cost of purchase and other costs incurred in bringing the inventories
to their present location and condition. Cost isdetermined on weighted average basis
(iii) Stores and spares: are stated at cost less provision,if any, for obsolescence.
(iv) Raw materials: cost includes cost of purchase and other costs incurred in bringing the inventories
to their present location and condition. Cost is determined on weighted average cost basis.
(v) Cost of finished goods, work-in-process and stores, spares and raw material are determined on
the basis of weighted average method.
(vi) Obsolete stocks are identified every year on the basis of technical evaluation and are charged
off to revenue.
(vii) Net realizable value is the estimated selling price in the ordinary course of business, less
estimated costs of completion and estimated costs necessary to make the sale.
c) Property, Plant and Equipment
Property, Plant and Equipment ("PPE") are stated at Historical cost less accumulated depreciation
and less accumulated impairment losses, if any. Historical Cost includes its purchase price including
import duties, non-refundable taxes (net of CENVAT/GST or any duty credits wherever applicable),
after deducting trade discounts and rebates. It includes other costs directly attributable to bringing
the asset to the location and condition necessary for it to be capable of operating in the manner
intended by management and the borrowing costs for qualifying assets and the initial estimate of
restoration cost if the recognition criteria are met.
Capital work in progress is carried at cost, less any recognised impairment loss. Depreciation of these
assets commenceswhen the assets are substantially ready for their intended use. Advances given
towards acquisition or construction of PPEoutstanding at each reporting date are disclosed as Capital
Advances under "Other non-current Assets"
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as
appropriate, onlywhen it is probable that future economic benefits associated with the item will flow
to the Companyand 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 otherrepairs and maintenance are charged to the statement of profit and loss during the
reporting period in which they areincurred.
An item of property, plant and equipment is derecognised upon disposal or when no future economic
benefits are expectedto 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 the sales proceeds and the carrying amount of the asset andis recognised in statement of
profit and loss
d) Intangible Assets
Intangible assets with finite useful life are recognised when the Company controls the asset, it is
probable that futureeconomic benefits attributed to the asset will flow to the Company and the cost
of the asset can be reliably measured.
Intangible assets are stated at acquisition cost, net of accumulated amortisation and accumulated
impairment losses, ifany.
Intangible assets are amortized on a straight line basis over the estimated useful economic life of 3 to
5 years. The amortisation period and the amortisation method are reviewed at least at each financial
year end. If the expected useful life of the asset is significantly different from previous estimates, the
amortisation period is changed accordingly.
Gains or losses arising from the retirement or disposal of an intangible asset are determined as the
difference between the net disposal proceeds and the carrying amount of the asset and recognised as
income or expense in the Statement ofProfit and Loss.
Intangible assets under development is carried at cost, less any recognised impairment loss.
Amortisation of these assets commences when the assets are substantially ready for their intended
use.
e) Expenses Incurred During Construction Period
Preliminary project expenditure, capital expenditure, indirect expenditure incidental and related to
construction / implementation, interest on borrowings to finance fixed assets and expenditure on
start-up / commissioning of assets forming part of a composite project are capitalized upto the date
of commissioning of the project as the cost of respective assets.
f) Depreciation
Based on internal assessment and independent technical evaluation carried out by external valuer,
the management believes that the useful lives as given below best represent the period over which
management expects to use these assets. The useful lives for these assets is different from the useful
lives as prescribed under Part C of Schedule II of the Companies Act 2013.
And depreciation is charged on following basis:-
(i) Depreciation on All Assets is charged at Straight Line Method basis in the manner as prescribed
in Companies Act 2013 and rate as per prescribed useful life above.
(ii) Cost of acquisition and improvement of lease hold land is amortized over the lease period.
(iii) Assets costing upto 5,000 are fully depreciated in the year of purchase.
(iv) Intangible assets are amortized over a period of 3-5 years on a straight line basis.
Estimated useful lives, residual values and depreciation methods are reviewed annually, taking into
account commercial and technological obsolescence as well as normal wear and tear and adjusted
prospectively, if appropriate
g) Impairment of assets
a) Financial assets
The Company recognizes loss allowances using the expected credit loss (ECL) model for the
Financial assets which are not fair valued through standalone statement of profit and loss.
For trade receivables, the Company applies thesimplified approach permitted by Ind AS 109
FinancialInstruments, which requires expected lifetimelosses to be recognised from initial
recognition ofthe receivables. As a practical expedient, the Company uses a provision matrix
to determine impairmentloss of its trade receivables. The provision matrix is based on its
historically observed default rates over the expected life of the trade receivable and is adjusted
for forward looking estimates. The ECL loss allowance (or reversal) during the year is recognized
in the standalone statement of profit and loss.
b) Non Financial Assets
Non-financial assets are tested for impairment whenever events or changes in circumstances
indicate that the carryingamount may not be recoverable. An impairment loss is recognised
for the amount by which the asset's carrying amountexceeds its recoverable amount. The
recoverable amount is the higher of an asset's fair value less costs of disposal andvalue in use.
For the purposes of assessing impairment, assets are grouped at the lowest levels for which
there areseparately identifiable cash inflows which are largely independent of the cash inflows
from other assets or group of assets(cash-generating units). Non-financial assets that suffered
an impairment are reviewed for possiblereversal of the impairmentat the end of each reporting
period.
The company has the policy to assess at each reporting date for impairment required for each of
its financial and non-financial assets
h) Foreign Exchange Transactions/Translation
Company designates certain foreign exchange forward contracts as cash flow hedges to mitigate the
risk of foreign exchange exposure on highly probable forecast cash transactions.
When a derivative is designated as a cash flow hedging instrument, the effective portion of changes
in the fair value of the derivative is recognized in other comprehensive income and accumulated in
the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative
is recognized immediately in the net profit in the statement of profit and loss. If the hedging
instrument no longer meets the criteria for hedge accounting, then hedge accounting is discontinued
prospectively. If the hedging instrument expires or is sold, terminated or exercised, the cumulative
gain or loss on the hedging instrument recognized in cash flow hedging reserve till the period the
hedge was effective remains in cash flow hedging reserve until the forecasted transaction occurs.
The cumulative gain or loss previously recognized in the cash flow hedging reserve is transferred
to the net profit in the statement of profit and loss upon the occurrence of the related forecasted
transaction. If the forecasted transaction is no longer expected to occur, then the amount accumulated
in cash flow hedging reserve is reclassified to net profit in the statement of profit and loss.
i) Employee Benefits Expenses and liabilities in respect of employee benefits are recorded in
accordance with Indian Accounting Standard 19 - Employee Benefits.
(i) Provident Fund
The Company pays contributions toward provident fund to the regulatory authorities as per
local regulations where the Company has no further payment obligations. The contributions are
recognised as employee benefit expense when they are due.
The Company makes contribution Employee State Insurance in accordance with Employee State
Insurance Act, 1948.
The Company has no obligation, other than the contribution payable to the provident fund.
(ii) Gratuity and other post-employment benefits
Gratuity is a post employment benefit and is in the nature of a defined benefit plan. The liability
recognised in the balance sheet in respect of gratuity is the present value of the defined benefit/
obligation at the balance sheet date less the fair value of plan assets, together with adjustment
for unrecognized actuarial gains or losses and past service costs. The defined benefit/obligation
is calculated at or near the balance sheet date by an independent actuary using the projected
unit credit method.
Gains and losses through re-measurements of the net defined benefit liability/(asset) are
recognized in other comprehensive income. The actual return of the portfolio of plan assets, in
excess of the yields computed by applying the discount rate used to measure the defined benefit
obligations recognized in Other Comprehensive Income. The effect of any plan amendments are
recognized in net profits in the Statement of Profit and Loss.
(iii) Other Short Term Benefits
Liabilities for wages and salaries, including non-monetary benefits that are expected to be
settled wholly within 12months after the end of the period in which the employees render the
related service are recognised in respect ofemployees' services up to the end of the reporting
period and are measured at the amounts expected to be paidwhen the liabilities are settled. The
liabilities are presented as current employee benefit obligations in the balancesheet.
j) Leases
The Company assesses that the contract is, or contains, a lease if the contract conveys the right to
control the use of an identified asset for a period of time in exchange for consideration. To assess
whether a contract conveys the right to control the use of an identified asset, the Company assesses
whether:
(1) The contract involves the use of an identified asset,
(2) The Company has substantially all of the economic benefits from use of the identified asset,
(3) The Company has the right to direct the use of the identified asset.
Company as a lessee
The Company recognizes right-of-use asset representing its right to use the underlying asset for the
lease term at the lease commencement date. The cost of the right-of-use asset measured at inception
shall comprise of the amount of the initial measurement of the lease liability adjusted for any lease
payments made at or before the commencement date plus any initial direct costs incurred. The right-
of-use assets is subsequently measured at cost less any accumulated depreciation, accumulated
impairment losses, if any and adjusted for any remeasurement of the lease liability. The right-of-use
asset is depreciated from the commencement date over the shorter of the lease term and useful life of
the underlying asset. Right-of-use assets are tested for impairment whenever there is any indication
that their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the
statement of profit and loss.
The Company measures the lease liability at the present value of the lease payments over the
lease term. The lease payments are discounted using the interest rate implicit in the lease, if
that rate can be readily determined. If that rate cannot be readily determined, the Company uses
incremental borrowing rate. For leases with reasonably similar characteristics, the Company adopts
the incremental borrowing rate for the entire portfolio of leases as a whole. The lease payments shall
include fixed payments, variable lease payments, exercise price of a purchase option and payments
of penalties for terminating the lease. The lease liability is subsequently remeasured by increasing
the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect
the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease
modifications or to reflect revised in-substance fixed lease payments.
The Company recognises the amount of the re-measurement of lease liability as an adjustment to the
right-of-use asset. Where the carrying amount of the right-of-use asset is reduced to zero and there is
a further reduction in the measurement of the lease liability, the Company recognizes any remaining
amount of the re-measurement in statement of profit and loss.
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those
leases that have a lease term of 12 months or less from the commencement date and do not contain
a purchase option). It also applies the lease of low-value assets recognition exemption to leases that
are considered to be of low value. The lease payments on short-term leases and leases of low-value
assets are recognized as an expense on a straight-line basis over the lease term.
Company as a lessor
Leases where the Company does not transfer substantially all the risks and rewards incidental to
ownership of the asset are classified as operating leases. Lease rentals under operating leases are
recognized as income on a straight-line basis over the lease term.
k) Segment Accounting and Reporting
The Chief Operational Decision Maker monitors the operating results as one single business segment
viz. Manufacturing and Sales of Textiles Goodsfor the purpose of making decisions about resource
allocation and performance assessment and hence, there are no additional disclosures to be provided
other than those already provided in the financial statements.
l) Taxes on Income
Income tax expense or credit represents the sum of the current tax and deferred tax.
Current and deferred tax is recognised in the Statement of Profit and Loss except to the extent it
relates to items recognisedin 'Other comprehensive income' or directly in equity, in which case it is
recognised in 'Other comprehensive income' ordirectly in equity, respectively
Current income tax
Current tax payable is based on taxable profit for the year. Taxable profit differs from profit as reported
in the Statement ofprofit and loss because some items of income or expense are taxable or deductible
in different years or may never betaxable or deductible. The Company's current tax is calculated using
tax rates that have been enacted or substantivelyenacted by the end of the reporting period.
Current tax assets and liabilities are offset when there is a legally enforceable right to set off
current tax assets againstcurrent tax liabilities and when they relate to income taxes levied by the
same taxation authority.The Company periodicallyevaluates positions taken in the tax returns with
respect to situations in which applicable tax regulations are subject tointerpretation and establishes
provisions where appropriate. It establishes provisions where appropriate on the basis ofamounts
expected to be paid to the tax authorities
MAT credit is recognized as an asset only when and to the extent there is convincing evidence that the
Company will pay normal income tax during the specified period. In the year in which the Minimum
Alternative tax (Mat) credit becomes eligible to be recognized as an asset in accordance with the
recommendations contained in Guidance Note issued by the Institute of Chartered Accountants of
India, the said asset is created by way of a credit to the Statement of Profit and Loss and shown as MAT
Credit Entitlement. The Company reviews the same at each balance sheet date and writes down the
carrying amount of MAT Credit Entitlement to the extent there is no longer convincing evidence to the
effect that Company will pay normal Income Tax during the specified period.
Deferred Tax
Deferred tax is provided using the balance sheet approach on temporary differences at the reporting
date between the tax bases of assets and liabilities and their carrying amounts for financial reporting
purpose at reporting date. Deferred income tax assets and liabilities are measured using tax rates and
tax laws that have been enacted or substantively enacted by the balance sheet date and are expected
to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect of changes in tax rates on deferred income tax assets and liabilities
is recognized as income or expense in the period that includes the enactment or the substantive
enactment date. A deferred income tax asset is recognized to the extent that it is probable that future
taxable profit will be available against which the deductible temporary differences and tax losses can
be utilized.
The carrying amount of deferred tax assets are reviewed at each reporting date and reduced to the
extent that it is no longer probable that sufficient taxable profit will be available to allow all or part
of the deferred tax assets to be utilised. Unrecognized deferred tax assets are reassessed at each
reporting date and are recognized to the extent that it has become probable that future taxable profits
will allow deferred tax assets to be recovered.
The company offsets current tax assets and current tax liabilities, where it has a legally enforceable
right to set off the recognized amounts and where it intends either to settle on a net basis, or to realize
the asset and settle the liability simultaneously.
m) Government grants and subsidies
Government grants are recognized where there is reasonable assurance that the company will comply
with the conditions attaching to them and the grants will be received.
When thegrant relates to an expense item, it Is recognised asIncome on a systematic basis over the
periods that therelated costs, for which it is intended to compensate,are expensed.
Government grants related to assets are treated as deferred income and are recognized in the
statement of profit and loss on a systematic and rational basis.
Government grants related to revenue are recognized on a systematic basis in the statement of profit
and loss over the periods necessary to match them with the related costswhich they are intended to
compensate.
When the company receives grants of non-monetary assets, the asset and the grant are recorded at
fair value and recognize to statement of profit and loss on a systematic basis over the useful life of the
asset. The benefit of a government loan at a below-market rate of interest is treated as a government
grant, measured as the difference between proceeds received and the fair value of the loan based on
prevailing market interest rates.
n) Borrowing Cost
Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized
as part of the cost of the asset. All other borrowing costs are expensed in the period in which they
occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the
borrowing of funds.
Interest bearing loans and borrowings has been restated to amortized cost using effective interest
rate method with the discount accreted through the statement of profit and loss.
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