3. Material accounting policies
3.1 Foreign Currency transaction
Transaction in foreign currencies are translated
into the functional currency of the Company at the
exchange rate on the date of the transaction or an
average rate if the average rate approximates the
actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies are translated into the functional currency
at the exchange rate at the reporting date. Non¬
monetary assets and liabilities that are measured based
on historical cost in a foreign currency are translated
at the exchange rate at the date of transaction.
Exchange difference are recognised in profit and
loss, except exchanges differences arising from the
translation of the qualifying cash flow hedges to the
extent the hedges are effective, which are recognized
in Other Comprehensive Income (OCI).
3.2 Financial Instruments
i. Recognition and initial measurement
Trade receivables 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. However, trade receivables that do not
contain a significant financing component are
measured at transaction price.
ii. Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is
classified as measured at
- Amortised cost;
- Fair value through profit and 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.
All financial assets (except for derivative contract
assets) not measured at amortised cost as
described above are measured at FVTPL. On
initial recognition, the Company may irrevocably
designate a financial asset that otherwise meets
the requirements to be measured at amortised
cost as at FVTPL if doing so eliminates or
significantly reduces an accounting mismatch
that would otherwise arise.
Financial assets: Assessment whether
contractual cash flows are solely payments of
principal and interest
For the purpose of this assessment, 'principal'
is defined as the fair value of financial asset
on initial recognition. 'Interest' is defined as
consideration for time value of money and for
credit risk associated with the principal amount
outstanding during a particular period of time
and other basic leading risks and costs (e.g.
liquidity risk and administrative costs), as well
as profit margin.
In assessing whether the contractual cash flows
are solely payments of principal and interest,
the Company considers 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 and timing of cash flows;
- term that would adjust the contractual rate,
including variable interest rate features;
- prepayment and extension features; and
- term that limits the Company's claim to
cash flows for 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 amount of principal and interest on
principal amount outstanding, which may
include reasonable additional compensation for
early termination of contract. Additionally, for a
financial asset acquired on a significant premium
or discount to its contractual par amount, a
feature that permits or require 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 significant at initial recognition.
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 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. Refer note 45 and 46 for financial liabilities
designated as hedging instrument.
iii. Derecognition
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.
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 is 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 realize the asset and settle the
liability simultaneously.
v. Derivative financial instrument and hedge
accounting
The Company holds derivative financial
instruments to hedge its foreign currency and
interest rate risk exposures.
Derivatives are initially measured at fair value.
Subsequent to initial recognition, derivatives are
measured at fair value, and changes therein are
generally recognized in profit or loss.
The Company designates certain derivatives
as hedging instruments to hedge the variability
in cash flows associated with highly probable
forecast transactions arising from changes in
foreign exchange rates and interest rates.
At inception of designated hedge relationships,
the Company documents the risk management
objective and strategy for undertaking the
hedge. The Company also documents the
economic relationship between the hedged item
and the hedging instrument are expected to
offset each other.
Cash flow hedges
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 OCI and accumulated in other
equity under 'effective portion of cash flow
hedges'. The effective portion of changes in the
fair value of the derivative that is recognized in
OCI is limited to the cumulative change in fair
value of the hedge item, determined on a present
value basis, from inception of the hedge. Any
ineffective portion of changes in the fair value
of the derivative is recognized immediately in
profit or loss.
When the hedged forecast transaction
subsequently results in the recognition of a non¬
financial item such as inventory, the amount
accumulated in other equity is included directly
in the initial cost of the non-financial item when
it is recognised. For all other hedged forecasted
transaction, the amount accumulated in other
equity is reclassified to profit or loss in the same
period or periods during which the hedged
expected future cash flows affect profit or loss.
If a hedge no longer meets the criteria for
hedge accounting or the hedge instrument is
sold, expires, is terminated or is exercised, then
hedge accounting is discontinued prospectively.
When hedge accounting for cash flow hedges
is discontinued, the amount that has been
accumulated in other equity remains there
until, for a hedge of a transaction resulting in
recognition of a non-financial item, it is included
in the non-financial item's cost on its initial
recognition or, for other cash flow hedges, it is
reclassified to profit or loss in the same period or
periods as the hedge expected future cash flow
affect profit or loss.
If the hedge future cash flow is not expected
to occur, then the amounts that have been
accumulated in other equity are immediately
reclassified to profit or loss.
3.3 Property, Plant and Equipment
i. Recognition and measurement
The cost of an item of property, plant and
equipment shall be recognised 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.
Items of property, plant and equipment are
measured at cost, which includes capitalised
borrowing costs, less accumulated depreciation
and accumulated impairment losses, if any.
Cost of an item of property, plant and equipment
comprises its purchase price, including import
duties and non-refundable purchase taxes, after
deducting trade discounts and rebates, any
directly attributable cost of bringing the item to
its working condition for its intended use and
estimated costs of dismantling and removing the
item and restoring the site on which it is located.
Machinery spares that meet the definition of PPE
are capitalised and depreciated over the useful
life of the principal item of an asset, otherwise
such items are classified as Inventory. All other
repair and maintenance costs, including regular
servicing, are recognised in the Statement of
Profit and Loss as incurred. When a replacement
occurs, the carrying value of the replaced part
is de-recognised.
If significant parts of an item of property, plant
and equipment have different useful lives, then
they are accounted for as separate items (major
components) of property, plant and equipment.
Any gain or loss from the disposal of an item of
property, plant and equipment is recognised in
profit or loss.
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 is calculated on cost of items
of property, plant and equipment less their
estimated residual values over their estimated
useful lives using the straight-line method and is
recognized in the statement of profit and loss.
relates. All other expenditure is recognised in profit or
loss as incurred.
Amortization is calculated to write off the cost of
intangible assets less their estimated residual value
over their estimated useful lives using straight
line method and is included in depreciation and
amortization in Statement of Profit and Loss.
Depreciation method, useful lives and residual
values are reviewed at each financial year-
end and adjusted if appropriate. Based on
technical evaluation and consequent advice,
the management believes that its estimates of
useful lives as given above best represents the
period over which the management expects to
use these assets.
Assets installed on leasehold premises are
depreciated over the period of lease. Freehold
land is not depreciated.
Depreciation on additions (disposals) during
the year is provided on a pro-rata basis i.e. from
(up to) the date on which asset is ready for use
(disposed off).
Capital work in progress (CWIP) Projects under
commissioning and other CWIP are carried at
cost, comprising direct cost, related incidental
expenses and attributable borrowing cost.
Capital advances given to acquire property, plant
and equipment are recorded as non-current
assets and subsequently transferred to CWIP on
acquisition of related assets.
3.4 Other intangible assets
Intangible assets are initially measured at cost. Such
intangible assets are subsequently measured at cost
less accumulated amortization and any accumulated
impairment losses. Subsequent expenditure is
capitalized only when it increases the future economic
benefits embodied in the specific asset to which it
Amortisation method, useful lives and residual values
are reviewed at the end of each financial year and
adjusted if appropriate.
3.5 Inventories
Inventories are measured at the lower of cost and net
realisable value. The cost of inventory is based on
weighted average formula, and includes expenditure
incurred in acquiring the inventories, production or
conversion cost and other costs incurred in bringing
them to their present location and condition. In the
case of Raw Materials, the cost comprises of cost of
purchase. In the case of manufactured inventory and
work-in-progress, cost includes an appropriate share
of overheads (both fixed and variable). Fixed overheads
are included in the cost of manufactured inventory
based on normal operating capacity. Stores, spares &
consumables are valued on FIFO basis.
Net realizable value is the estimated selling price in
the ordinary course of business, less the estimated
costs of completion and selling expense. The net
realizable value of work - in - progress is determined
with reference to the selling price of related finished
products. The comparison of cost and net realizable
value is made on an item-by-item basis.
Raw materials, components and other supplies
held for use in production of finished products are
not written down below cost except in cases where
material prices have declined, and it is estimated that
the cost of finished products will exceed their net
realizable value.
Provisions for Inventories is recognized based on
factors such as ageing, expiry and quality rejection.
3.6 Impairment of financial instruments
The Company recognizes loss allowances for
expected credit losses on financial assets measured at
amortised cost. At each reporting date, the Company
assesses whether financial assets carried at amortized
cost 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
customer 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 customer will enter
bankruptcy or other financial reorganization; or
- the disappearance of an active market for a
security because of financial difficulties.
Measurement of expected credit loss
The Company measures loss allowances at an amount
equal to expected credit losses. 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. 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 provision matrix considers historical credit
loss experience and is adjusted for forward looking
information. The expected credit loss allowance is
based on the ageing of the receivables that are due and
rates used in the provision matrix.
The above loss allowances for trade receivables is
deducted from the carrying amount of assets.
The Company assumes that the credit risk on a
financial asset has increased significantly if it is more
than 90 days past due.
The Company considers a financial asset to be
in default when:
- the customer is unlikely to pay its credit
obligations to the Company in full, without
recourse by the Company to actions such as
realizing security (if any is held); and
- the financial asset is 180 days or more past due.
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).
Loss allowances for financial assets measured at
amortized cost are deducted from the gross carrying
amount of the assets.
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.
3.7 Impairment of non-financial assets
Intangible assets that have an indefinite useful life
and not subject to amortization are tested annually for
impairment, or more frequently if events or changes
in circumstances indicate that they might be impaired.
Other non-financial assets are tested for impairment
whenever events or changes in circumstances indicate
that the carrying amount might not be recoverable. An
impairment loss is recognized for the amount by which
the assets carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an
asset's fair value less costs of disposal and value in
use. In assessing value in use, the estimated future
cash-flows are discounted to their present value using
a pre-tax discount rate that reflects current market
assessment of the time value of money and the risk
specific to the asset. In determining fair value less
cost of disposal, recent market transactions are taken
in account. If no such transactions can be identified,
an appropriate valuation model is used. These
calculations are corroborated by valuation multiples,
quoted share price for publicly traded entities or
other available fair value indicators. For the purpose
of assessing impairment, assets are grouped at the
lowest levels for which they are separately identifiable
cash inflows for which are largely independent of
the cash inflows from other assets or group of assets
(cash-generating units). A previously recognised
impairment loss is reversed only if there has been a
change in the assumptions used to determine the
assets' recoverable amount, since the last impairment
loss was recognised. The reversal is limited so that
the carrying amount of the asset does not exceed its
recoverable amount, nor exceed the carrying amount
that would have been determined, net of depreciation,
had no impairment loss been recognised for the
asset in prior years. Such reversal is recognised in the
Statement of Profit and Loss.
3.8 Recognition of interest income or expense:
Interest income is recognized using effective
interest method. The ’effective interest rate' is the
rate that exactly discounts estimated future cash
payments or receipts through the expected life of
financial instrument to:
- The gross carrying amount of the financial
assets; or
- The amortized cost of the financial liability.
In calculating interest income and expense, the
effective interest rate is applied to the gross carrying
amount of the assets (when asset is not credit -
impaired) or to the amortized cost of the liability.
However, for financial asset that have become credit
- impaired subsequent to initial recognition, interest
income is calculated by applying the effective interest
rate to the amortized cost of financial asset
3.9 Employee benefits
i. Short-term employee benefits
Short term employee benefit obligations are
measured on an undiscounted basis and are
expensed as the related service is provided. A
liability is recognised for the amount expected
to be paid, if the Company has a present legal
or constructive obligation to pay this amount
as a result of past service provided by the
employee, and the amount of obligation can be
estimated reliably.
ii. Defined contribution plans
A defined contribution plan is a post¬
employment benefit plan under which an
entity pays fixed contributions into a separate
entity and will have no legal or constructive
obligation to pay further amounts. The Company
makes specified monthly contributions
towards Government administered provident
fund scheme. Obligations for contributions to
defined contribution plans are recognised as an
employee benefit expense in profit or loss in the
periods during which the related services are
rendered by employees.
Prepaid contributions are recognized as an asset
to the extent that a cash refund or a reduction in
future payments is available.
iii. Defined benefit plans
A defined benefit plan is a post-employment
benefit plan other than a defined contribution
plan. The Company's net obligation in respect
of defined benefit plans is calculated separately
for each plan by estimating the amount of future
benefit that employees have earned in the current
and prior periods, discounting that amount and
deducting the fair value of any plan assets.
The calculation of defined benefit obligations is
performed annually by a qualified independent
actuary using the projected unit credit method.
When the calculation results in a potential asset
for the Company, the recognised asset is limited
to the present value of economic benefit available
in the form of any future refunds from the plan or
reductions in future contributions to the plan ('the
asset ceiling'). In order to calculate the present
value of economic benefits, consideration is
given to any minimum funding requirements.
Remeasurements of the net defined benefit
liability, which comprise actuarial gains and
losses, the return on plan assets (excluding
interest) and the effect of the asset ceiling (if any,
excluding interest), are recognised in OCI. The
Company determines the net interest expense
(income) on the net defined benefit liability
(asset), taking into account any changes in the net
defined benefit liability (asset) during the period
as a result of contributions and benefit payments.
Net interest expense and other expenses related
to defined benefit plans are recognised in
profit or loss.
When the benefits of the plan are changed or
when plan is curtailed, the resulting change in
benefit that relates to past service ('past service
cost' or 'past service gain') or the gain or loss on
curtailment is recognised immediately in profit
or loss. The Company recognizes gain and losses
on the settlement of a defined benefit plan when
the settlement occurs.
iv. Other long-term employee benefits
The Company's net obligation in respect of other
long-term employee benefits (compensated
absences) is the amount of future benefit that
employees have earned in return for their service
in the current and prior periods, that benefit is
discounted to determine its present value, and
the fair value of any related assets is deducted.
The obligation is measured on the basis of an
annual independent actuarial valuation using the
Projected Unit Credit method. Remeasurements,
gains or losses are recognised in profit or loss in
the period in which they arise.
3.10 Revenue
i. Sale of goods
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.
Revenue from sale of goods is recognised when
control of the products is transferred to the
customer and when there are no longer any
unfulfilled obligations and the payment is due as
per agreed terms and conditions with the buyers.
The performance obligations in customer
contracts are fulfilled at the time of dispatch,
delivery or upon formal customer acceptance
depending on customer terms. Revenue is
measured at transaction price, after deduction
of any taxes or duties collected on behalf of the
government such as goods and services tax.
Due to the short nature of credit period given
to customers, there is no financing component
in the contract. Revenue is only recognised to
the extent that it is highly probable a significant
reversal will not occur.
The sales made by the Company may include
transport arrangements from third parties. In
such cases, revenue for the supply of such third-
party transport arrangements are recorded at
gross or net basis depending on whether the
Company is acting as the principal or as an
agent of the customer. The Company recognizes
revenue for the gross amount of consideration
when it is acting as a principal and at net amount
of consideration when it is acting as an agent.
ii. Sale of Services
Income from sales of consultancy services
is recognised as income over the relevant
period of service.
iii. Export incentive
Export incentives are recognised when the right
to receive credit as per the terms of incentives
is established in respect of the exports made
and when there is no significant uncertainty
regarding the ultimate collection of the
relevant export proceeds. Income from export
incentive schemes is presented as Other non¬
operating income as the same is not receivable
from customers.
Export incentive receivable in cash will fall under
the definition of financial instruments and will
be accounted for as a financial asset per Ind
AS 109. However, if the grant is in the form of
scrips which can either be utilized against future
duties or can be traded, they would not meet the
definition of financial asset and will be shown
under Other Current Assets.
3.11 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.
At inception of a contract, the company assesses
whether a contract is, or contains, a lease. 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.
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 leases
with a term of twelve months or less (short-term leases)
and leases of low value assets. For these short-term and
leases of low value assets, the Company recognises the
lease payments as an operating expense on a straight¬
line basis over the term of the lease.
The right-of-use assets are 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. They
are subsequently measured at cost less accumulated
depreciation and impairment losses, if any. 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 underlying asset.
The lease liability is initially measured 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 incremental borrowing rates. 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.
A lease liability is remeasured upon the occurrence of
certain events such as a change in the lease term or
a change in an index or rate used to determine lease
payments. The remeasurement normally also adjusts
the leased assets
Lease liability and ROU asset have been separately
presented in the Balance Sheet and lease payments
have been classified as financing cash flows.
Please refer Note 6C for details of the right-of-use
asset held by the Company.
3.12 Income tax
Income tax comprises current and deferred tax. It is
recognised in the Statement of Profit and Loss except
to the extent that it relates to an item recognized
directly in equity or in other comprehensive income.
Current tax comprises the expected tax payable or
receivable on the taxable income or loss for the year
and any adjustment to the tax payable or receivable in
respect of previous years. The amount of current tax
reflects the best estimate of the tax amount expected to
be paid or received after considering the uncertainty,
if any, related to income taxes. It is measured using tax
rates (and tax laws) enacted or substantively enacted
by the reporting date.
Current tax assets and current tax liabilities are offset
only if there is a legally enforceable right to set off
the recognised amounts, and it is intended to realize
the asset and settle the liability on a net basis or
simultaneously.
Deferred income tax is provided in full, using the
liability method, on temporary differences arising
between the tax bases of assets and liabilities and
their carrying amounts in the financial statements.
Deferred tax is also recognised in respect of carried
forward tax losses and tax credits only to the extent
that it has sufficient taxable temporary differences
or there is convincing other evidence that sufficient
taxable profit will be available against which such
deferred tax asset can be realized. Deferred tax
assets - unrecognized or recognized, are reviewed
at each reporting date and are recognised/ reduced
to the extent that it is probable/ no longer probable
respectively that the related tax benefit will be realized.
Deferred tax is measured at the tax rates that are
expected to apply to the period when the asset is
realized or the liability is settled, based on the laws
that have been enacted or substantively enacted by
the reporting date. 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.
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