2.2 Summary of Material Accounting
policy
(a) Revenue Recognition
i) Sale of Goods
The Company recognizes revenue towards
satisfaction of a performance obligation is measured
at the amount of transaction price allocated to that
performance’s obligation. The transaction price of
goods sold and services rendered is net of variable
consideration on account of various discounts,
rebates or other similar items in a contract when
they are highly probable to be provided. Revenue
excludes any amount collected as taxes on behalf of
statutory authorities.
The Company recognizes revenue generally at the
point in time when the products are delivered to
customer or when it is delivered to a carrier for
export sale, which is when the control over product
is transferred to the customer.
ii) Interest Income
Interest income from a financial asset is recognized
when it is probable that the economic benefits will
flow to the Company and the amount of income can
be measured reliably. Interest income is accrued
on a time basis, by reference to the principal
outstanding and at the effective interest rate
applicable.
iii) Rental income
Rental income arising from operating leases is
accounted over the lease period and is included in
revenue in the statement of profit or loss.
iv) Insurance Claim
Insurance Claims are accounted on receipt basis.
(b) Government Grant
Grants from the Government are recognised at their fair
value where there is a reasonable assurance that the grant
will be received, and the Company will comply with all
stipulated conditions.
Grants relating to fixed assets are recognised as deferred
income, and amortised over balance useful life of the
assets.
Government grants relating to income are recognised in
the Profit & Loss for the period, for which they relate.
Such recognised grants, remaining outstanding for more
than 5 years are de recognised-on completion of 5 years
from the year of its initial recognition and when the
Company is not certain about the receipt of the same.
(c) Property Plant & Equipment
Freehold land is carried at historical cost. All other items
of property, plant and equipment are stated at historical
cost less recoverable tax and accumulated depreciation.
Historical cost includes expenditure that is directly
attributable to the acquisition of the items. 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. All other repairs and
maintenance are charged to profit or loss during the
reporting period in which they are incurred.
Property, plant, and equipment which are not ready for
intended use as on the date of Balance Sheet are disclosed
as “Capital work-in-progress”.
Advances paid towards the acquisition of property, plant
and equipment outstanding at each balance sheet date is
classified as capital advances under “Other Non-Current
Assets”.
Depreciation methods, estimated useful lives and
residual value:
Depreciation is calculated using the straight-line method
to allocate their cost, net of their residual values, over
their estimated useful lives.
The useful lives have been taken as prescribed in Schedule
II to the Companies Act, 2013 except in case of plant and
machinery, in which case it has been 25/30 years, based
on a technical evaluation.
The residual value is not more than 5% of the original cost
of the asset. The assets’ residual values and useful lives are
reviewed, and adjusted if appropriate, at the end of each
reporting period.
Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These are
included in profit or loss.
(d) Intangible assets
Intangible assets purchased are initially measured at cost.
Intangible assets acquired in a business combination
are recognised at fair value at the acquisition date.
Subsequently, intangible assets are carried at cost less any
accumulated amortisation and accumulated impairment
losses, if any. Intangible Assets are amortized in 3-8 years
based on straight-line method.
(e) Lease
The Company identifies whether any transaction is
a lease or have any embedded lease component. The
determination of whether an arrangement is a lease is
based on the substance of the agreement. The agreement
is a lease if fulfilment of it is dependent on the use of a
specific asset(s) and the arrangement conveys a right to
use the asset or assets, even if the right is not explicitly
specified in an agreement.
As a lessor:
Leases are classified as finance leases when substantially
all the risks and rewards of ownership transfer from the
Company to the lessee. Amounts due from lessees under
finance leases are recorded as receivables. Finance lease
income is allocated to accounting periods to reflect a
constant periodic rate of return on the net investment
outstanding in respect of the lease.
Lease income from operating leases where the Company
is a lessor is recognised in income on a straight-line basis
over the lease term unless the receipts are structured
to increase in line with expected general inflation to
compensate for the expected inflationary cost increases.
The respective leased assets are included in the balance
sheet based on their nature.
As a lessee:
In case the Company has entered in any agreement as a
lessee, it recognises the right to use of the asset conferred
under the arrangement as “Right of Use “as part of
Property, Plant & equipment. The discounted cash flows of
the all the lease considerations including lease premium,
which Company expects to pay during entire non¬
cancellable period of lease arrangement is taken as initial
recognition of asset with corresponding amount as ‘lease
liabilities. Lease liabilities and Right of use is remeasured
or impaired annually based on available variables.
The assets under ‘right of use’ are depreciated using
straight line method over the lease term. Similarly interest
as per incremental rate of borrowing is charged to lease
liabilities. Lease payments are appropriated towards the
lease liabilities.
Lease transactions of low value and of short duration are
not recognised and thus rentals paid are charged off to
Statement of Profit & Loss. Lease liabilities are classified
as non-current and current based on their due dates of
discharging.
(f) Investment in Subsidiary
The investments in subsidiaries are carried in the financial
statements at historical cost. Investments are reviewed
for impairment as per Ind AS 36 on annual basis, in case
there are indicators of impairment.
(g) Impairment of non-financial assets
The Company assesses, at each reporting date, whether
there is an indication that an asset may be impaired. If
any indication exists, or when annual impairment testing
for an asset is required, the Company estimates the asset’s
recoverable amount. An asset’s recoverable amount is the
higher of an asset’s or cash-generating unit’s (CGU) fair
value less costs of disposal and its value in use. [When it
is not possible to estimate the recoverable amount of an
individual asset, the Company estimates the recoverable
amount of the CGU to which the asset belongs]. When
the carrying amount of an asset or CGU exceeds its
recoverable amount, the asset is considered impaired and
is written down to its recoverable amount.
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 assessments of
the time value of money and the risks specific to the asset.
(h) Financial Assets & Liabilities
i) Financial Assets
Initial recognition and measurement
All financial assets are recognized initially at fair value,
plus in the case of financial assets not recorded at fair
value through profit or loss (FVTPL), transaction costs
that are attributable to the acquisition of the financial
assets. However, trade receivables that do not contain
a significant financing component are measured at
transaction prices.
Subsequent measurement
For purposes of subsequent measurement, financial assets
are classified in three categories:
• Debt instruments at amortised cost
• Debt / equity instruments at fair value through other
comprehensive income (FVTOCI)
• Debt instruments, derivatives, and equity instruments
at fair value through profit or loss (FVTPL)
Impairment of financial assets
The Company assesses on a forward-looking basis the
expected credit loss associated with its assets carried
at amortized cost and FVOCI debt instruments. The
impairment methodology applied depends on whether
there has been a significant increase in credit risk.
For trade receivables only, the Company applies the
simplified approach permitted by Ind AS 109 Financial
Instruments, which requires expected lifetime losses to
be recognized from initial recognition of the receivables.
ii) Financial Liabilities
Initial recognition and measurement
All financial liabilities are recognised initially at fair value.
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
• Financial liabilities at fair value through profit or loss
Financial liabilities are measured at fair value through
profit or loss.
• Loans and borrowings
After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised cost
using the Effective Interest Rate (EIR) method. Gains and
losses are recognised in profit or loss when the liabilities
are de-recognised as well as through the EIR amortisation
process.
Amortised cost is calculated by taking into account any
discount or premium on acquisition and fees or costs
that are material and an integral part of the EIR. The EIR
amortisation is included as finance costs in the statement
of profit and loss.
(i) Derivative financial instruments and hedge
accounting
Initial recognition and subsequent
measurement
The Company uses derivative financial instruments, such
as forward currency contracts, currency swaps, interest
rate swaps, to hedge its foreign currency risks, interest
rate risks and to reduce interest cost. Such derivative
financial instruments are initially recognised at fair value
on the date on which a derivative contract is entered
into and are subsequently re-measured at fair value.
Derivatives are carried as financial assets when the fair
value is positive and as financial liabilities when the fair
value is negative.
For the purpose of hedge accounting, hedges are classified
as:
• Fair value hedges when hedging the exposure to
changes in the fair value of a recognised asset or
liability or an unrecognised firm commitment.
• Cash flow hedges when hedging the exposure to
variability in cash flows that is either attributable to
a particular risk associated with a recognised asset
or liability or a highly probable forecast transaction
or the foreign currency risk in an unrecognised firm
commitment
Any gains or losses arising from changes in the fair value
of derivatives are taken directly to profit or loss, except
for the effective portion of cash flow hedges, which is
recognised in OCI and later reclassified to profit or loss
when the hedge item affects profit or loss.
(j) Foreign currency transactions
i) Functional and presentation currency
Items included in the financial statements of the Company
are measured in Indian Rupee which is functional and
presentation currency
ii) Transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates at the
date of the transaction. Foreign exchange gain and loss
resulting from the settlement of such transactions and
from the translation of monetary assets and liabilities
foreign currencies at year end exchange rates are generally
recognised in profit or loss. They are deferred in other
equity if they relate to qualifying cash flow hedges.
Foreign exchange differences arising on borrowings other
than above are regarded as an adjustment to borrowing
costs and are presented in the statement of profit and loss.
All other 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.
(k) Inventories
Inventories are valued at the lower of cost and net
realisable value.
Costs includes, expenses incurred in bringing each
product to its present location and condition and are
accounted for as follows:
Raw materials, Consumables Stores:
Raw materials /Consumables Stores are valued at cost
after providing for cost of obsolescence / depletion. Cost
is determined on first in, first out basis.
Finished goods and work in progress
Cost includes cost of direct materials and labour and a
proportion of manufacturing overheads based on the
normal operating capacity but excluding borrowing costs.
Net realisable value is the estimated selling price in
the ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make
the sale.
(l) Trade Receivable
Trade receivables are amounts due from customers for
goods sold or services performed in the ordinary course
of business.
(m) Cash & Cash equivalent
Cash and cash equivalent in the balance sheet comprise
cash on hand, bank balances and short-term deposits in
banks.
(n) Income Taxes
Current income tax
Current income tax assets and liabilities are measured
at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or
substantively enacted, at the reporting date.
Current income tax relating to items recognised outside
profit or loss is recognised outside profit or loss (either
in other comprehensive income or in equity). Current
tax items are recognised in correlation to the underlying
transaction either in OCI or directly in equity.
Management periodically evaluates positions taken
in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation
and establishes provisions where appropriate.
Deferred Tax
Deferred tax is provided using the Balance sheet approach
on temporary differences between the tax bases of assets
and liabilities and their carrying amounts for financial
reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable
temporary differences.
Deferred tax assets are recognised for all deductible
temporary differences, the carry forward of unused tax
credits and any unused tax losses. Deferred tax assets are
recognised to the extent that it is probable that taxable
profit will be available against which the deductible
temporary differences, and the carry forward of unused
tax credits and unused tax losses can be utilized.
The carrying amount of deferred tax assets is 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 asset to be
utilized. Unrecognised deferred tax assets are re-assessed
at each reporting date and are recognised to the extent
that it has become probable that future taxable profits will
allow the deferred tax asset to be recovered.
Deferred tax assets and deferred tax liabilities are offset
if a legally enforceable right exists to set off current tax
assets against current tax liabilities and the deferred taxes
relate to the same taxable entity and the same taxation
authority.
Minimum Alternate Tax credit is recognised as deferred
tax asset only when and to the extent there is convincing
evidence that the Company will pay normal income tax
during the specified period. Such asset is reviewed at each
Balance Sheet date and the carrying amount of the MAT
credit asset is written down to the extent there is no longer
convincing evidence to the effect that the Company will
pay normal income tax during the specified period.
(o) Trade and other payable
These amounts represent liabilities for goods and services
provided to the Company prior to the end of financial year
which are unpaid. The amounts are unsecured. Trade and
other payables are presented as current liabilities unless
payment is not due within 12 months after the reporting
period.
(p) Borrowing costs
General and specific borrowing costs directly attributable
to the acquisition, construction or production of qualifying
assets are added to the cost of those assets, until such
time as the assets is substantially ready for their intended
use. The Company considers a period of twelve months or
more as a substantial period. Qualifying assets are assets
that necessarily take a substantial period to get ready for
their intended use.
Transaction costs in respect of long-term borrowings
are amortised over the tenor of respective loans using
effective interest method.
All other borrowing costs are expensed in the period in
which they are incurred.
(q) Employee Benefit
Short Term and other long-term Employee
Benefits
The contractual amount of short-term employee benefits
expected to be paid in exchange for the services rendered
by employees are recognised as an expense during the
period when the employees render the services.
Liabilities recognised in respect of other long-term
employee benefits such as annual leave is valued by
Independent Actuaries using Project Unit Credit Method..
Actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions are
charged or credited to the statement of profit and loss in
the period in which they arise.
Post-Employment Benefits
• Defined Contribution Plans
A defined contribution plan is a post-employment
benefit plan under which the Company pays specified
contributions to Provident Fund and Pension Scheme
authorities. The Company makes specified monthly
contributions towards Provident Fund and Pension
Scheme. The Company’s contribution is recognised as
an expense in the Statement of Profit and Loss during
the period in which the employee renders the related
service.
• Defined Benefit Plans
The Company pays gratuity to the employees whoever
has completed specified period of service with the
Company as per the Payment of Gratuity Act, 1972,
at the time of resignation/retirement from the
employment. Annual gratuity provision is made based
on an actuarial valuation.
The gratuity liability amount is contributed to the
approved gratuity fund formed exclusively for gratuity
payment to the employees. The liability in respect
of gratuity and other post-employment benefits is
calculated using the Projected Unit Credit Method
and spread over the period during which the benefit
is expected to be derived from employees’ services.
Re-measurement of defined benefit plans in
respect of post-employment is charged to the Other
Comprehensive Income.
(r) Earning per Share
Basic earnings per share
Basic earnings per share is calculated by dividing:
• the profit attributable to owners of the Company
• by the weighted average number of equity shares
outstanding during the financial year.
Diluted earnings per share
Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into
account:
• the after income tax effect of interest and other
financing costs associated with dilutive potential
equity
• the weighted average number of additional equity
shares that would have been outstanding assuming
the conversion of all dilutive potential equity shares.
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