5. Material accounting policies
A summary of the material accounting policies applied in the
preparation of the Standalone Financial Statements are as given below.
These accounting policies have been applied consistently to all periods
presented in the Standalone Financial Statements.
5.1 Property, plant and equipment (PPE)
Recognition and initial measurement
Properties plant and equipment are stated at their cost of acquisition.
Any trade discount and rebates are deducted in arriving at the
purchase price. Property, plant and equipment purchased on deferred
payment basis are recorded at equivalent cash price. The difference
between the cash price equivalent and the amount payable is
recognised as interest expense over the deferred payment period.
Spares having useful life of more than one year and having material
value in each case, are capitalised under the respective heads as
and when available for use.
Subsequent measurement (depreciation and useful lives)
Property, plant and equipment are subsequently measured at cost
less accumulated depreciation and impairment losses. Depreciation
on Buildings and Plant and Equipment is charged on pro-rata basis
on Straight Line Method based on the life assigned to each asset in
accordance with Schedule II of Companies Act, 2013. Depreciation
on rest of the property, plant and equipment has been provided on
Written Down Value basis based on the life assigned to each asset in
accordance with Schedule II of Companies Act, 2013.
5.2 Intangible assets
Recognition and initial measurement
Intangible assets are stated at their cost of acquisition. Any trade
discount and rebates are deducted in arriving at the purchase price.
Subsequent measurement (amortisation)
Intangible assets are amortized over their respective individual
estimated useful life on written down value basis commencing from
the date, the asset is available to the company for its use
5.3 Inventories
Inventories are valued as follows:
Raw materials, loose tools and stores and spares
Raw materials, loose tools and stores and spares are valued at lower
cost and net realizable value. Cost of raw materials, loose tools and
stores and spares is determined on weighted average -FIFO (First in
first out) basis.
Work-in-progress and finished goods
Work-in-progress and finished goods is measured at lower of cost
and net realizable value. Cost includes direct materials and labour
and a proportion of manufacturing overheads based on normal
operating capacity.
Scrap
Scrap is measured at net realizable value.
5.4 Revenue recognition
Revenue arises mainly from the sale of manufactured and traded
goods. Revenue is recognised upon transfer of control of promised
products or services to customers for an amount that reflects the
consideration which the Company expects to receive in exchange for
those products or services. Revenue excludes taxes or duties collected
on behalf of the government.
To determine whether to recognise revenue, the Company follows a
5-step process:
(i) Identifying the contract with a customer
(ii) Identifying the performance obligations
(iii) Determining the transaction price
(iv) Allocating the transaction price to the performance obligations
(v) Recognising revenue when/as performance obligation(s) are
satisfied.
Sale of goods
Revenue towards satisfaction of a performance obligation is measured
at the amount of transaction price (net of variable consideration)
allocated to that performance obligation. The transaction price of
goods sold, and services rendered is net of variable consideration on
account of various discounts and schemes offered by the Company
as part of the contract.
Sale of services
Revenue from services is recognised when Company satisfies the
performance obligations by transferring the promised services to its
customers.
Export benefits
Export benefits constituting Duty Draw back and Export Promotion
Capital Goods scheme (EPCG) are accounted for on accrual basis
when there is reasonable assurance that the company will comply
with the conditions attached to them and the export benefits will be
received. Export benefits under Duty Draw back scheme and EPCG
are considered as other operating income.
Interest
Interest income is recorded on accrual basis using the effective interest
rate (EIR) method.
Dividend income
Dividend income is recognised at the time when right to receive the
payment is established, which is generally when the shareholders
approve the dividend.
5.5 Borrowing costs
Borrowing costs that are attributable to the acquisition, construction
or production of qualifying assets are capitalized as part of the cost
of such assets. A qualifying asset is one that necessarily takes
substantial period of time to get ready for its intended use. All other
borrowing costs are charged as expense to the statement of profit
and loss in the period for which they relate to.
5.6 Leases
Company as a lessee
The Company applies a single recognition and measurement approach
for all leases, except for short-term leases and leases of low-value
assets. The Company recognises lease liabilities to make lease
payments and right-of-use assets representing the right to use the
underlying assets.
(i) Right-of-use assets
Right-of-use assets are measured at cost, less any accumulated
depreciation and impairment losses, and adjusted for any
remeasurement of lease liabilities. Right-of-use assets are
depreciated on a straight-line basis over the shorter of the lease
term and the estimated useful lives of the assets.
(ii) Lease liabilities
At the commencement date of the lease, the Company
recognises lease liabilities measured at the present value of lease
payments to be made over the lease term.
In calculating the present value of lease payments, the Company
uses its incremental borrowing rate at the lease commencement
date because the interest rate implicit in the lease is not readily
determinable.
(iii) Short-term leases and leases of low-value assets
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 that are considered to be low value.
Lease payments on short-term leases and leases of low-value
assets are recognised as expense on a straight-line basis over
the lease term.
5.7 Impairment of non-financial assets
At each reporting date, the Company assesses whether there is any
indication based on internal/external factors, that an asset may be
impaired. If any such indication exists, the recoverable amount of the
asset or the cash generating unit is estimated. If such recoverable
amount of the asset or cash generating unit to which the asset belongs
is less than its carrying amount. The carrying amount is reduced to
its recoverable amount and the reduction is treated as an impairment
loss and is recognised in the statement of profit and loss. If, at the
reporting date there is an indication that a previously assessed
impairment loss no longer exists, the recoverable amount is
reassessed and the asset is reflected at the recoverable amount.
Impairment losses previously recognized are accordingly reversed in
the statement of profit and loss.
5.8 Foreign currency
Initial recognition
Foreign currency transactions are recorded in the functional currency,
by applying to the exchange rate between the functional currency
and the foreign currency at the date of the transaction.
Conversion
Foreign currency monetary items are converted to functional currency
using the closing rate. Non-monetary items denominated in a foreign
currency which are carried at historical cost are reported using the
exchange rate at the date of the transaction.
Exchange difference
Exchange differences arising on monetary items on settlement, or
restatement as at reporting date, at rates different from those at which
they were initially recorded, are recognised in the statement of profit
and loss in the year in which they arise.
5.9 Financial instruments
A financial instrument is any contract that gives rise to a financial
asset of one entity and a financial liability or equity instrument of
another entity.
Financial Asset
Initial recognition and measurement
At initial recognition, the Company measures a financial assets at its
fair value and in the case of financial assets not recorded at fair value
through profit or loss at transaction costs that are attributable to the
acquisition of the financial asset. Transaction cost of financial assets
carried at fair value through profit or loss is expensed in the Statement
of Profit or Loss. However, trade receivables that do not contain a
significant financing component are measured at transaction price.
Investments in equity instruments of subsidiary
Investments in Subsidiaries, Associates and Joint Venture are carried
at cost less accumulated impairment losses, if any. Where an
indication of impairment exists, the carrying amount of the investment
is assessed and written down immediately to its recoverable amount.
On disposal of investments in subsidiaries, associates and joint
venture, the difference between net disposal proceeds and the carrying
amounts are recognised in the Statement of Profit and Loss.
Subsequent measurement
Debt Instruments:
Subsequent measurement of debts instruments depends on the
Company’s business model for managing the assets and the cash
flows of the assets. The Company classifies its financial assets in the
following categories:
i) Financial assets at amortised cost- Assets that are held for
collection of contractual cashflows on specified dates where
those cashflows represent solely payments of principal and
interest are measured at amortised cost.
After initial measurement, such financial assets are subsequently
measured at amortised cost using the effective interest rate (EIR)
method. Amortised cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that are
an integral part of the EIR. The EIR amortisation is included in
finance income in the profit or loss. The losses arising from
impairment are recognised in the profit or loss. This category
generally applies to trade receivables and Loans.
ii) Financial assets at fair value through other comprehensive
income (FVTOCI) - Assets that are held for collection of
contractual cash flows and for selling the financial assets, where
the assets cash flows represent solely payments of principal
and interest, are on specified dates are subsequently measured
at fair value through other comprehensive income. Fair value
movements are recognised in the other comprehensive income
(OCI). Interest income from these financial assets is included in
finance income using the effective interest rate method and
impairment losses, if any are recognised in the Statement of
Profit and Loss.
When the financial asset is derecognition, the cumulative gain
or loss previously recognised in OCI is reclassified from the equity
to the Statement of Profit and Loss.
iii) Financial assets at fair value through profit or loss (FVTPL)
- Financial assets which are not classified in any of the categories
above are FVTPL.
Investments in other equity instruments - Investments in
equity instruments which are held for trading are classified at
Fair Value Through Profit or Loss (FVTPL). For all other equity
instruments, the Company makes an irrevocable choice upon
initial recognition, on an instrument by instrument basis, to
classify the same either as at Fair Value through Other
Comprehensive Income (FVOCI) or Fair Value Through Profit or
Loss (FVTPL). Amounts presented in other comprehensive
income are not subsequently transferred to profit or loss.
However, the Company transfers the cumulative gain or loss
within equity. Dividends on such investments are recognized in
profit or loss unless the dividend clearly represents a recovery
of part of the cost of the investment.
Derecognition
The Company derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire, or it transfers
the contractual rights to receive the cash flows from the asset.
Financial liabilities
Initial recognition and measurement
All financial liabilities are recognised initially at fair value and in case
of loans and borrowings net of directly attributable costs.
Subsequent measurement
Financial liabilities are subsequently measured at amortised cost using
effective interest method. Financial liabilities carried at fair value
through profit or loss are measured at fair value with all changes in
fair value recognised in the Statement of Profit and Loss. For trade
and other payable maturing within one year from the balance sheet
date, the carrying value approximates fair value due to short maturity
of these instruments.
Derecognition
A financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires.
Offsetting Instruments
Financial assets and liabilities are offset and the net amount reported
in the balance sheet when there is a legally enforceable right to offset
the recognised amounts and there is an intention to settle on a net
basis or realise the asset and settle the liability simultaneously. The
legally enforceable right must not be contingent on future events and
must be enforceable in the normal course of business and in the
event of default, insolvency or bankruptcy of the Company or the
counterparty.
Forward contracts
The Company has entered into certain forward (derivative) contracts
to hedge risks which are not designated as hedges. These derivatives
are initially recognised at fair value on the date a derivative contract
is entered into and are subsequently re-measured to their fair value
at the end of each reporting period. Any profit or loss arising on
cancellation or renewal of such derivative contract is recognised as
income or as expense in statement of profit and loss.
5.10 Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit
loss (ECL) model for measurement and recognition of impairment
loss for financial assets. The Company assesses on forward looking
basis the expected credit losses associated with its assets and
impairment methodology applied depends on whether there has been
a significant increase in credit risk.
Trade receivables
In respect of trade receivables, the Company applies the simplified
approach of Ind AS 109, which requires measurement of loss
allowance at an amount equal to lifetime expected credit losses.
Other financial assets
In respect of its other financial assets, the Company assesses if the
credit risk on those financial assets has increased significantly since
initial recognition. If the credit risk has not increased significantly since
initial recognition, the Company measures the loss allowance at an
amount equal to 12-month expected credit losses, else at an amount
equal to the lifetime expected credit losses.
5.11 Income taxes
Tax expense recognized in statement of profit and loss comprises
the sum of deferred tax and current tax except the ones recognized
in other comprehensive income or directly in equity.
Current tax is determined as the tax payable in respect of taxable
income for the year and is computed in accordance with relevant tax
regulations. 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).
Deferred tax liabilities are generally recognised in full for all taxable
temporary differences. Deferred tax assets are recognised to the
extent that it is probable that the underlying tax loss or deductible
temporary difference will be utilised against future taxable income.
This is assessed based on the Company’s forecast of future operating
results, adjusted for significant non-taxable income and expenses
and specific limits on the use of any unused tax loss. 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 liabilities are measured at the tax rates (and
tax laws) that have been enacted or substantively enacted at the
reporting date. Deferred tax relating to items recognised outside
statement of profit and loss is recognised outside statement of profit
and loss (either in other comprehensive income or in equity).
5.12 Employee benefits
Short-term employee benefits
Employee benefits payable wholly within twelve months of receiving
employee services are classified as short-term employee benefits.
These benefits include salaries and wages, bonus and ex-gratia. The
undiscounted amount of short-term employee benefits to be paid in
exchange for employee services are recognized as an expense as
the related service is rendered by employees.
Defined Contribution Plan
Contribution towards provident fund for certain employees is made to
the regulatory authorities, where the Company has no further
obligations. Payments to defined contribution retirement benefit
schemes (such as Provident Fund, Employee’s State Insurance
Corporation) are charged to the statement of profit and loss of the
year in which contribution to such schemes becomes due.
Defined Benefit Plan
For defined benefit schemes, the cost of providing benefits is
determined using Projected Unit Credit Method, with actuarial
valuation being carried out at each balance sheet date. Actuarial gains/
losses resulting from re-measurements of the liability are included in
other comprehensive income.
The retirement benefit obligation recognized in the Balance Sheet
represents the present value of the defined benefit obligations as
adjusted for unrecognized past service cost, and as reduced by the
fair value of scheme assets.
The Company makes annual contribution to the Employee’s Company
Gratuity-cum-Life Assurance scheme of the Life Insurance Corporation
of India, a funded defined benefit plan for qualifying employees. The
scheme provides for lump sum payment to vested employees at
retirement, death or on termination of employment.
Other long-term employee benefits
Liability in respect of leave encashment becoming due or expected
to be availed within one year from the balance sheet date is recognized
on the basis of discounted value of estimated amount required to be
paid or estimated value of benefit expected to be availed by the
employees. Liability in respect of leave encashment becoming due
or expected to be availed more than one year after the balance sheet
date is estimated on the basis of an actuarial valuation performed by
an independent actuary using the projected unit credit method.
Actuarial gains and losses arising from past experience and changes
in actuarial assumptions are charged to statement of profit and loss
in the year in which such gains or losses are determined.
Share based payments.
The fair value on grant date of equity-settled share-based payment
arrangements granted to eligible employees of the Company under
the Employee Stock Option Scheme (‘ESOS’) is recognised as
employee stock option scheme expenses in the Statement of profit
and loss, in relation to options granted to employees of the Company
(over the vesting period of the awards), with a corresponding increase
in other equity. The amount recognised as an expense to reflect the
number of awards for which the related service and non-market
performance conditions are expected to be met, such that the amount
ultimately recognised is based on the number of awards that meet
the related service and non-market performance conditions at the
vesting date. The increase in equity recognised in connection with a
share based payment transaction is presented in the “Employee stock
options outstanding account”, as separate component in other equity.
For share-based payment awards with market conditions, the grant-
date fair value of the share-based payment is measured to reflect
such conditions and there is no true- up for differences between
expected and actual outcomes. At the end of each period, the
Company revises its estimates of the number of options that are
expected to be vested based on the non-market performance
conditions at the vesting date.
If vesting periods or other vesting conditions apply, the expense is
allocated over the vesting period, based on the best available estimate
of the number of share options expected to vest. Upon exercise of
share options, the proceeds received, net of any directly attributable
transaction costs, are allocated to share capital up to the nominal (or
par) value of the shares issued with any excess being recorded as
share premium.
The dilutive effect of outstanding options is reflected as additional
share dilution in the computation of diluted earnings per share.
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