2. Summary of material accounting policies:
This note provides a list of the material accounting policies adopted in the preparation of these
Indian Accounting Standards (Ind-AS) financial statements. These policies have been consistently
applied to all the years.
(a) Statement of compliance
The standalone financial statements of the Company have been prepared in accordance with
Indian Accounting Standards (Ind AS) notified under Companies (Indian Accounting Standards)
Rules, 2015 (as amended from time to time) and presentation requirements of Division II of
Schedule III to the Companies Act, 2013, (Ind AS compliant Schedule III), as applicable to the
standalone financial statement. The accounting policies are applied consistently to all the
periods presented in the financial statements.
(b) Basis of preparation of Financial Statement
Financial statements have been prepared and presented under the historical cost convention,
on the accrual basis of accounting except for certain financial assets and financial liabilities that
are measured at fair values at the end of each reporting period, as stated in the accounting
policies set out below. The accounting policies have been applied consistently over all the
periods presented in these financial statements.
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.
(c) Use of Estimates and Judgements :
In preparation of the financial statements, the Company makes judgements, estimates and
assumptions about the carrying values of assets and liabilities that are not readily apparent
from other sources. The estimates and the associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from
these estimates.
These estimates and the underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the estimate is revised and
future periods affected.
Significant judgements and estimates relating to the carrying values of assets and liabilities
include useful lives of property, plant and equipment, impairment of property, plant and
equipment and investments, leasing arrangements, provision for employee benefits, fair value
measurement of financial instruments, income tax, deferred tax and other provisions,
recoverability commitments and contingencies.
(d) Current / Non-Current Classification:
Any asset or liability is classified as current if it satisfies any of the following conditions:
i) the asset/liability is expected to be realized/settled in the Company's normal operating
cycle;
ii) the asset is intended for sale or consumption;
iii) the asset/liability is held primarily for the purpose of trading;
iv) the asset/liability is expected to be realized/settled within twelve months after the
reporting period;
v) the asset is cash or cash equivalent unless it is restricted from being exchanged or used to
settle a liability for at least twelve months after the reporting date;
vi) in the case of a liability, the Company does not have an unconditional right to defer
settlement of the liability for at least twelve months after the reporting date.
All other assets and liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities
All the assets and liabilities have been classified as current and non-current as per the Company's
normal operating cycle and other criteria set out in the Schedule III to the Companies Act 2013.
Based on the nature of products and the time between the acquisition of assets for processing
and there realisation in cash and cash equivalents, the company has ascertained its operating
cycle as 12 months for the purpose of current- non-current classification of assets and liabilities.
(e) Fair Value Measurement
The Company measures financial instruments at fair value in accordance with the accounting
policies mentioned below. Fair value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement
date. The fair value measurement is based on the presumption that the transaction to sell the
asset or transfer the liability takes place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous market for the asset or liability.
All assets and liabilities for which fair value is measured or disclosed in the financial statements
are categorized within the fair value hierarchy that categorizes into three levels, described as
follows, the inputs to valuation techniques used to measure value. The fair value hierarchy gives
the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1
inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
Level 1 - quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly
Level 3 - inputs that are unobservable for the asset or liability
For assets and liabilities that are recognized in the financial statements at fair value on a recurring
basis, the Company determines whether transfers have occurred between levels in the hierarchy
by re-assessing categorization at the end of each reporting period and discloses the same.
(f) Property, plant and equipment - Tangible Assets
Recognition and measurement:
Freehold land is stated at historical cost. All other items of property, plant and equipment is stated
at historical cost less accumulated depreciation and accumulated impairment losses if any.
Historical cost includes expenditure that is directly attributable to the acquisition of the items.
When parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items (major components) of property, plant and equipment.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that future economic benefits associated with the
item will flow to the Company and the cost of the item can be measured reliably. All up gradation
/ enhancements are charged off as revenue expenditure unless they bring similar significant
additional benefits. An item of property, plant and equipment is derecognised upon disposal
or when no future economic benefits are expected to arise from the continued use of 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
and is recognised in the Statement of Profit and Loss. All other repairs and maintenance are
charged to profit or loss during the reporting period in which they are incurred.
Capital work in progress and Capital advances:
Cost of assets not ready for intended use, as on the Balance Sheet date, is shown as capital work
in progress. Advances given towards acquisition of fixed assets outstanding at each Balance
Sheet date are disclosed as Other Non-Current Assets.
Depreciation
Depreciation of these assets commences when the assets are ready for their intended use
which is generally on commissioning. Items of property, plant and equipment are depreciated
in a manner that amortizes the cost (or other amount substituted for cost) of the assets after
commissioning, less its residual value, over their useful lives as specified in Schedule II of the
Companies Act, 2013 on a straight line basis. Land is not depreciated.
The Company has used the following useful lives to provide depreciation on its property, plant
and equipment:
Buildings 5 to 30 years
Plant & Equipments 5 to 35 years
Furniture & Fittings 5 to 15 years
Vehicles 8 years
Office Equipments 5 years
Computer 3 to 5 years
Depreciation methods, useful lives and residual values are reviewed periodically, including
at each financial year end.
(g) Impairment of Non-financial assets
At each reporting date, the company assesses whether there is any indication that an asset may
be impaired, based on internal or external factors. If any such indication exists, the company
estimates the recoverable amount of the asset or the cash generating unit. 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. 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 recognised are accordingly reversed in the statement of profit and loss.
(h) Financial Instruments
1) Recognition and Initial measurement
Financial assets and financial liabilities are recognised when the company becomes a party to
the contractual provisions of the instrument. Financial assets and financial liabilities are initially
measured at fair value. Transaction costs in relation to financial assets and financial liabilities,
other than those carried at fair value through profit or loss (FVTPL), are adjusted to the fair value.
Transaction costs in relation to financial assets and financial liabilities which are carried at fair
value through profit or loss (FVTPL), are charged to the statement of profit and loss.
2) Classification and subsequent measurement of financial assets
i) Debt Instruments
For the purpose of subsequent measurement, financial assets in the nature of debt instruments
are classified as follows:
Amortised cost - Financial assets that are held within a business model whose objective is to
hold the asset in order to collect contractual cash flows that are solely payments of principal
and interest are subsequently measured at amortised cost less impairments, if any. Interest
income calculated using effective interest rate (EIR) method and impairment loss, if any are
recognised in the statement of profit and loss.
Fair value through other comprehensive income (FVOCI) - Financial assets that are held
within a business model whose objective is achieved by both holding the asset in order to
collect contractual cash flows that are solely payments of principal and interest and by selling
the financial assets, are subsequently measured at fair value through other comprehensive
income. Changes in fair value are recognized in the other comprehensive income (OCI) and on
de-recognition, cumulative gain or loss previously recognised in OCI is reclassified to the
statement of profit and loss. Interest income calculated using EIR method and impairment loss,
if any are recognised in the statement of profit and loss.
Fair value through profit or loss (FVTPL) - A financial asset which is not classified in any of
the above categories are subsequently measured at fair valued through profit or loss. Changes
in fair value and income on these assets are recognised in the statement of profit and loss.
ii) Equity Instruments
The Company has made investment in equity instruments that are initially measured at fair
value. These investment are strategic in nature and held on a long-term basis. Accordingly, the
company has elected irrevocable option to measure such investments at FVOCI. The Company
makes such election on an instrument-by-instrument basis. Pursuant to such irrevocable option,
changes in fair value are recognised in the OCI and is subsequently not reclassified to the
statement of profit and loss.
3) Classification and subsequent measurement of financial liabilities
For the purpose of subsequent measurement, financial liabilities are classified as follows:
Amortised cost - Financial liabilities are classified as financial liabilities at amortised cost by
default. Interest expense calculated using EIR method is recognised in the statement of profit
and loss.
Fair value through profit or loss (FVTPL) - Financial liabilities are classified as FVTPL if it is
held for trading, or is designated as such on initial recognition. Changes in fair value and interest
expense on these liabilities are recognised in the statement of profit and loss.
4) De recognition of financial assets and financial liabilities
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 including
risks and rewards of ownership. A financial liability is derecognised when the obligation under
the liability is discharged or expires.
5) Impairment of financial assets
Financial assets that are carried at amortised cost and fair value through other comprehensive
income (FVOCI) are assessed for possible impairments basis expected credit losses taking into
account the past history of recovery, risk of default of the counterparty, existing market conditions
etc. The impairment methodology applied depends on whether there has been a significant
increase in credit risk since initial recognition.
For Trade receivables, the Company provides for expected credit losses based on a simplified
approach as per Ind AS 109 - Financial Instruments. Under this approach, expected credit
losses are computed on the basis of probability of defaults over the life time of the asset.
As a practical expedient, the Company uses a provision matrix to measure lifetime ECL on its
portfolio of trade receivables. The provision matrix is prepared based on historically observed
default rates over the expected life of trade receivables and is adjusted for forward-looking
estimates. At each reporting date, the historically observed default rates and changes in the
forward-looking estimates are updated.
6) Offsetting Financial Instruments
Financial assets and liabilities are offset and the net amount is included in the Balance Sheet
where 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.
(i) Investment in Subsidiaries:
Investments in subsidiaries are carried at cost. The cost comprises price paid to acquire
investment and directly attributable cost.
(j) Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents
includes cash on hand, cheques and drafts on hand including remittances in transit, deposits
held at call with financial institutions, other short-term, highly liquid investments with original
maturities of three months or less that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in value. Bank overdrafts are shown within
borrowings in current financial liabilities in the balance sheet.
(k) Inventories
Inventories are carried at the lower of cost and net realizable value. However, materials and
other items held for use in production of inventories are not written down below cost if the
finished goods in which they will be incorporated are expected to be sold at or above cost. The
comparison of cost and net realizable value is made on an item-by item basis.
In determining the cost of inventories, weighted average cost method is used. Cost of inventory
comprises all costs of purchase, duties, taxes (other than those subsequently recoverable from
tax authorities) and all other costs incurred in bringing the inventory to their present location
and condition. Cost of manufactured inventories comprises of the direct cost of production and
appropriate overheads. The net realisable value of bought out inventories is taken at the current
replacement value.
Spare parts, standby equipment and service equipment are recognised as Property, Plant and
Equipment if and only if it is probable that future economic benefits associated with them will
flow to the company and their cost can be measured reliably. Otherwise such items are classified
and recognised as inventory.
(l) Employee benefits
Employee Benefits include provident fund, employee state insurance scheme, gratuity and
compensated absences. Expenses and liabilities in respect of employee benefits are recorded
in accordance with Ind AS 19, Employee Benefits
Short-term obligations
Liabilities for wages and salaries, including non-monetary benefits that are expected to be
settled wholly within 12 months after the end of the period in which the employees render the
related service are recognised in respect of employees' services up to the end of the reporting
period and are measured at the amounts expected to be paid when the liabilities are settled.
The liabilities are presented as current employee benefit obligations in the balance sheet.
Defined Contribution Plan
The company has defined contribution plan for employees comprising of Provident Fund and
Employee State Insurance. The contributions paid/payable to these plans during the year are
charged to the statement of Profit and Loss for the year. Such benefits are classified as Defined
Contribution Schemes as the Company does not carry any further obligations, apart from the
contributions made on a monthly basis.
Defined Benefit Plans
Payment of Gratuity to employees is covered by the Group Gratuity cum Assurance Scheme of
LIC of India, which is a defined benefit scheme and the company makes contribution under the
said scheme. The net present value of the obligation for gratuity benefits as determined on
independent actuarial valuation, conducted annually using the projected unit credit method,
as adjusted for unrecognized past services cost if any and as reduced by the fair value of plan
assets, is recognized in the accounts. Service cost and net interest expense or income is reflected
in the Statement of Profit and Loss. Gain or Loss on account of re measurements is recognized
immediately through Other Comprehensive Income in the period in which they occur.
Other Long Term Employee Benefits
The company has a scheme for compensated absences for employee, the liability of which is
determined on independent actuarial valuation, conducted annually using the projected unit
credit method. Actuarial gain and losses are recognized in full in the Statement of Profit and
Loss for the period in which they occur. Accumulated compensated absences, which are
expected to be availed or en cashed within 12 months from the end of the year end are treated
as short term employee benefits.
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