2. MATERIAL ACCOUNTING POLICIES2.1 Statement of Compliance
These Standalone Financial Statements have been prepared in
accordance with Indian Accounting Standards (Ind AS) notified
under Section 133 of the Companies Act, 2013. The Standalone
Financial Statements have also been prepared in accordance with
the relevant presentation requirements of the Companies Act, 2013.
2.2 Basis of Preparation
The financial statements are prepared in accordance with the
historical cost convention, except for certain items (e.g. financial
instruments) that are measured at fair values, as explained in the
accounting policies.
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, regardless of whether that
price is directly observable or estimated using another valuation
technique. In estimating the Fair Value of an asset or a liability,
the Company takes into account the characteristics of the asset or
liability if market participants would take those characteristics into
account when pricing the asset or liability at the measurement date.
Fair Value for measurement and/or disclosure purposes in these
Financial Statements is determined on such a basis, except leasing
transactions that are within the scope of Ind AS 116 - "Leases", and
measurements that have some similarities to Fair Value but are not
Fair Value, such as net realizable value in Ind AS 2 - "Inventories" or
value in use in Ind AS 36 - "Impairment of Assets".
2.3 Operating Cycle
All assets and liabilities have been classified as current or non¬
current as per the Company's normal operating cycle and other
criteria set out in the Schedule III to the Companies Act, 2013 and
Ind AS 1 - "Presentation of Financial Statements" based on the
nature of products and the time between the acquisition of assets
for processing and their realization 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.
2.4 Property, Plant and Equipment - Tangible Assets
Property, plant and equipment are stated at cost of acquisition or
construction less accumulated depreciation and impairment, if any.
Cost is inclusive of all directly attributable expenses including
borrowing cost related to acquisition. Expenses capitalized also
include applicable borrowing costs for qualifying assets, if any. All
upgradation/enhancements are charged off as revenue expenditure
unless they bring similar significant additional benefits. An item
of property, plant and equipment is derecognized 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 recognized in the Standalone
Statement of Profit and Loss.
Capital Work in Progress is stated at cost (including borrowing
cost, where applicable, and adjustment for exchange difference),
incurred during construction/installation/preoperative periods
relating to items or projects in progress.
Non-current assets are classified as held for sale if their carrying
amount will be recovered principally through a sale transaction
rather than through continuing use and a sale is considered highly
probable. They are measured at the lower of the carrying amount or
the Fair Value less cost to sale.
An impairment loss is recognized for any initial or subsequent
write-down of the asset to fair value less costs to sell. A gain is
recognized for any subsequent increases in fair value less costs to
sell of an asset, but not in excess of any cumulative impairment loss
previously recognized. A gain or loss not previously recognized by
the date of the sale of the non-current asset is recognized at the
date of de-recognition.
Non-current assets (including those that are part of a disposal
group) are not depreciated or amortized while they are classified
as held for sale. Non-current assets (or disposal group) classified as
held for sale are presented separately in the balance sheet.
2.5 Intangible Assets
Intangible Assets that the Company controls and from which it
expects future economic benefits are capitalized upon acquisition
and measured initially:
a. for assets acquired in a business combination or by way of a
Government grant, at Fair Value on the date of acquisition/
grant.
b. for separately acquired assets, at cost comprising the
purchase price (including import duties and non-refundable
taxes) and directly attributable costs to prepare the asset for
its intended use.
2.6 Intangible Assets Under Development
Intangible Assets that are not ready for their intendent use as on the
date of the Balance Sheet are disclosed as "Intangible Assets Under
Development".
2.7 Derecognition of Tangible and Intangible assets
An item of Property, Plant and Equipment (PPE) is de-recognized
upon disposal or when no future economic benefits are expected
to arise from its use or disposal. Gain or loss arising on the disposal
or retirement of an item of PPE is determined as the difference
between the sales proceeds and the carrying amount of the asset
and is recognized in the Statement of Profit and Loss.
2.8 Depreciation and Amortization
Depreciation on Property, Plant and Equipment has been
provided on the straight-line method as per the useful life
prescribed in Schedule II to the Companies Act, 2013. Intangible
Assets are amortized on straight line basis over a period of two to
five years.
The estimated useful life of the intangible assets and the amortization
period are reviewed at the end of each financial year and the
amortization period is revised to reflect the changed pattern, if any.
2.9 Impairment of Assets
Impairment loss, if any, is provided to the extent, the carrying
amount of assets or cash generating units exceed their recoverable
amount. Recoverable amount is higher of an asset's net selling price
and its value in use. Value in use is the present value of estimated
future cash flows expected to arise from the continuing use of an
asset or cash generating unit and from its disposal at the end of its
useful life.
When an impairment loss subsequently reverses, the carrying
amount of the asset (or a cash-generating unit) is increased to the
revised estimate of its recoverable amount, so that the increased
carrying amount does not exceed the carrying amount that would
have been determined had no impairment loss been recognized for
the asset (or cash-generating unit) in prior years. Any reversal of an
impairment loss is recognized immediately in profit and loss.
2.10 Inventories
Inventories are stated at lower of cost or net realizable value. The
cost is calculated on weighted average method. Cost comprises
expenditure incurred in the normal course of business in bringing
such inventories to its present location and condition and includes,
where applicable, appropriate overheads based on normal level
of activity. However, materials and other items held for use in the
production of inventories are not written down below cost if the
finished products in which they will be incorporated are expected
to be sold are at or above cost. Net realizable value is the estimated
selling price less estimated costs for completion and sale.
Obsolete, slow moving and defective inventories are identified
periodically and, where necessary, a provision is made for such
inventories.
2.11 Foreign Currency Transactions
The functional and presentation currency of the Company is Indian
Rupee. At the end of each reporting period, monetary items
denominated in foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items carried at Fair Value
that are denominated in foreign currencies are retranslated at the
rates prevailing at the date when the Fair Value was determined.
Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated.
Exchange differences on monetary items are recognized in the
Standalone Statement of Profit and Loss in the period in which they
arise except for exchange differences on transactions entered into
in order to hedge certain foreign currency risks.
2.12 Derivatives
The Company enters into derivative financial instruments, primarily
foreign exchange forward contracts, to manage its exposure to
foreign exchange risks.
Derivatives are initially recognized at Fair Value and are subsequently
re-measured to their Fair Value at the end of each reporting period.
The resulting gains/losses is recognized in the Standalone Statement
of Profit and Loss.
2.13 Investment in Subsidiaries
Investment in subsidiaries are carried at cost less accumulated
impairment, if any.
2.14 Financial instruments, Financial assets, Financial
liabilities and Equity instruments
Recognition: Financial assets include Investments, Trade
Receivables, Advances, Security Deposits, Cash and Cash
Equivalents. Such assets are initially recognized at transaction price
when the Company becomes party to contractual obligations. The
transaction price includes transaction costs unless the asset is being
fair valued through the Statement of Profit and Loss.
Classification: Management determines the classification of an
asset at initial recognition depending on the purpose for which the
assets were acquired. The subsequent measurement of financial
assets depends on such classification.
Financial assets are classified as those measured at:
(a) Amortized cost, where the financial assets are held solely for
collection of cash flows arising from payments of principal
and/or interest.
(b) Fair Value Through Other Comprehensive Income (FVTOCI),
where the financial assets are held not only for collection of
cash flows arising from payments of principal and interest but
also from the sale of such assets. Such assets are subsequently
measured at Fair Value, with unrealised gains and losses
arising from changes in the Fair Value being recognized in
other comprehensive income.
2.14 Financial instruments, Financial assets, Financial
liabilities and Equity instruments (Contd.)
(c) Fair Value Through Profit or Loss (FVTPL), where the assets
are managed in accordance with an approved investment
strategy that triggers purchase and sale decisions based on
the Fair Value of such assets. Such assets are subsequently
measured at Fair Value, with unrealised gains and losses
arising from changes in the fair value being recognized in
the Standalone Statement of Profit and Loss in the period
in which they arise. Trade Receivables, Advances, Security
Deposits, Cash and Cash Equivalents etc. are classified for
measurement at amortized cost while investments may fall
under any of the aforesaid classes.
Impairment: The Company assesses at each reporting date whether
a financial asset (or a group of financial assets) such as investments,
trade receivables, advances and security deposits held at amortized
cost and financial assets that are measured at Fair Value through
other comprehensive income are tested for impairment based
on evidence or information that is available without undue cost
or effort. Expected credit losses are assessed and loss allowances
recognized if the credit quality of the financial asset has deteriorated
significantly since initial recognition.
Reclassification: When the business model is changed, the Company
shall reclassify all affected financial assets prospectively from the
reclassification date as subsequently measured at amortized cost,
Fair Value through other comprehensive income, Fair Value through
profit or loss without restating the previously recognized gains,
losses or interest and in terms of the reclassification principles laid
down in the Ind AS relating to Financial Instruments.
De-recognition: Financial assets are derecognized when the right
to receive cash flows from the assets has expired, or has been
transferred, and the Company has transferred substantially all of the
risks and rewards of ownership.
Concurrently, if the asset is one that is measured at:
(a) Amortized cost, the gain or loss is recognized in the Statement
of Profit and Loss;
(b) Fair Value through other comprehensive income, the
cumulative Fair Value adjustments previously taken to
reserves are reclassified to the Statement of Profit and Loss
unless the asset represents an equity investment in which
case the cumulative Fair Value adjustments previously taken
to reserves is reclassified within equity.
Income Recognition: Interest income is recognized in the Standalone
Statement of Profit and Loss using the effective interest method.
Dividend income is recognized in the Standalone Statement of Profit
and Loss when the right to receive dividend is established.
Financial Liabilities: Borrowings, trade payables and other
financial liabilities are initially recognized at the value of the
respective contractual obligations. They are subsequently
measured at amortized cost. Any discount or premium on
redemption/settlement is recognized in the Statement of Profit
and Loss as finance cost over the life of the liability using the
effective interest method and adjusted to the liability figure
disclosed in the Balance Sheet.
Financial liabilities are derecognized when the liability is
extinguished, that is, when the contractual obligation is discharged,
cancelled and on expiry.
Borrowings are classified as current liabilities unless the Company
has an unconditional right to defer settlement of the liability for
at least 12 months after the reporting period. Where there is a
breach of a material provision of a long-term loan arrangement on
or before the end of the reporting period with the effect that the
liability becomes payable on demand on the reporting date, the
entity does not classify the liability as current, if the lender agreed,
after the reporting period and before the approval of the financial
statements for issue, not to demand payment as a consequence of
the breach.
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 recognized 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 in 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
counterparty.
Equity Instruments: Equity instruments are recognized at the value
of the proceeds, net of direct costs of the capital issue.
Derivatives: Derivatives are initially recognized at fair value and
are subsequently remeasured to their fair value at the end of each
reporting period. The resulting gains/losses are recognized in the
Statement of Profit and Loss immediately.
2.15 Revenue
Revenue from contract with customers is recognized when the
Company satisfies performance obligation by transferring promised
goods and services to the customer. Performance obligations may
be satisfied at a point of time or over a period of time. Performance
obligations satisfied over a period of time are recognized as per
the terms of relevant contractual agreements/arrangements.
Performance obligations are said to be satisfied at a point of time
when the customer obtains control of the asset.
Revenue is measured based on transaction price, stated net
of discounts, returns and applicable taxes. Transaction price is
recognized based on the price specified in the contract, net of the
estimated sales incentives/discounts. Accumulated experience
is used to estimate and provide for the discounts/right of return,
using the expected value method.
Revenue is recognized on a bill and hold basis where manufactured
goods are sold to the customer but is retained by the Company at its
factory premises on behalf of the customer ahead of them physically
transferred to the customer at a future date. In such arrangements
it is ensured that the customer has obtained the ultimate control of
the product.
2.16 Borrowing Costs
Borrowing cost comprises interest and other costs incurred in
connection with borrowing the funds. All borrowing costs are
recognized in the Statement of Profit and Loss using the effective
interest method except to the extent attributable to qualifying
Property, Plant and Equipment (PPE) which are capitalized to
the cost of the related assets. A qualifying PPE is an asset, that
necessarily takes a substantial period of time to get ready for its
intended use or sale.
2.17 Employee Benefits
The undiscounted amount of Short-term Employee Benefits (i.e.
benefits payable within one year) are recognized in the period in
which the employee services are rendered.
Contributions towards provident funds are recognized as expense.
Provident fund contributions in respect of employees are made
to Trusts -'Tractors (India) Limited Provident Institution' and
'TIL Limited (Kamarhatty Works) Provident Fund Institution' being
administered by the trustees of the said fund for the benefit of
employees of the Company and such Trusts invest funds following a
pattern of investment prescribed by the Government. The interest
rate payable to the members of the Trusts is not lower than the rate
of interest declared annually by the Central Government under the
Employees' Provident Funds and Miscellaneous Provisions Act,1952
and shortfall, if any, on account of interest, is made good by the
Company.
Contributions under Employees' Pension Scheme is made as per
statutory requirements and charged as expenses for the year.
The Company also contributes to the Central Government
administered Employees' State Insurance Scheme for its eligible
employees, which is a defined contribution plan.
Provisions for Gratuity for eligible employees and contractual
workers (being a defined benefit plan) is made on the basis of year-
end actuarial valuation using Projected Unit Credit Method.
In respect of certain eligible employees who have attained 45 years
of age as on 1st April 2009, provision for Superannuation under
defined benefit plan is made on the basis of year end actuarial
valuation using Projected Unit Credit Method.
In respect of certain eligible employees who have not attained 45
years of age as on 1st April 2009 provision for Superannuation is
made:
- under defined contribution scheme in respect of services
rendered with effect from 1st April, 2009.
- under defined benefit scheme in respect of services rendered
up to 31st March 2009, based on frozen pensionable salary as
on 31st March 2009, using Projected Unit Credit Method.
Service costs and net interest expense or income is reflected
in the Statement on Profit and Loss. Gain or Loss on account
of remeasurement are recognized immediately through other
comprehensive income in the period in which they occur.
Accrued liability towards compensated absence, covering eligible
employees, evaluated on the basis of year-end actuarial valuation
using Projected Unit Credit Method, is recognized as a charge.
Ind AS 19 - Plan Amendment, Curtailment or Settlement:
It requires an entity to use updated assumptions to determine
current service costs and net interest for the remainder of the
period after a plan amendment, curtailment or settlement, and to
recognize in the Statement of Profit and Loss as part of past service
cost, or gain or loss on settlement, any reduction in a surplus, even
if that surplus was not previously recognized because of the impact
of the asset ceiling.
2.18 Leases
The determination of whether an arrangement is (or contains) a
lease is based on the substance of the arrangement at the inception
of the 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. To assess whether a contract conveys
the right to control the use of an identified asset, the Company
assesses whether:
(i) the contract involves the use of an identified asset;
(ii) the Company has substantially all of the economic benefits
from the use of the asset through the period of the lease; and
(iii) the Company has the right to direct the use of the asset.
At the date of commencement of the lease, the Company recognizes
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 low value
leases. For these short term and low value leases, the Company
recognizes the lease payments as an operating expense on a straight
line over the term of the lease.
Certain lease arrangements includes the options to extend or
terminate the lease before the end of the lease term. ROU assets
and liabilities include these options when it is reasonably certain
that they will be exercised.
The ROU asset are initially recognized at cost, which comprise 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 cost less any lease incentives. They are subsequently
measured at cost less accumulated depreciation and impairment
losses.
ROU 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. ROU assets are evaluated for recoverability
whenever events or changes in circumstances indicate that
their carrying value may not be recoverable. For the purpose of
impairment testing, the recoverable amount (i.e. higher of the
Fair Value less cost to sale and the value in use) is determined on
an individual asset basis unless the asset does not generate cash
flows that are largely independent of those from other assets. In
such cases, the recoverable amount is determined using Cash
Generating Unit (CGU) to which the asset belongs.
2.18 Leases (Contd.)
As per Ind AS- 116, 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.
2.19 Taxes on Income
Taxes on income comprise of current taxes and deferred taxes.
Current tax in the Statement of Profit and Loss is provided as the
amount of tax payable in respect of taxable income for the period
using tax rates and tax laws enacted during the period, together
with any adjustment to tax payable in respect of previous years.
Deferred tax is recognized on temporary differences between the
carrying amounts of assets and liabilities and the amounts used for
taxation purposes (tax base), at the tax rates and tax laws enacted or
substantively enacted by the end of the reporting period. Deferred
tax assets are recognized for the future tax consequences to the
extent it is probable that future taxable profits will be available
against which such unused tax losses can be utilized.
The carrying amount of deferred tax assets is reviewed at the end
of each reporting period and reduced to the extent that is no longer
probable that sufficient taxable profits will be available to allow the
benefits of part or all of such deferred tax assets to be utilized.
Income tax, in so far as it relates to items disclosed under other
comprehensive income or equity, are disclosed separately under
other comprehensive income or equity, as applicable.
Deferred tax assets and liabilities are offset when there is legally
enforceable right to offset current tax assets and liabilities and when
the deferred tax balances relate to the same taxation authority.
Current tax assets and tax liabilities are offset where the entity has a
legally enforceable right to offset and intends either to settle on net
basis, or to realize the asset and settle the liability simultaneously.
|