2. MATERIAL ACCOUNTING POLICIES
2.1 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 are
recognized in the Standalone Statement of Profit and
Loss.
2.13 Investment in Subsidiary
Investment in subsidiary is 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.
(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.
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 (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.
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.
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.
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