3. MATERIAL ACCOUNTING POLICIES
a. Foreign currency transactions
Transactions in foreign currencies are translated into the
functional currencies of Company at the exchange rates
at the dates of the transactions.
Monetary assets and liabilities denominated in foreign
currencies are translated into the functional currency at
the exchange rate at the reporting date. Non-monetary
assets and liabilities that are measured based on historical
cost in a foreign currency are translated at the exchange
rate at the date of the transaction. Exchange differences
are recognised in Statement of Profit and Loss.
b. Financial Instruments
i. Recognition and initial measurement
Trade receivables are initially recognised when they
are originated. All other financial assets and financial
liabilities are initially recognised when the Company
becomes a party to the contractual provisions of
the instrument.
A financial asset (unless it is a trade receivable
without a significant financing component) or
financial liability is initially measured at fair value
plus or minus, for an item not at FVTPL, transaction
costs that are directly attributable to its acquisition
or issue. A trade receivable without a significant
financing component is initially measured at the
transaction price.
ii. Classification and subsequent measurement
Financial assets
On initial recognition, a financial asset is
classified as measured at
- Amortised cost;
- FVOCI - equity investment;
- FVOCI - debt investment; or
- FVTPL
Financial assets are not reclassified subsequent to
their initial recognition, except if and in the period the
Company changes its business model for managing
financial assets.
All financial assets not classified as measured at
amortised cost or FVOCI as described above are
measured at FVTPL. This includes all derivative
financial assets. On initial recognition, the Company
may irrevocably designate a financial asset that
otherwise meets the requirements to be measured
at amortised cost or at FVOCI or at FVTPL, if doing
so eliminates or significantly reduces an accounting
mismatch that would otherwise arise.
Equity investments
All equity investments in scope of Ind AS 109 are
measured at fair value. Equity instruments which
are held for trading and contingent consideration
recognised by an acquirer in a business combination
to which Ind AS 103 applies are classified as at
FVTPL. For all other equity instruments, the Company
may make an irrevocable election to present in other
comprehensive income subsequent changes in the
fair value. The Company makes such election on an
instrument-by-instrument basis. The classification is
made on initial recognition and is irrevocable.
If the Company decides to classify an equity
instrument as at FVOCI, then all fair value changes on
the instrument, excluding dividends, are recognised
in the OCI. There is no recycling of the amounts from
OCI to the Statement of Profit and Loss, even on sale
of investment. However, the Company may transfer
the cumulative gain or loss to retained earnings.
Equity instruments included within the FVTPL
category are measured at fair value with all changes
recognised in the Statement of Profit and Loss.
Investments in subsidiaries
Investments in equity instruments of subsidiaries 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, the difference between net disposal
proceeds and the carrying amounts are recognised
in the Standalone Statement of Profit and Loss.
Financial assets - Business model assessment
The Company make an assessment of the objective
of the business model in which a financial asset is
held at a portfolio level because this best reflects
the way the business is managed and information
is provided to management. The information
considered includes:
- The stated policies and objectives for the
portfolio and the operation of those policies in
practice. These include whether management's
strategy focuses on earning contractual interest
income, maintaining a particular interest rate
profile, matching the duration of the financial
assets to financial assets to the duration of any
related liabilities or expected cash outflows or
realising cash flows through the sale of the assets;
- How the performance of the portfolio is evaluated
and reported to the Company's management;
- The risks that affect the performance of the
business model (and the financial assets held
within that business model) and how those
risks are managed;
- How managers of the business are compensated
- e.g. whether compensation is based on the fair
value of the assets managed or the contractual
cash flows collected; and
- The frequency, volume and timing of sales of
financial assets in prior periods, the reasons
for such sales and expectations about future
sales activity.
Transfers of financial assets to third parties in
transactions that do not qualify for de-recognition are
not considered sales for this purpose, consistent with
the Company's continuing recognition of the assets.
Financial assets that are held for trading or are
managed and whose performance is evaluated on a
fair value basis are measured at FVTPL.
Financial assets: assessment whether contractual cash
flows are solely payments of principal and interest.
For the purposes of this assessment, ‘principal' is
defined as the fair value of the financial asset on initial
recognition. ‘interest' is defined as consideration
for the time value of money and for the credit risk
associated with the principal amount outstanding
during a particular period of time and for other
basic lending risks and costs (e.g. liquidity risk and
administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows
are solely payments of principal and interest, the
Company considers the contractual terms of the
instrument. This includes assessing whether the
financial asset contains a contractual term that could
change the timing or amount of contractual cash
flows such that it would not meet this condition. In
making this assessment, the Company considers:
- contingent events that would change the amount
or timing of cash flows;
- terms that may adjust the contractual coupon
rate, including variable interest rate features;
- prepayment and extension features; and
- terms that limit the Company's claim to
cash flows from specified assets (e.g. non¬
recourse features).
A prepayment feature is consistent with the solely
payments of principal and interest criterion if the
prepayment amount substantially represents unpaid
amounts of principal and interest on the principal
amount outstanding, which may include reasonable
additional compensation for early termination
of the contract. Additionally, for a financial asset
acquired at a significant discount or premium to
its contractual amount, a feature that permits or
requires prepayment at an amount that substantially
represents the contractual par amount plus accrued
(but unpaid) contractual interest (which may also
include reasonable additional compensation for
early termination) is treated as consistent with this
criterion if the fair value of the prepayment feature is
insignificant at initial recognition.
Financial assets: subsequent measurement and
gains and losses
All financial assets not classified as measured
at amortised cost or FVOCI as described above
are measured at FVTPL. The transaction costs
directly attributable to the acquisition of financial
assets and liabilities at fair value through profit or
loss are immediately recognised in Statement of
profit and loss.
Equity investments in subsidiaries and investments
for which sufficient more recent information to
measure fair value are not available are measured at
cost. Other equity investments in scope of Ind AS 109
are measured at fair value through profit and loss.
Financial liabilities: Classification, subsequent
measurement and gains and losses
Financial liabilities are classified as measured at
amortised cost or FVTPL. A financial liability is
classified as at FVTPL if it is classified as held-for-
trading, or it is a derivative or it is designated as such
on initial recognition. Financial liabilities at FVTPL
are measured at fair value and net gains and losses,
including any interest expense, are recognised in
Statement of Profit and Loss. Other financial liabilities
are subsequently measured at amortised cost using
the effective interest method. Interest expense and
foreign exchange gains and losses are recognised
in Statement of Profit and Loss. Any gain or loss on
derecognition is also recognised in Statement of
Profit and Loss.
iii. De-recognition
Financial assets
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 in a transaction
in which substantially all of the risks and rewards of
ownership of the financial asset are transferred or
in which the Company neither transfers nor retains
substantially all of the risks and rewards of ownership
and does not retain control of the financial asset.
I f the Company enters into transactions whereby it
transfers assets recognised on its balance sheet but
retains either all or substantially all of the risks and
rewards of the transferred assets, the transferred
assets are not derecognised.
Financial liabilities
The Company derecognises a financial liability
when its contractual obligations are discharged or
cancelled or expire.
The Company also derecognises a financial liability
when its terms are modified and the cash flows under
the modified terms are substantially different. In this
case, a new financial liability based on the modified
terms is recognised at fair value. The difference
between the carrying amount of the financial
liability extinguished and the new financial liability
with modified terms is recognised in Statement of
Profit and Loss.
iv. Offsetting
Financial assets and financial liabilities are offset,
and the net amount presented in the balance sheet
when, and only when, the Company currently has a
legally enforceable right to set off the amounts and it
intends either to settle them on a net basis or to realise
the asset and settle the liability simultaneously.
v. Supplier finance arrangement
The Company participates in a supply chain financing
(SCF) arrangement, which is disclosed under
borrowings. Under this arrangement, a financial
institution (factor) agrees to pay participating
suppliers the amounts due from the Company on
the original due dates of the invoices. The Company
subsequently settles these amounts with the factor
based on extended payment terms, which exceed
the normal credit terms originally agreed with the
suppliers. In return for this extended credit period,
the Company bears an interest cost payable to the
factor. The principal objective of this arrangement is
to extend payment terms beyond the standard terms
agreed with suppliers. Accordingly, the arrangement
is considered in substance similar to a borrowing.
Accordingly, the related liabilities are presented
under Borrowings, separately from trade payables,
and the corresponding interest expense is recognised
in the statement of profit and loss under finance cost.
Based on the substance of the arrangement and the
applicable facts and circumstances, the Company
has presented the related cash flows on a gross
basis in the statement of cash flows. Accordingly,
when the factor makes a payment to the supplier, it
is presented as an operating cash outflow, and the
corresponding settlement by the Company to the
factor is presented as a financing cash outflow.
c. Property, plant and equipment
i. Recognition and measurement
The cost of an item of property, plant and equipment
shall be recognised as an asset if, and only if 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.
Items of property, plant and equipment (including
capital-work-in-progress) are measured at cost,
which includes capitalised borrowing costs, less
accumulated depreciation and accumulated
impairment losses, if any.
Cost of an item of property, plant and equipment
comprises its purchase price, including import duties
and non - refundable purchase taxes, after deducting
trade discounts and rebates, any directly attributable
cost of bringing the item to its working condition for
its intended use and estimated costs of dismantling
and removing the item and restoring the site on
which it is located.
The cost of a self-constructed item of property, plant
and equipment comprises the cost of materials and
direct labour, any other costs directly attributable
to bringing the item to working condition for its
intended use, and estimated costs of dismantling
and removing the item and restoring the site on
which it is located.
I f significant parts of an item of property, plant and
equipment have different useful lives, then they are
accounted for as separate items (major components)
of property, plant and equipment.
Any gain or loss on disposal of an item of property,
plant and equipment is recognised in Statement of
Profit and Loss.
ii. Transition to Ind AS
The cost of property, plant and equipment at 1 April
2016, the Company's date of transition to Ind AS,
was determined with reference to its carrying value
recognised as per the previous GAAP (deemed cost),
as at the date of transition to Ind AS.
iii. Subsequent expenditure
Subsequent expenditure is capitalised only if it
is probable that the future economic benefits
associated with the expenditure will flow to the
Company and the cost of the item can be measured.
iv. Depreciation
Depreciation is calculated on cost of items of
property, plant and equipment less their estimated
residual values over their estimated useful lives
using the straight-line method and is recognised in
the Statement of Profit and Loss.
The estimated useful lives of items of property, plant
and equipment for the current and comparative
periods along with the comparison of useful life as
per Schedule II of the Act are as follows:
Depreciation method, useful lives and residual
values are reviewed at each financial year-end and
adjusted if appropriate.
Depreciation on additions/(disposal) is provided on
a pro-rata basis i.e. from/ (upto) the date on which
asset is ready for use/ (disposed of).
v. Derecognition
An item of PPE is derecognised on disposal or when
no future economic benefits are expected from its
use and disposal. Losses arising from retirement and
gains or losses arising from disposal of a PPE are
measured as the difference between the net disposal
proceeds and the carrying amount of the asset and
are recognised in the Statement of Profit and Loss.
d. Intangible assets and intangible assets under
development
Intangible assets
i. Recognition and measurement
I ntangible assets (including intangible assets under
development) acquired separately are measured
on initial recognition at cost. An intangible asset
is recognised only if it is probable that future
economic benefits attributable to the asset will flow
to the Company and the cost of the asset can be
measured reliably.
Cost of an item of intangible asset comprises its
purchase price, including import duties and non¬
refundable purchase taxes, after deducting trade
discounts and rebates, any directly attributable
cost of bringing the item to its working condition for
its intended use.
ii. Subsequent expenditure
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied in
the specific asset to which it relates, and the cost can
be measured reliably. All other expenditure, including
expenditure on internally generated goodwill and
brands, is recognised in profit or loss as incurred.
iii. Amortisation
Amortisation is calculated to write off the cost of
intangible assets less their estimated residual values
over their estimated useful lives using the straight¬
line method and is included in depreciation and
amortisation in Statement of Profit and Loss.
The estimated useful lives for the current and
comparative periods are as follows:
Amortization method, useful lives and residual values
are reviewed at each reporting date and adjusted
if appropriate.
iv. Derecognition
I ntangible assets are derecognised on disposal or
when no future economic benefits are expected
from its use and disposal.
v. Transition to Ind AS
The cost of intangible assets at 1 April 2016,
the Company's date of transition to Ind AS, was
determined with reference to its carrying value
recognised as per the previous GAAP (deemed cost),
as at the date of transition to Ind AS.
e. Non-current assets held for sale
Non-current assets classified as held for sale if it is highly
probable that they will be recovered primarily through
sale rather than through continuing use.
For the sale to be highly probable, the management must
be committed to a plan to sell the asset, and an active
programme to locate a buyer and complete the plan must
have been initiated. Further, the asset must be actively
marketed for sale at a price that is reasonable in relation
to its current fair value. In addition, the sale should be
expected to qualify for recognition as a completed sale
within one year from the date of classification, except if
the delay is caused by events or circumstances beyond
the entity's control and there is sufficient evidence that
the entity remains committed to its plan to sell the asset,
and actions required to complete the plan should indicate
that it is unlikely that significant changes to the plan will
be made or that the plan will be withdrawn.
Such assets are generally measured at the lower of their
carrying amount and fair value less costs to sell.
Impairment losses on initial classification as held for sale
or held for distribution and subsequent gains and losses
on remeasurement are recognised in profit or loss.
Once classified as held for sale, property, plant and
equipment and right of use assets are no longer
amortised or depreciated.
Non-current assets classified as held for sale are
presented separately from the other assets in
the balance sheet.
f. Inventories
I nventories are measured at the lower of cost and net
realisable value. The cost of inventories is based on the
weighted average formula, and includes expenditure
incurred in acquiring the inventories, production or
conversion costs and other costs incurred in bringing
them to their present location and condition. In the
case of manufactured inventories and work in progress,
cost includes an appropriate share of fixed production
overheads based on normal operating capacity.
Obsolesces and defective inventories are duly provided
for and valued at net realisable value or cost whichever is
lower. Goods and materials in transit are valued at actual
cost incurred up to the date of balance sheet.
Net realisable value is the estimated selling price in the
ordinary course of business, less the estimated costs of
completion and selling expenses. The comparison of cost
and net realisable value is made on an item-by-item basis.
Identification of a specific item and determination of
estimated net realisable value involve technical judgments
of the management which is also supported by valuation
from an independent valuer, wherever required.
Raw materials, components and other supplies held for
use in the production of finished products are not written
down below cost except in cases where material prices
have declined, and it is estimated that the cost of the
finished products will exceed their net realisable value.
g. Impairment
i. Impairment of financial instruments
Financial instruments that potentially subject the
Company to concentration of credit risk consist
principally of cash and bank balances, short term
deposits with banks, trade receivables, investment
securities and derivative instruments. The cash
resources of the Company are invested in banks and
liquid funds after an evaluation of the credit risk. By
their nature, all such financial instruments involve
risks, including the credit risk of non-performance by
counterparties.
In accordance with Ind-AS 109, the Company applies
expected credit loss (ECL) model for measurement
and recognition of impairment loss on financial
assets measured at amortized cost.
At each reporting date, the Company assesses
whether financial assets carried at amortized cost are
credit- impaired. A financial asset is ‘credit-impaired'
when one or more events that have detrimental
impact on the estimated future cash flows of the
financial assets have occurred.
Evidence that the financial asset is credit-impaired
includes the following observable data:
- Significant financial difficulty of the borrower,
debtor or issuer;
- The breach of contract such as a default or being
past due for 1 years or more;
- The restructuring of a loan or advance by the
Company on terms that the Company would not
consider otherwise;
- It is probable that the borrower will enter
bankruptcy or other financial re-organization; or
- The disappearance of active market for a
security because of financial difficulties.
When determining whether the credit risk of a
financial asset has increased significantly since initial
recognition and when estimating expected credit
losses, the Company considers reasonable and
supportable information that is relevant and available
without undue cost or effort. This includes both
quantitative and qualitative information and analysis,
based on the Company's historical experience and
informed credit assessment and including forward
looking information.
I n case of trade receivables, the Company follows
‘simplified approach'. The application of simplified
approach does not require the Company to
track changes in credit risk. Rather, it recognises
impairment loss allowance based on lifetime ECLs at
each reporting date, right from its initial recognition.
ECL impairment loss allowance (or reversal)
recognised during the period is recognised as
income / expense in the Statement of Profit and
Loss. This amount is reflected in a separate line in
the Statement of Profit and Loss as an impairment
gain or loss. In balance sheet ECL is presented as an
allowance, i.e., as an integral part of the measurement
of those assets in the balance sheet. The allowance
reduces the net carrying amount.
The gross carrying amount of a financial asset is
written off (either partially or in full) to the extent
that there is no realistic prospect of recovery. This
is generally the case when the Company determines
that the debtor does not have assets or sources of
income that could generate sufficient cash flows
to repay the amounts subject to the write-off.
However, financial assets that are written off could
still be subject to enforcement activities in order to
comply with the Company's procedures for recovery
of amounts due.
ii. Impairment of non-financial assets
At each reporting date, the Company reviews the
carrying amount of its non-financial assets (other
than inventories, contract assets and deferred tax
assets) to determine whether there is any indication
of impairment. If any such indication exists, then the
asset's recoverable amount is estimated.
For impairment testing, assets are grouped
together into the smallest group of assets that
generates cash inflows from continuing use that
are largely independent of the cash inflows of other
assets or CGUs.
The recoverable amount of an individual asset or
CGU is the greater of its value in use and its fair
value less cost of disposal. Value in use is based
on the estimated future cash flows, 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 or CGU.
An impairment loss is recognised if the carrying
amount of an asset or CGU exceeds its
recoverable amount.
I mpairment losses are recognised in profit or loss.
They are allocated first to reduce the carrying
amount of any goodwill allocated to the CGU, and
then to reduce the carrying amounts of the other
assets of the CGU on a pro rata basis.
An impairment loss in respect of assets for which
impairment loss has been recognised in prior
periods, the Company reviews at each reporting
date whether there is any indication that the loss has
decreased or no longer exists. An impairment loss is
reversed if there has been a change in the estimates
used to determine the recoverable amount. Such a
reversal is made only to the extent that the asset's
carrying amount does not exceed the carrying
amount that would have been determined, net of
depreciation or amortisation, if no impairment loss
had been recognised.
h. Employee benefits
i. Short-term employee benefits
Short-term employee benefit obligations are
measured on an undiscounted basis and are
expensed as the related service is provided. A liability
is recognised for the amount expected to be paid
e.g., under short-term cash bonus, if the Company
has a present legal or constructive obligation to pay
this amount as a result of past service provided by
the employee, and the amount of obligation can be
estimated reliably.
ii. Share based payments
Employees of the Company receive remuneration
in the form of share-based payments, whereby
employees render services as consideration for
equity instruments (equity-settled transactions).
The cost of transactions is determined by the fair
value at the date when the grant is made using an
appropriate valuation model.
That cost is recognised, together with a
corresponding increase in share-based payment
(SBP) reserves in equity, over the period in which the
performance and / or service conditions are fulfilled
in employee benefits expense. The cumulative
expense recognised for equity-settled transactions
at each reporting date until the vesting date reflects
the extent to which the vesting period has expired
and the Company's best estimate of the number
of equity instruments that will ultimately vest. The
expenses / credit in Statement of Profit and Loss
for a period represents the movement in cumulative
expense recognised as at the beginning and end of
that period and is recognised in employee benefits
expense. Cost in respect of the awards given to the
employees of the subsidiary companies is charged
from such companies.
The Company measures the cost of equity-settled
transactions with employees using a Black - Scholes
model to determine the fair value of the liability
incurred. Estimating fair value for share-based
payment transactions requires determination of
the most appropriate valuation model, which is
dependent on the terms and conditions of the grant.
This estimate also requires determination of the most
appropriate inputs to the valuation model including
the expected life of the share option, volatility and
dividend yield and making assumptions about them.
Service and non-market performance conditions
are not taken into account when determining the
grant date fair value of awards, but the likelihood of
the conditions being met is assessed as part of the
Company's best estimate of the number of equity
instruments that will ultimately vest. Any other
conditions attached to an award, but without an
associated service requirement, are considered to
be non-vesting conditions. Non-vesting conditions
are reflected in the fair value of an award and lead
to an immediate expensing of an award unless there
are also service conditions.
No expense is recognised for awards that do not
ultimately vest because non-market performance
and/or service conditions have not been met.
When the terms of an equity-settled award are
modified, the minimum expense recognised is the
expense had the terms not been modified if the
original terms of the award are met. An additional
expense is recognised for any modification that
increases the total fair value of the share-based
payment transaction or is otherwise beneficial to the
employee as measured at the date of modification.
The dilutive effect of outstanding options is reflected
as additional share dilution in the computation of
diluted earnings per share.
iii. Defined contribution plans
A defined contribution plan is a post-employment
benefit plan under which an entity pays fixed
contributions into a separate entity and will have
no legal or constructive obligation to pay further
amounts. The Company makes specified monthly
contributions towards Government administered
provident fund scheme. Obligations for contributions
to defined contribution plans are recognised as an
employee benefit expense in Statement of Profit and
Loss in the periods during which the related services
are rendered by employees.
Prepaid contributions are recognised as an asset to
the extent that a cash refund or a reduction in future
payments is available.
iv. Defined benefit plan
A defined benefit plan is a post-employment benefit
plan other than a defined contribution plan. The
Company's net obligation in respect of defined
benefit plans is calculated separately for each plan
by estimating the amount of future benefit that
employees have earned in the current and prior
periods, discounting that amount and deducting the
fair value of any plan assets.
The calculation of defined benefit obligation is
performed periodically by a qualified actuary
using the projected unit credit method. When
the calculation results in a potential asset for the
Company, the recognised asset is limited to the
present value of economic benefits available in the
form of any future refunds from the plan or reductions
in future contributions to the plan (‘the asset ceiling').
In order to calculate the present value of economic
benefits, consideration is given to any minimum
funding requirements.
Re-measurements of the net defined benefit liability,
which comprise actuarial gains and losses, the return
on plan assets (excluding interest) and the effect
of the asset ceiling (if any, excluding interest), are
recognised in OCI. The Company determines the net
interest expense (income) on the net defined benefit
liability (asset) for the period by applying the discount
rate used to measure the defined benefit obligation
at the beginning of the annual period to the then-net
defined benefit liability (asset), taking into account
any changes in the net defined benefit liability
(asset) during the period as a result of contributions
and benefit payments. Net interest expense and
other expenses related to defined benefit plans are
recognised in Statement of Profit and Loss.
When the benefits of a plan are changed or when a
plan is curtailed, the resulting change in benefit that
relates to past service (‘past service cost' or ‘past
service gain') or the gain or loss on curtailment is
recognised immediately in Statement of Profit and
Loss. The Company recognises gains and losses on
the settlement of a defined benefit plan when the
settlement occurs.
The Company contributes towards gratuity liabilities
to the Gratuity Fund Trust. Trustees of the Company
administer contributions made to the Trust and
contributions are invested in a scheme with Life
Insurance Corporation of India as permitted by law.
v. Other long-term employee benefits
The employees of the Company are entitled to
compensated absences which are both accumulating
and non-accumulating in nature. The expected cost of
accumulating compensated absences is determined
by actuarial valuation (using the projected unit credit
method) based on the additional amount expected to
be paid as a result of the unused entitlement that has
accumulated at the balance sheet date. The expense
on non-accumulating compensated absences is
recognised in the Statement of Profit and Loss in the
period in which the absences occur. Actuarial gains
/ losses are immediately taken to the Statement of
Profit and Loss and are not deferred.
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