2 Material accounting policies
2.1 Basis of Preparation of Financial Statements
(a) Statement of Compliance with Ind AS
The financial statements of the Company have been
prepared in accordance with Indian Accounting
Standards (Ind AS) notified under Section 133 of
the Companies Act, 2013 (the "Act") read with the
Companies (Indian Accounting Standards) Rules,
2015 and Companies (Indian Accounting Standards)
Amendment Rules, 2016, as amended from time to
time and other relevant provisions of the Act.
Accounting policies have been consistently applied to
all the years presented except where a newly issued
accounting standard is initially adopted or a revision
to an existing accounting standard requires a change
in the accounting policy hitherto in use.
The financial statements have been prepared as a
going concern on the basis of relevant Ind AS that are
effective at the annual reporting date.
(b) Basis of measurement
The financial statements have been prepared on
historical cost convention on accrual basis, except for
the following items in the balance sheet:
i) Certain financial assets and liabilities measured
either at fair value or at amortised cost
depending on the classification;
ii) Defined employee benefit liabilities are
recognised at the present value of defined
benefit obligation adjusted for fair value of plan
assets;
(c) Current and non-current classification
All assets and liabilities have been classified as current
or non-current as per the Company's operating cycle
and other criteria set out in the Schedule III to the
Act. Based on the nature of services and the time
between the rendering of service and their realization
in cash and cash equivalents, the Company has fixed
its operating cycle as twelve months for the purpose
of current and non-current classification of assets and
liabilities.
The Company presents assets and liabilities in
the balance sheet based on current/ non-current
classification.
An asset is classified as current when it is:
• Expected to be realised or intended to be sold or
consumed in normal operating cycle
• Held primarily for the purpose of trading
• Expected to be realised within twelve months
after the reporting period, or
• Cash or cash equivalent unless restricted from
being exchanged or used to settle a liability for
at least twelve months after the reporting period
A liability is classified as current when:
• It is expected to be settled in normal operating
cycle
• It is held primarily for the purpose of trading
• It is due to be settled within twelve months after
the reporting period, or
• There is no unconditional right to defer the
settlement of the liability for at least twelve
months after the reporting period
Current assets / liabilities include the current portion
of non-current assets / liabilities respectively. All
other assets / liabilities including deferred tax assets
and liabilities are classified as non-current.
(d) Use of estimates
The preparation of financial statements in conformity
with Ind AS requires the management of the Company
to make judgments, estimates and assumptions to
be made that affect the reported amounts of assets
and liabilities on the date of financial statements,
disclosure of contingent liabilities as at the date of
the financial statements, and the reported amounts
of income and expenses during the reported period.
Estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the
estimates are revised.
(e) Fair value measurement
The Company's accounting policies and disclosures
require the measurement of fair values, for certain
financial and non-financial assets and liabilities based
on their classification.
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.
In estimating the fair value of an asset or 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 values are categorized into different levels in a
fair value hierarchy based on the inputs used in the
valuation techniques as follows:
• Level 1: quoted prices (unadjusted) in active
markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices
included in Level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
• Level 3: inputs for the asset or liability that are not
based on observable market data (unobservable
inputs).
When measuring the fair value of an asset or a liability,
the Company uses observable market data as far as
possible. If the inputs used to measure the fair value
of an asset or a liability fall into different levels of the
fair value hierarchy, then the fair value measurement
is categorized in its entirety in the same level of the
fair value hierarchy as the lowest level input that is
significant to the entire measurement.
The Company recognises transfers between levels of
the fair value hierarchy at the end of the reporting
period during which the change has occurred.
For the purpose of fair value disclosures, the company
has determined classes of assets and liabilities on
the basis of the nature, characteristics and risks of
the asset or liability and the level of the fair value
hierarchy as explained above.
2.2 Property, plant and equipment
Property, plant and equipment are measured at
cost less accumulated depreciation and impairment
losses, if any. Cost comprises of purchase price,
freight, non-refundable taxes and duties, specified
foreign exchange gains or losses and any other cost
attributable to bring the asset to its working condition
for its intended use.
Subsequent costs are included in the asset's
carrying amount or recognized 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 other repairs and maintenance
are charged to Statement of Profit and Loss during
the year in which they are incurred.
Advances paid towards the acquisition of property,
plant and equipment outstanding at each balance
sheet date is classified as "capital advances" and the
cost of assets not ready to use before such date are
disclosed under 'Capital work-in-progress' and not
depreciated.
Depreciation methods, estimated useful lives
Depreciable amount for assets is the cost of an asset or
other amount substituted for cost, less its estimated
residual value. Depreciation on property, plant and
equipment is provided on straight-line method over
their estimated useful lives which are the same as
prescribed in Schedule II to the Act, except for the
following:
Based on the technical experts assessment of useful
life, certain items of property plant and equipment
are being depreciated over useful lives different from
the prescribed useful lives under Schedule II to the
Act. The management has assessed the useful life of
such assets on the basis of technical expert advice
and past experience in the industry as it believes that
such estimated useful lives are realistic and reflect fair
approximation of the period over which the assets
are likely to be used.
Depreciation on addition to property plant and
equipment is provided on pro-rata basis from the
date of acquisition. Depreciation on sale/deduction
from property plant and equipment is provided up to
the date of sale/deduction, as the case may be. Gains
and losses on disposals are determined by comparing
proceeds with carrying amount and are included in
Statement of Profit and Loss.
Assets held for sale
Non-current assets held for sale are measured at
the lower of their carrying value and fair value of
the assets less costs to sale. Assets and liabilities
classified as held for sale are presented separately
in the balance sheet. Property, plant and equipment
once classified as held for sale are not depreciated/
amortised.
2.3 Intangible Assets
Intangible assets are stated at cost less accumulated
amortisation and impairment. Intangible assets are
amortised over their respective individual estimated
useful lives on a straight-line basis, from the date that
they are available for use. The estimated useful life of
an identifiable intangible asset is based on a number
of factors including the effects of obsolescence, other
economic factors etc. Amortisation methods and
useful lives are reviewed periodically including at
each financial year end.
Subsequent expenditure
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied in
the specific asset to which it relates.
Amortisation
Intangible assets with finite lives are amortised over
the useful economic life and assessed for impairment
whenever there is an indication that the intangible
asset may be impaired. The amortisation period and
the amortisation method for an intangible asset with
a finite useful life are reviewed at least at the end of
each reporting period, with the effect of any change
in the estimate being accounted for on a prospective
basis. Changes in the expected useful life or the
expected pattern of consumption of future economic
benefits embodied in the asset are considered
to modify the amortisation period or method, as
appropriate, and are treated as changes in accounting
estimates. The amortisation expense on intangible
assets with finite lives is recognised in the statement
of profit and loss unless such expenditure forms part
of carrying value of another asset.
Operating rights 3-10 Years
Amortisation method, useful lives and residual values
are reviewed at the end of each financial year and
adjusted if appropriate.
2.4 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.
2.5 Financial instruments
A financial instrument is any contract that gives rise to
a financial asset of one entity and a financial liability
or equity instrument of another entity.
(a) Financial assets
Initial recognition and measurement
All financial assets are recognised in balance sheet
when, and only when, the entity becomes party to the
contractual provisions of the instrument and initially
measured at fair value except for trade receivables
which are initially measured at transaction price. In
the case of financial assets not recorded at fair value
through profit or loss, transaction costs that are
attributable to the acquisition of the financial asset
or liability are added to or deducted from the fair
value.
Purchases or sales of financial assets that require
delivery of assets within a time frame established by
regulation or convention in the market place (regular
way trades) are recognised on the trade date, i.e., the
date that the Company commits to purchase or sell
the asset.
Subsequent measurement
For purposes of subsequent measurement, financial
assets are classified into four categories:
• Debt instruments at amortised cost
• Debt instruments at fair value through other
comprehensive income (FVTOCI)
• Debt instruments and equity instruments at fair
value through profit or loss (FVTPL) and
• Equity instruments measured at FVTOCI
Debt instruments at amortised cost
A 'debt instrument' is measured at the amortised cost
if both the following conditions are met:
• The asset is held within a business model
whose objective is to hold assets for collecting
contractual cash flows, and
• Contractual terms of the asset give rise on
specified dates to cash flows that are solely
payments of principal and interest (SPPI) on the
principal amount outstanding.
After initial measurement, financial assets are
subsequently measured at amortised cost using the
Effective Interest Rate (EIR) method. Amortised cost
is calculated by taking into account any discount or
premium on acquisition and fees or costs that are
an integral part of the EIR. The EIR amortisation is
included in finance income in the Statement of Profit
and Loss. The losses arising from impairment are
recognised in the Statement of Profit and Loss. This
category covers Trade Receivables, Loans, Cash &
Bank Balances and Other Receivables.
Debt instruments at fair value through other
comprehensive income (FVTOCI)
A 'debt instrument' is classified as at the FVTOCI if
both of the following criteria are met:
• The objective of the business model is achieved
both by collecting contractual cash flows and
selling the financial assets, and
• Contractual terms of the asset give rise on
specified dates to cash flows that are solely
payments of principal and interest (SPPI) on the
principal amount outstanding.
Debt instruments included within the FVTOCI
category are measured initially as well as at each
reporting date at fair value. Fair value movements
are recognised in the other comprehensive income
(OCI). On derecognition of the asset, cumulative gain
or loss previously recognised in OCI is reclassified
to the Statement of Profit and Loss. Interest earned
while holding FVTOCI debt instrument is reported as
interest income using the EIR method.
Debt instruments and equity instruments at fair
value through profit or loss (FVTPL)
FVTPL is a residual category for debt instruments. Any
debt instrument, which does not meet the criteria for
categorization as at amortised cost or as FVTOCI, is
classified as at FVTPL.
Debt and Equity instruments included within the
FVTPL category are measured at fair value with all
changes recognized in the Statement of Profit and
Loss.
Equity instruments included within the FVTPL
category are measured at fair value with all changes
recognized in the Statement of Profit and Loss.
Equity instruments measured at FVTOCI
All equity investments in the scope of Ind AS 109 are
measured at fair value. Equity instruments which are
held for trading are classified as at FVTPL. For all other
equity instruments, the Company decides to classify
the same either as at FVTOCI or FVTPL. 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 FVTOCI, then all fair value changes on
the instrument, excluding dividends, are recognized
in the OCI. There is no recycling of the amounts from
OCI to Statement of Profit and Loss, even on sale of
investment. However, the Company may transfer the
cumulative gain or loss within equity.
De-recognition
The Company de-recognises a financial asset only
when the contractual rights to the cash flows from
the asset expires or it transfers the financial asset and
substantially all the risks and rewards of ownership of
the asset.
When the Company has transferred its rights to
receive cash flows from an asset or has entered into
a pass-through arrangement, it evaluates if and to
what extent it has retained the risks and rewards
of ownership. When it has neither transferred nor
retained substantially all of the risks and rewards of
the asset, nor transferred control of the asset, the
Company continues to recognise the transferred
asset to the extent of the Company's continuing
involvement. In that case, the Company also
recognises an associated liability. The transferred
asset and the associated liability are measured on a
basis that reflects the rights and obligations that the
Company has retained.
Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at
the lower of the original carrying amount of the asset
and the maximum amount of consideration that the
Company could be required to repay.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies
expected credit loss (ECL) model for measurement
and recognition of impairment loss for the following
financial assets and credit risk exposures:
a) Financial assets that are debt instruments and
are measured at amortised cost e.g., loans,
deposits and bank balance.
b) Trade Receivables that result from transactions
that are within the scope of Ind AS 115.
The Company follows 'simplified approach' for
recognition of impairment loss allowance on trade
receivables. The application of simplified approach
does not require the Company to track changes in
credit risk. It recognises impairment loss allowance
based on lifetime ECLs at each reporting date, right
from its initial recognition.
As a practical expedient, the Company uses a provision
matrix to determine impairment loss allowance
on portfolio of its receivables. The provision matrix
is based on its historically observed default rates
over the expected life of the trade receivables and
is adjusted for forward looking estimates. At every
reporting date, the historical observed default rates
are updated and changes in the forward looking
estimates are analysed.
For recognition of impairment loss on other financial
assets and risk exposure, the Company determines
whether there has been a significant increase in the
credit risk since initial recognition. If credit risk has
not increased significantly, 12 quarter ECL is used to
provide for impairment loss. However, if credit risk
has increased significantly, lifetime ECL is used. If, in
a subsequent period, credit quality of the instrument
improves such that there is no longer a significant
increase in credit risk since initial recognition, then
the entity reverts to recognising impairment loss
allowance based on 12 quarter ECL.
Lifetime ECL are the expected credit losses resulting
from all possible default events over the expected
life of a financial instrument. The 12 quarter ECL is a
portion of the lifetime ECL which results from default
events that are possible within 12 months after the
reporting date. ECL is the difference between all
contractual cash flows that are due to the Company
in accordance with the contract and all the cash flows
that the Company expects to receive.
When estimating the cash flows, the Company is
required to consider:
• All contractual terms of the financial assets
(including prepayment and extension) over the
expected life of the assets.
• Cash flows from the sale of collateral held or
other credit enhancements that are integral to
the contractual terms.
(b) Financial Liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition,
as financial liabilities at fair value through profit or
loss.
All financial liabilities are recognized initially at fair
value and, in the case of loans and borrowings and
payables, net of directly attributable transaction costs.
The Company's financial liabilities include trade and
other payables, loans and borrowings.
Subsequent measurement
The measurement of financial liabilities depends on
their classification, as described below:
Financial liabilities at fair value through profit or
loss include financial liabilities held for trading and
financial liabilities designated upon initial recognition
as at fair value through profit or loss. Financial
liabilities are classified as held for trading if they are
incurred for the purpose of repurchasing in the near
term.
Gains or losses on liabilities held for trading are
recognised in the Statement of Profit and Loss.
Loans and borrowings
After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised
cost using the EIR method. Gains and losses are
recognised in profit or loss when the liabilities are
derecognised as well as through the EIR amortisation
process.
Amortised cost is calculated by taking into account
any discount or premium on acquisition and fees
or costs that are an integral part of the EIR. The
EIR amortisation is included as finance costs in the
Statement of Profit and Loss.
This category generally applies to interest-bearing
loans and borrowings.
Trade and other payables
These amounts represent liabilities for goods and
services provided to the Company prior to the end
of financial year which are unpaid. The amounts are
unsecured and are usually paid as per agreed terms.
Trade and other payables are presented as current
liabilities unless payment is not due within 12 months
after the reporting period. They are recognised
initially at their fair value and subsequently measured
at amortised cost using the effective interest method.
De-recognition
A financial liability is de-recognised when the obligation
under the liability is discharged or cancelled or
expires. When an existing financial liability is replaced
by another from the same lender on substantially
different terms, or the terms of an existing liability
are substantially modified, such an exchange or
modification is treated as the derecognition of the
original liability and the recognition of a new liability.
The difference in the respective carrying amounts is
recognised in the Statement of Profit and Loss.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and
the net amount is reported in the balance sheet if
there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to
settle on a net basis, to realise the assets and settle
the liabilities simultaneously.
2.6 Taxes
Tax expense for the year, comprising current tax and
deferred tax, are included in the determination of the
net profit or loss for the year.
(a) Current tax
Current tax assets and liabilities are measured at
the amount expected to be recovered or paid to the
taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or
substantively enacted, at the year end date.
The Company recognises interest levied and penalties
related to income tax assessments in interest expense.
(b) Deferred tax
Deferred tax is provided using the Balance Sheet
method on temporary differences between the
tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes at the
reporting date. Deferred tax liabilities are recognised
for all taxable temporary differences.
Deferred tax assets are recognised for all deductible
temporary differences, the carry forward of unused
tax credits and any unused tax losses. Deferred tax
assets are recognised to the extent that it is probable
that future taxable profit will be available against
which the deductible temporary differences, and the
carry forward of unused tax credits and unused tax
losses can be utilized.
The carrying amount of deferred tax assets is reviewed
at each reporting date and reduced to the extent
that it is no longer probable that sufficient future
taxable profit will be available to allow all or part of
the deferred tax asset to be utilized. Unrecognized
deferred tax assets are re-assessed at each reporting
date and are recognised to the extent that it has
become probable that future taxable profits will allow
the deferred tax asset to be recovered. Deferred tax
assets and liabilities are measured at the tax rates
that are expected to apply in the year when the asset
is realized or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantively
enacted at the reporting date. Deferred tax relating
to items recognised outside the statement of Profit
and Loss is recognised outside the Statement of Profit
and Loss (either in other comprehensive income or in
equity). Deferred tax assets and deferred tax liabilities
are offset if a legally enforceable right exists to set off
current tax assets against current tax liabilities and
the deferred taxes relate to the same taxable entity
and the same taxation authority.
2.7 Inventories
Inventories consist of chemicals and consumables,
stores and spares, are measured at the lower of cost
and net realisable value. Cost includes purchase price,
duties and taxes (other than those subsequently
recoverable by the Company from the concerned
revenue authorities), freight inwards and other
expenditure incurred in bringing such inventories to
their present location and condition. Net realisable
value is the estimated selling price in the ordinary
course of business, less the estimated costs of
completion and selling expenses. In determining the
cost, First In First Out (FIFO) method is used. The
carrying cost of inventories are appropriately written
down when there is a decline in replacement cost of
such materials.
Work in progress are valued at the lower of cost
and net realisable value. Cost of work in progress is
determined on the basis of cost and on the cost which
comprises direct material consumed and human
resource cost.
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