2. Summary of significant accounting policies
2.1 Foreign currency transactions and balances
Transactions in foreign currencies are initially recorded by the Company at their respective
functional currency spot rates at the date, the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional
currency spot rates of exchange at the reporting date. Exchange differences arising on settlement
or translation of monetary items are recognised in the statement of profit and loss.
Non-monetary items that are measured based on historical cost in a foreign currency are
translated at the exchange rate at the date of the initial transaction.
Non-monetary items that are measured at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value was measured.
The gain or loss arising on translation of non-monetary items measured at fair value is treated in
line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation
differences on items whose fair value gain or loss is recognised in other comprehensive income
(“OCI”) or profit or loss are also recognised in OCI or profit or loss, respectively).
2.2 Property plant and equipment
The cost of an item of property, plant and equipment are recognized 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 stated at cost of
acquisition or construction less accumulated depreciation and impairment loss, if any.
Cost includes expenditures that are directly attributable to the acquisition of the asset i.e.,
freight, non-refundable duties and taxes applicable, and other expenses related to acquisition
and installation.
The cost of self-constructed assets includes the cost of materials and other costs directly
attributable to bringing the asset to a working condition for its intended use.
When significant parts of plant and equipment are required to be replaced at intervals, the
Company depreciates them separately based on their specific useful lives.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit
or loss.
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 reliably.
Depreciation
Depreciation on items of PPE is provided on straight line basis, computed on the basis of useful
lives as mentioned in Schedule II to the Companies Act, 2013. Depreciation on additions /
disposals is provided on a pro-rata basis i.e. from / up to the date on which asset is ready for
use / disposed off.
The residual values, useful lives and method of depreciation are reviewed at each financial year
end and adjusted prospectively, if appropriate.
The cost of replacing part of an item of property, plant and equipment is recognized in the
carrying amount of the item if it is probable that the future economic benefits embodied within
the part will flow to the Company and its cost can be measured reliably. The carrying amount
of the replaced part will be derecognized. The costs of repairs and maintenance are
recognized in the statement of profit and loss as incurred.
Items of stores and spares that meet the definition of Property, plant and equipment are
capitalized at cost, otherwise, such items are classified as inventories.
Advances paid towards the acquisition of property, plant and equipment outstanding at each
reporting date is disclosed as capital advances under other assets. The cost of property, plant
and equipment not ready to use before such date are disclosed under capital work-in-progress.
2.3 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 recognized initially at fair value plus, 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. Purchases or sales of financial assets that require delivery of
assets within a time frame established by regulation or convention in the marketplace (regular
way trades) are recognized on the trade date, i.e., the date that the Company commits to
purchase or sell the assets.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
Debt instruments at amortized cost.
Debt instruments at fair value through other comprehensive income (FVTOCI).
Debt instruments, derivatives and equity instruments at fair value through profit or loss
(FVTPL).
Equity instruments measured at fair value through other comprehensive income
(FVTOCI)
Debt instruments at amortized cost
A “debt instrument” is measured at the amortized cost, if both of the following conditions are
met: (i) The asset is held within a business model whose objective is to hold assets for
collecting contractual cash flows; and (ii) 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, such financial assets are subsequently measured at amortized cost
using the effective interest rate (EIR) method. Amortized 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 amortization is included in finance income in the statement of profit and loss.
The losses arising from impairment are recognized in the statement of profit and loss. This
category generally applies to trade and other receivables.
Debt instrument at FVTOCI
A „debt instrument" is classified as FVTOCI, if both of the following criteria are met: (i) The
objective of the business model is achieved both by collecting contractual cash flows and
selling the financial assets; and (ii) The asset"s contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at
each reporting date at fair value. Fair value movements are recognized in OCI. However, the
Company recognizes interest income, impairment losses and foreign exchange gain or loss in
the statement of profit and loss. On de-recognition of the asset, cumulative gain or loss
previously recognised in OCI is reclassified from the equity to statement of profit and loss.
Interest earned whilst holding FVTOCI debt instrument is reported as interest income using the
EIR method.
Debt instrument at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet
the criteria for categorization as at amortized cost or as FVTOCI, is classified as FVTPL. Debt
instruments included within the FVTPL category are measured at fair value with all changes
recognized in the statement of profit and loss.
Equity Instruments
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 FVTPL. If the Company decides to classify an equity
instrument as 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. Equity instruments included within the FVTPL category are measured at fair value with all
changes recognized in the statement of profit and loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar
financial assets) is primarily derecognized (i.e., removed from the Company's balance sheet)
when:
a) The rights to receive cash flows from the asset have expired, or
b) The Company has transferred its rights to receive cash flows from the asset or has
assumed an obligation to pay the received cash flows in full without material delay to
a third party under a „pass-through" arrangement; and either (a) the Company has
transferred substantially all the risks and rewards of the asset, or (b) the Company
has neither transferred nor retained substantially all the risks and rewards of the
asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has
entered into a pass-huh 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
recognize the transferred asset to the extent of the Company's continuing involvement. In that
case, the Company also recognises an associated liability. The transferred assets and the
associated liability are measured on a basis that reflects the rights and obligations that the
Company has retained.
Impairment of Financial Assets
The company assesses at each balance sheet date whether a financial asset or a group of
financial assets is impaired.
In accordance with Ind AS 109, the company uses “Expected Credit Loss” (ECL) model, for
evaluating impairment of Financial Assets other than those measured at Fair Value Through
Profit and Loss (FVTPL).
Expected credit losses are measured through a loss allowance at an amount equal to:
• The 12 months expected credit losses (expected credit losses that result from those
default events on the financial instrument that are possible within 12 months after the
reporting date);
• Full lifetime expected credit losses (expected credit losses that result from all possible
default events over the life of the financial instrument)
The company follows a simplified approach for recognition of impairment loss allowance on
trade receivables and under the simplified approach, the company does not track changes in
credit risk. Rather, it recognizes impairment loss allowance based on lifetime ECL at each
reporting date right from its initial recognition. The company uses a provision matrix to
determine impairment loss allowance on trade receivables. The provision matrix is based on its
historically observed default rates over the expected life of trade receivable and is adjusted for
forward looking estimates. At every reporting date, the historically observed default rates are
updated
For other assets, the company uses 12-month ECL to provide for impairment loss where there
is no significant increase in credit risk. If there is a significant increase in credit risk full lifetime
ECL is used.
b. Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value i.e., loans
and borrowings, payables, or as derivatives designated as hedging instruments in an effective
hedge, as appropriate. 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
including bank overdrafts, financial guarantee contracts.
Subsequent measurement
The measurement of financial liabilities depends on their classification.
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and
financial liabilities designated upon initial recognition as fair value through profit or loss. Financial
liabilities are classified as being held for trading if they are incurred for the purpose of
repurchasing in the near term. This category also includes derivative financial instruments entered
into by the Company that are not designated as hedging instruments in hedge relationships as
defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading,
unless they are designated as effective hedging instruments. Gains or losses on liabilities held for
trading are recognised in the statement of profit and loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are
designated as such at the initial date of recognition, and only if the criteria in Ind AS 109 are
satisfied. For liabilities designated as FVTPL, fair value gains/losses attributable to changes in
own credit risk are recognized in OCI. These gains/ losses are not subsequently transferred to
the statement of profit and loss.
However, the Company may transfer the cumulative gain or loss within equity. All other changes
in the fair value of such liability are recognised in the statement of profit and loss.
Loans and borrowings
After initial recognition, interest-bearing borrowings are subsequently measured at amortised
cost using the EIR method. Gains and losses are recognised in the statement of profit and loss
when the liabilities are derecognised as well as through the EIR amortization process.
Amortized cost is calculated by considering 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.
De-recognition
Financial liability is derecognized when the obligation under the liability is discharged or
cancelled or expired. 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 de-recognition 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.
Reclassification of financial assets and liabilities
The Company determines classification of financial assets and liabilities on initial recognition.
After initial recognition, no re-classification is made for financial assets which are equity
instruments and financial liabilities. For financial assets, which are debt instruments, a re¬
classification is made only if there is a change in the business model for managing those
assets. A change in the business model occurs when the Company either begins or ceases to
perform an activity that is significant to its operations. If the Company reclassifies financial
assets, it applies the re-classification prospectively from the re-classification date, which is the
first day of the immediately next reporting period following the change in business model. The
Company does not restate any previously recognised gains, losses (including impairment gains
or losses) or interest.
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.
2.4 Cash & Cash Equivalents
Cash and bank balances comprise of cash balance in hand, in current accounts with banks, and
other short-term deposits. For this purpose, "short-term" means investments having maturity of
three months or less from the date of investment, and which are subject to an insignificant risk
of change in value. Bank overdrafts that are repayable on demand and form an integral part of
our cash management are included as a component of cash and cash equivalents for the
purpose of the statement of cash flows.
2.5 Inventories
Inventories of all procured raw materials, spares and stores, consumables, supplies and loose
tools are valued at the lower cost (on FIFO basis) and the net realisable value after providing for
obsolescence and other losses, where considered necessary. Net realisable value is the
estimated selling price in the ordinary course of business, less the estimated costs of
completion and the estimated costs necessary to make the sale.
The cost of raw material and packing materials includes all charges in bringing the goods to
their present location and condition, including non-creditable taxes and other levies, transit
insurance and receiving charges. However, these items are considered to be realisable at cost if
the finished products, in which they will be used, are expected to be sold at or above cost.
The cost of finished goods and work-in-progress includes the cost of raw materials, packing
materials, an appropriate share of fixed and variable production overheads, non-creditable
duties and taxes as applicable and other costs incurred in bringing the inventories to their
present location and condition. Fixed production overheads are allocated on the basis of normal
capacity of production facilities.
2.6 Impairment of non-financial assets
The carrying amounts of the Company's non-financial assets, other than biological assets,
investment property, inventories, contract assets and deferred tax assets are reviewed at each
reporting date to determine whether there is any indication of impairment.
If any such indication exists, then the asset's recoverable amount is estimated.
For goodwill and intangible assets that have indefinite lives or that are not yet available for use,
an impairment test is performed each year on March 31.
The recoverable amount of an asset or cash-generating unit (as defined below) is the greater of
its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value for
money and the risks specific to the asset or the cash-generating unit.
For the purpose of 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
inflow of other assets or groups of assets (the “cash-generating unit”).
The Company bases its impairment calculations on detailed budgets and forecasts
calculations, which are prepared separately for each of the Company's CGUs to which the
individual assets are allocated. These budgets and forecast calculations generally cover a
period of five years. For longer periods, a long-term growth rate is calculated and applied to
project future cash flow after the fifth year. To estimate cash flow projections beyond periods
covered by the most recent budgets/forecasts, the Company extrapolates cash flow
projections in the budget using a steady or declining growth rate for subsequent years, unless
an increasing rate can be justified. In any case, this growth rate does not exceed the long-term
average growth rate for the products, industries, or country in which the entity operates, or for
the market in which the asset is used.
An impairment loss is recognized in the statement of profit and loss if the estimated recoverable
amount of an asset or its cash-generating unit is lower than it carrying amount. Impairment
losses recognized in respect of cash-generating units are allocated first to reduce the carrying
amount of any goodwill allocated to the units and then to reduce the carrying amount of the
other assets in the unit on a pro-rata basis.
Reversal of Impairment of Assets
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment
losses recognized in prior periods are assessed at each reporting date for any indications 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. An impairment loss is
reversed 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 amortization, if no impairment
loss had been recognized.
2.7 Employee benefits
Short term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is
recognized for the amount expected to be paid 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 obligation can be estimated reliably.
Defined contribution plans
The Company's contributions to defined contribution plans are charged to the statement of profit
and loss as and when the services are received from the employees.
Defined benefit plans
The liability in respect of defined benefit plans and other post-employment benefits is calculated
using the projected unit credit method consistent with the advice of qualified actuaries. The
present value of the defined benefit obligation is determined by discounting the estimated future
cash outflows using interest rates of high-quality corporate bonds that are denominated in the
currency in which the benefits will be paid, and that have terms to maturity approximating to the
terms of the related defined benefit obligation. In countries where there is no deep market in
such bonds, the market interest rates on government bonds are used. The current service cost
of the defined benefit plan, recognized in the statement of profit and loss in employee benefit
expense, reflects the increase in the defined benefit obligation resulting from employee service
in the current year, benefit changes, curtailments and settlements. Past service costs are
recognized immediately in the statement of profit and loss.
The net interest cost is calculated by applying the discount rate to the net balance of the defined
benefit obligation and the fair value of plan assets. This cost is included in employee benefit
expense in the statement of profit and loss. Actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions for defined benefit obligation and plan
assets are recognized in OCI in the period in which they arise. When the benefits under a plan
are changed or when a plan is curtailed, the resulting change in benefit that relates to past
service or the gain or loss on curtailment is recognized immediately in the statement of profit
and loss. The Company recognizes gains or losses on the settlement of a defined benefit plan
obligation when the settlement occurs.
Termination benefits
Termination benefits are recognized as an expense in the statement of profit and loss when the
Company is demonstrably committed, without realistic possibility of withdrawal, to a formal
detailed plan to either terminate employment before the normal retirement date, or to provide
termination benefits as a result of an offer made to encourage voluntary redundancy.
Termination benefits for voluntary redundancies are recognized as an expense in the statement
of profit and loss if the Company has made an offer encouraging voluntary redundancy, it is
probable that the offer will be accepted, and the number of acceptances can be estimated
reliably.
Other long-term employee benefits
The Company's net obligation in respect of other long-term employee benefits is the amount of
future benefit that employees have earned in return for their service in the current and previous
periods. That benefit is discounted to determine its present value. Re-measurements are
recognised in the statement of profit and loss in the period in which they arise.
Compensated absences
The Company's current policies permit certain categories of its employees to accumulate and
carry forward a portion of their unutilised compensated absences and utilise them in future
periods or receive cash in lieu thereof in accordance with the terms of such policies. The
Company measures the expected cost of accumulating compensated absences as the
additional amount that the Company incurs as a result of the unused entitlement that has
accumulated at the reporting date. Such measurement is based on actuarial valuation as at the
reporting date carried out by a qualified actuary.
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