03. MATERIAL ACCOUNTING POLICIES:
a) Significant accounting estimates and assumptions
The preparation of standalone financial statements
requires management to make judgements, estimates
and assumptions that affect the reported amounts
of revenues, expenses, assets, liabilities and the
disclosures of contingencies at the end of each
reporting year. Although these estimates are based on
the management's best knowledge of current events
and actions, uncertainty about these assumptions
and estimates could result in outcomes that require a
material adjustment to the carrying amounts of assets
or liabilities affected in future periods.
Estimates and assumptions:
The key assumptions concerning the future and other
key sources of estimation of uncertainty at the reporting
date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and
liabilities within the next financial year, are described
below. The assumptions and estimates were made by
the Company based on parameters available when
the standalone financial statements were prepared.
Existing circumstances and assumptions about future
developments, however, may change due to market
change or circumstances arising that are beyond the
control of the Company. Such changes are reflected in
the assumptions when they occur.
i. Impairment of non-current assets:
I mpairment exists when the carrying value of
an asset or cash generating unit exceeds its
recoverable amount, which is the higher of its
fair value less costs of disposals and its value
in use. The fair value less costs of disposal is
calculated based on available data from binding
sales transactions, conducted at arm's length
price, for similar assets or observable market
prices less incremental costs for disposing of the
asset. The value in use calculation is based on a
Discounted Cash Flow ("DCF") model. The value
in use is sensitive to the discount rate (generally
weighted average cost of capital) used for the DCF
model as well as the expected future cash-inflows
and the growth rate used for exploration purposes.
ii. Defined Benefit Plans:
The present value of the gratuity obligation is
determined using actuarial valuation. An actuarial
valuation involves making various assumptions
that may differ from actual developments in the
future. These include the determination of the
discount rate, rate of increment in salaries and
mortality rates. Due to complexities involved in
the valuation and its long-term nature, a defined
benefit obligation is highly sensitive to changes
in these assumptions. All the assumptions are
reviewed at each reporting date.
iii. Fair Value measurement of financial
instruments:
When the fair values of financial assets and financial
liabilities on reporting date cannot be measured
based on quoted prices in active markets, their fair
value is measured using valuation techniques i.e.,
the DCF model. The inputs to these models are
taken from observable markets.
iv. Contingencies:
Management judgement is required for estimating
the possible inflow/outflow of resources, if any, in
respect of contingencies/claim/litigations against
the company/by the company as it is not possible
to predict the outcome of pending matters
with accuracy.
v. Property, Plant and Equipment:
Based on evaluations done by technical
assessment team, the management has adopted
the useful life and residual value of its Property,
Plant and Equipment. Management believes that
the assigned useful lives and residual value are
reasonable.
vi. Intangibles:
Internal technical or user team assesses the useful
lives of Intangible assets. Management believes
that assigned useful lives are reasonable.
vii. Income Taxes:
Management judgment is required for the
calculation of provision for income taxes and
deferred tax assets/liabilities. The Company reviews
at each balance sheet date the carrying amount of
deferred tax assets/liabilities. The factors used in
estimates may differ from actual outcome which
could lead to significant adjustment to the amounts
reported in the standalone financial statements.
viii. Provision for Warranty expenditure:
Due to the nature of industry the Company
operates in, it needs to incur warranty expenditure
on regular basis. Company applies rational
judgement and past experience in determining
the extent of provision to be created at the end of
each reporting period.
b) Current Vs Non-current classifications:
The Company presents assets and liabilities in
the Balance Sheet based on current/ non-current
classification.
An asset is classified as current when it satisfies
below criteria:
i. Expected to be realized or is intended to be sold
or consumed in its normal operating cycle;
ii. Held primarily for the purpose of trading;
iii. Expected to be realized within twelve months after
the reporting period; or
iv. Cash or cash equivalent unless restricted from
being exchanged or used to settle a liability for at
least twelve months after the reporting period.
All other assets are classified as non-current assets.
A liability is classified as current when it satisfies
below criteria:
i. Expected to settle the liability in its normal
operating cycle;
ii. Held primarily for the purpose of trading;
iii. Due to be settled within twelve months after the
reporting period; or
iv. There is no unconditional right to defer the
settlement of the liability for at least twelve months
after the reporting period.
All other liabilities are classified as non-current liabilities.
Deferred tax assets and liabilities are classified as
non-current assets and liabilities.
The operating cycle is the time between the acquisition
of assets for processing and their realization in cash and
cash equivalents.
c) Property, Plant and Equipment:
Property, Plant and Equipment are stated at cost net
of GST input credit, less accumulated depreciation and
impairment losses if any. Cost comprises the purchase
price, any attributable cost of bringing the asset to
its working condition for its intended use and cost of
borrowing till the date of capitalization in the case of
assets involving material investment and substantial
lead time.
The Company adopted cost model as its accounting
policy, in recognition of the Property, Plant and
Equipment and recognizes the transaction value
as the cost.
Direct expenditure incurred and other attributable
costs on projects under construction or in the process
of installation are termed as Capital work in progress
and shown at cost in the Balance Sheet.
Depreciation is provided on the straight-line method
as per the useful life prescribed in the schedule II to
the Companies Act, 2013 except in respect of the
following categories of assets in whose case the life of
certain assets has been assessed based on technical
advice taking into account the nature of the asset, the
estimated usage of the asset, the operating condition
of the asset, past history of replacement, maintenance
supports etc.
An item ofProperty, Plant and Equipment is derecognized
upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain or
loss arising on derecognition of the asset (calculated
as the difference between the net disposal proceeds
and the carrying amount of the asset) is recognized
in the Statement of Profit and Loss. Property, Plant
and Equipment which are found to be not usable or
retired from active use or when no further benefits are
expected from their use are removed from the books
of account and the carrying value if any is charged to
Statement of Profit and Loss.
Transition to Ind AS:
On transition to Ind AS, the Company has elected to
continue with the carrying value of all its Property,
Plant, and Equipment recognized as at March 31, 2016
measured as per Previous GAAP as the deemed cost of
Property, Plant and Equipment.
d) Intangible Assets:
Intangible assets are carried at cost, net of accumulated
amortization expenses and impairment losses, if any.
The cost of an intangible asset comprises of purchase
price and attributable expenditure on making the asset
ready for its intended use.
Computer software:
Costs incurred towards purchase of computer software
are amortized over the useful life as estimated by the
Management, which is about 3 years for all of the
intangible computer software assets.
An intangible asset is derecognized on disposal, or when
no future economic benefits are expected from its use
or disposal. Gains or losses arising from derecognition of
an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of
the asset, and are recognized in the Statement of Profit
and Loss when the asset is derecognized.
e) Investment Properties:
Property that is held for long-term rental yields
or for capital appreciation or both, and that is not
occupied by the Company, is classified as investment
property. Investment property is measured initially
at its cost, including related transaction costs and
where applicable borrowing costs. Subsequent to
initial recognition, investment properties are stated at
cost less accumulated depreciation and accumulated
impairment loss, if any.
Subsequent expenditure is capitalised to the asset's
carrying amount only when it is probable that future
economic benefit associated with the expenditure will
flow to the Company and the cost of the item can be
measured reliably. All other repairs and maintenance
costs are expensed when incurred. When part of an
investment property is replaced, the carrying amount of
an investment property is replaced, the carrying amount
of the replaced part is derecognized.
Investment properties are depreciated using the
straight - line method over their estimated useful
lives. The estimated useful life of buildings, classified
as investment properties, ranges from 30 - 60 years.
The useful life has been determined based on technical
evaluation performed by the management's expert.
I nvestment properties are derecognized either when
they have been disposed of or when they are permanently
withdrawn from use and no future economic benefit is
expected from their use. The difference between the
net disposal proceeds and the carrying amount of the
asset is recognized in the Statement of Profit and Loss
in the period of derecognition.
f) Impairment of tangible and intangible assets:
i. The carrying amounts of assets are reviewed at
each balance sheet date if there is any indication
of impairment based on internal/external factors.
An impairment loss is recognized wherever the
carrying amount of an asset exceeds its recoverable
amount. The recoverable amount is the greater of
the asset's net selling price and its value in use.
In assessing value in use, the estimated future cash
flows are discounted to their present value using
appropriate discounting factor. After impairment,
depreciation is provided on the revised carrying
amount of the asset over its remaining useful life.
ii. When there is an indication previously recognized
impairment losses no longer exists or may have
decreased such reversal of impairment loss is
recognized in the Statement of Profit and Loss.
g) Borrowing Cost:
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which
are assets that necessarily take substantial period of
time to get ready for their intended use or sale, are
added to the cost of those assets, until such time as
the assets are substantially ready for their intended
use or sale.
I nterest income earned on the temporary investment
of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs
eligible for capitalization.
All other borrowing costs are recognized in the
Statement of Profit and Loss in the period in which they
are incurred.
h) Leases:
The Company assesses a contract at inception whether
a contract is, or contains, a lease. That is, if the contract
conveys the right to control the use of an identified
asset for a period of time in exchange for consideration.
Company as a Lessee:
The Company applies a single recognition and
measurement approach for all leases, except for
short-term leases and leases of low-value assets.
The Company recognizes lease liabilities to make lease
payments and right-of-use assets representing the right
to use the underlying assets.
Right-of-Use Assets:
The Company recognizes right-of-use assets at the
commencement date of the lease (i.e., the date the
underlying asset is available for use). Right-of-use assets
are measured at cost, less any accumulated depreciation
and impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of right-of-
use assets includes the amount of lease liabilities
recognized, initial direct costs incurred, and lease
payments made at or before the commencement date
less any lease incentives received.
The right-of-use assets are depreciated on a straight-line
basis over the shorter of the lease term and the
estimated useful lives of the assets. The estimated
useful lives of right-of-use assets are determined on the
same basis as those of property, plant and equipment.
In addition, the right-of-use asset is periodically reduced
by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
Lease Liabilities:
At the commencement date of the lease, the Company
recognizes lease liabilities measured at the present
value of lease payments to be made over the lease term.
The lease payments included in the measurement of
the lease liability include fixed payments (including in
substance fixed payments), variable lease payments that
depend on an index or a rate, and amounts expected
to be paid under residual value guarantees. The lease
payments also include the exercise price of a purchase
option reasonably certain to be exercised by the
Company and payments of penalties for terminating the
lease, if the lease term reflects the Company exercising
the option to terminate.
Lease payments are apportioned between finance
charges and reduction of the lease liability so as to
achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are recognized
in finance costs in the Statement of Profit and Loss.
I n the case of a short-term lease contract and lease
contracts for which the underlying asset is of low value,
lease payments are charged to the Statement of Profit
and Loss on accrual basis.
i) Inventories:
i. Stock-in-Trade:
Stock-in-Trade is stated at the lower of cost and net
realizable value. Net realizable value represents
the estimated selling price of inventories less
estimated costs of completion and costs necessary
to make the sale. Cost is determined on weighted
Average basis.
ii. Stores and Spares:
Spare parts, stand-by equipment and servicing
equipment are recognized in accordance with Ind
AS 16 when they meet the definition of Property,
Plant and Equipment. Otherwise, such items are
classified as inventory. Spare parts, stand-by
equipment and servicing equipment classified as
inventory are stated at the lower of cost or net
realizable value. Cost is determined on Weighted
Average basis.
j) Investment in joint venture:
The Company accounts for its equity investments in joint
venture at cost less accumulated impairment loss, if any.
k) Fair Value Measurement:
The Company measures financial instruments at fair
value at each balance sheet date. Fair value is the price
that would be received on selling 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 the liability
if market participants would take those characteristics
into account when pricing the asset or the liability at
the measurement date. Fair value for measurement and
/ or disclosure purpose in these standalone financial
statements is determined on such basis, except for
share-based payment transactions that are within the
scope of Ind AS 102, leasing transactions that are within
the scope of Ind AS 116, and measurements that have
some similarities to fair value, such as net realizable
value in Ind AS 2, or value in use in Ind AS 36.
In addition, for financial reporting purpose, fair value
measurements are categorized into Level 1, 2 or 3
based on the degree to which the inputs to the fair value
measurement are observable and the significance of
the inputs to the fair value measurement in its entirety.
All assets and liabilities for which fair value is measured
or disclosed in the standalone financial statements are
categorized within the fair value hierarchy, described as
follows, based on the lowest level input that is significant
to the fair value measurement as a whole:
i. Level 1 - Quoted (unadjusted market prices) in
active markets for identical assets or liabilities.
ii. Level 2 - Valuation techniques for which the
lowest level input that is significant to the fair value
measurements is directly or indirectly observable.
iii. Level 3 - Valuation techniques for which the
lowest level input that is significant to the fair value
measurement is unobservable.
l) Revenue recognition:
i. Revenue from operations:
Revenue is recognized only when it can be reliably
measured, and it is reasonable to expect ultimate
collection. Revenue from operations includes sale
of goods and services, net of Goods and Service
Tax (GST) and trade discounts, cash discounts and
other discounts.
ii. Interest and dividend:
Interest income is recognized on a time proportion
basis taking into account the amount outstanding
and the rate applicable.
Dividend income is recognized when the right to
receive payment is established by the balance
sheet date.
iii. Rental income:
Rental income is recognized on accrual basis,
based on agreements entered by the company as
on the reporting date.
m) Foreign currency transactions:
In preparing the standalone financial statements of
the Company, transactions in currencies other than
the entity's functional currency (foreign currencies) are
recognized at the rates of exchange prevailing at the
dates of the transactions. 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 fair value is
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 Statement of Profit and Loss in which they arise
except for exchange differences on transactions entered
into in order to hedge certain foreign currency risks.
n) Retirement and other employee benefits:
i. Employer's contribution to Provident Fund,
Employee State Insurance and Labour Welfare
Fund which is in the nature of defined contribution
scheme is expensed off when the contributions to
the respective funds are due. There are no other
obligations other than the contribution payable
to the fund.
ii. Gratuity liability is in the nature of defined benefit
obligation. The Company's Plant Assets comprise
of Gratuity fund maintained by Life Insurance
Corporation of India and liability is provided based
on independent actuarial valuation on projected
unit credit method made at the end of each
reporting period as per the requirements of Ind
AS 19 on "Employee Benefits".
Actuarial gain/(loss) in the valuation are recognized
as other comprehensive income for the period.
iii. Compensated absences which are in the nature of
defined benefit obligation are provided for based
on estimates and provided for on the basis of
independent actuarial valuation on projected unit
credit method made at the end of each financial
year as per the requirements of Ind AS 19 on
"Employee Benefits".
iv. Share based payments to employees:
Equity-settled share-based payments to
employees are measured at the fair value of the
equity instruments at the grant date. The fair value
determined at the grant date of the equity-settled
share-based payments is expensed on a
straight-line basis over the vesting period, based
on the Company's estimate of the number of
equity instruments that will eventually vest, with a
corresponding increase in equity.
v. Termination Benefits:
Termination benefits are payable when employment
is terminated by the Company before the normal
retirement date, or when an employee accepts
voluntary redundancy in exchange for those
benefits. The company recognizes the termination
benefits at the earlier of the following dates:
a) when the company no longer withdraw the
offer of those benefits and
b) when the company recognizes the costs
for a restructuring that is within the scope
of Ind AS 37 and involves payment of
termination benefits.
o) Earnings per share:
Basic earnings per share are calculated by dividing the
profit for the period attributable to equity shareholders
by the weighted average number of equity shares
outstanding during the period.
For the purpose of calculating diluted earnings per
share, the profit for the period attributable to equity
shareholders and the weighted average number of
shares outstanding during the period are adjusted for
the effects of all dilutive potential equity shares.
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