3. MATERIAL ACCOUNTING POLICIES
3.1 Revenue Recognition
Revenue is recognised upon transfer of control of promised
products or services to customers for an amount that reflects
the consideration which the Company expects to receive in
exchange for those products or services. Revenue excludes
taxes or duties collected on behalf of the government.
Revenue from sale of goods is recognised when control of goods
are transferred to the buyer which is generally on dispatch for
domestic sales and on dispatch/delivery on local port in India
for export sales
Revenue is measured based on the transaction price, which is
the consideration, adjusted for volume discounts, performance
bonuses, price concessions and incentives, if any, as specified
in the contract with the customer. Revenue also excludes taxes
collected from customers.
A liability is recognised where payments are received from
customers before transferring control of the goods being sold
or providing services to the customer.
Service income, is recognized as and when the underlying
services are performed. Upfront non-refundable payments
received under these arrangements continue to be deferred
and are recognized over the expected period that related
services are to be performed.
Dividend income is recorded when the right to receive payment
is established.
Interest income is accrued on, time basis, by reference to
the principal outstanding and at the effective interest rate
applicable. Royalty income is recognised on accrual basis in
accordance with the substance of their relevant agreements.
3.2 Lease:
A contract is or contains a lease if the contract conveys the right
to control the use of an identified asset for a period of time in
exchange for consideration.
Company as a Lessee
The Company accounts for each lease component within the
contract as a lease separately from non-lease components of the
contract and allocates the consideration in the contract to each
lease component on the basis of the relative stand-alone price
of the lease component and the aggregate stand-alone price of
the non-lease components.
The Company recognises right-of-use asset representing
its right to use the underlying asset for the lease term at the
lease commencement date. The cost of the right of-use asset
measured at inception shall comprise of the amount of the
initial measurement of the lease liability adjusted for any lease
payments made at or before the commencement date less
any lease incentives received, plus any initial direct costs
incurred and an estimate of costs to be incurred by the lessee in
dismantling and removing the underlying asset or restoring the
underlying asset or site on which it is located. The right-of-use
assets is subsequently measured at cost less any accumulated
depreciation, accumulated impairment losses, if any and
adjusted for any remeasurement of the lease liability. The right-
of-use assets is depreciated using the straight-line method
from the commencement date over the shorter of lease term
or useful life of right-of-use asset. The estimated useful lives of
right-of-use assets are determined on the same basis as those of
property, plant and equipment. Right of-use assets are tested for
impairment whenever there is any indication that their carrying
amounts may not be recoverable. Impairment loss, if any, is
recognised in the statement of profit and loss.
The Company measures the lease liability at the present value of
the lease payments that are not paid at the commencement date
of the lease. The lease payments are discounted using the interest
rate implicit in the lease if that rate can be readily determined.
If that rate cannot be readily determined, the Company uses
incremental borrowing rate. For leases with reasonably similar
characteristics, the Company, on a lease by lease basis, may
adopt either the incremental borrowing rate specific to the lease
or the incremental borrowing rate for the portfolio as a whole.
The lease payments shall include fixed payments, variable
lease payments, residual value guarantees, exercise price of a
purchase option where the Company s reasonably certain to
exercise that option and payments of penalties for terminating
the lease, if the lease term reflects the lessee exercising an
option to terminate the lease. The lease liability is subsequently
remeasured by increasing the carrying amount to reflect interest
on the lease liability, reducing the carrying amount to reflect the
lease payments made and remeasuring the carrying amount
to reflect any reassessment or lease modifications or to reflect
revised in-substance fixed lease payments. The Company
recognises the amount of the re-measurement of lease liability
due to modification as an adjustment to the right-of-use asset
and statement of profit and loss depending upon the nature
of modification. Where the carrying amount of the right-of-use
asset is reduced to zero and there is a further reduction in the
measurement of the lease liability, the Company recognises any
remaining amount of the re-measurement in statement of profit
and loss.
The Company has elected not to apply the requirements of Ind
AS 116 Leases to short term leases of all assets that have a lease
term of 12 months or less and leases for which the underlying
asset is of low value. The lease payments associated with these
leases are recognised as an expense on a straight-line basis over
the lease term.
3.3 Foreign currencies
In preparing the financial statements of the Company,
transactions in currencies other than the Company's functional
currency (foreign currencies) are recognised 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 that are measured in terms
of historical cost in a foreign currency are not retranslated.
Exchange differences on monetary items are recognised in the
Statement of profit and loss in the period in which they arise.
3.4 Borrowing Cost
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a 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.
All other borrowing costs are recognised in the Statement of
profit and loss in the period in which they are incurred.
3.5 Government grants
Government grants are not recognised until there is reasonable
assurance that the Company will comply with the conditions
attaching to them and that the grants will be received.
Government grants are recognised in the Statement of profit
and loss on a systematic basis over the periods in which the
Company recognises as expenses the related costs, if any, for
which the grants are intended to compensate.
3.6 Employee Benefits:
Defined contribution plans
A defined contribution plan is a post-employment benefit plan
under which the Company pays fixed contributions into a
separate entity and will have no legal or constructive obligation
to pay further amounts. Payments to defined contribution plans
are recognised as an expense when employees have rendered
service entitling them to the contributions.
Defined benefit plans
For defined benefit plans, the cost of providing benefits is
determined using the projected unit credit method, with
actuarial valuations being carried out at the end of each annual
reporting period. Re-measurement, comprising actuarial gains
and losses and the return on plan assets (excluding net interest),
is reflected immediately in the balance sheet with a charge or
credit recognised in other comprehensive income in the period
in which they occur. Re-measurement recognised in other
comprehensive income is reflected immediately in retained
earnings and is not reclassified to the Statement of profit and
loss. Net interest is calculated by applying the discount rate at
the beginning of the period to the net defined benefit liability or
asset. Defined benefit costs are categorised as follows:
• Service cost (including current service cost, past service
cost, as well as gains and losses or curtailments and
settlements);
• Net interest expense or income; and
• Re-measurement.
The Company presents the first two components of defined
benefit costs in the Statement of profit and loss in the line item
Employee benefit expense. The retirement benefit obligation
recognised in the balance sheet represents the actual deficit
or surplus in the Company's defined benefit plans. Any surplus
resulting from this calculation is limited to the present value of
any economic benefits available in the form of refunds from the
plan or reductions in future contributions to the plans.
Short-term employee benefits
Liabilities recognised in respect of wages and salaries and other
short-term employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in exchange for the
related service and are expensed as the related services are
provided.
Other long-term employee benefits
Liabilities recognised in respect of other long-term employee
benefits such as long-term service awards and compensated
absences are measured at the present value of the estimated
future cash outflows expected to be made by the Company in
respect of services provided by employees up to the reporting
date based on the actuarial valuation using the projected unit
credit method carried out at the year-end. Re measurement gain
or losses are recognised in the statement of profit and loss in the
period in which they arise.
3.7 Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
Current tax
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit before tax as reported in
the statement of profit and loss because of items of income or
expense that are taxable or deductible in other years and items
that are never taxable or deductible. The Company's current tax
is calculated using tax rates that have been enacted by the end
of the Reporting period.
Deferred tax
Deferred tax is recognised on temporary differences between
the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible
temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible
temporary differences can be utilised. The carrying amount of
deferred tax assets is reviewed at the end of each reporting
period and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part
of the asset to be recovered. Deferred tax liabilities and assets
are measured at the tax rates that are expected to apply in
the period in which the liability is settled or the asset realised,
based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner
in which the Company expects, at the end of the reporting
period, to recover or settle the carrying amount of its assets and
liabilities.
Deferred tax assets and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities and assets and
they are related to income taxes levied by the same tax authority.
Current and deferred tax are recognised in the Statement
of profit and loss, except when they relate to items that are
recognised in other comprehensive income or directly in equity,
in which case, the current and deferred tax are also recognised
in other comprehensive income or directly in equity respectively.
3.8 Property, plant and equipment
Property, plant and equipment (including furniture, fixtures,
vehicles, etc.) held for use in the production or supply of
goods or services, or for administrative purposes, are stated in
the balance sheet at cost less accumulated depreciation and
accumulated impairment losses, if any. Cost of acquisition is
inclusive of freight, duties, taxes and other incidental expenses.
Freehold land is not depreciated.
Property, plant and equipment in the course of construction for
production, supply or administrative purposes are carried at
cost, less any recognised impairment loss. Cost includes items
directly attributable to the construction or acquisition of the item
of property, plant and equipment and capitalised borrowing
cost. Such properties are classified to the appropriate categories
of property, plant and equipment when completed and ready
for intended use. When amounts are withheld for more than 1
year due to protection and safety of the Company's interest,
such delayed/deferred payment is not discounted, since the
intention is protection of the assets and no interest component
is intended.
Subsequent costs are included in the assets carrying amount
or recognised as a separate asset, as appropriate only if it is
probable that the future economic benefits associated with the
item will flow to the Company and that the cost of the item can
be reliably measured. The carrying amount of any component
accounted for as a separate asset is derecognised when
replaced. All other repairs and maintenance are charged to
statement of profit and loss during the reporting period in which
they are incurred.
Depreciation of these assets, on the same basis as-other
property assets, commences when the assets are ready for their
intended use.
Depreciation is recognised on the cost of assets (other
than freehold land and properties under construction) less
their residual values over their useful lives, using the written
down value. The estimated useful lives, residual values and
depreciation method are reviewed at the end of each reporting
period, with the effect of any changes in estimate accounted for
on a prospective basis.
Depreciation is charged on a pro-rata basis at the WDV as per
the useful lives prescribed in Schedule II to the Companies
Act, 2013, other than moulds and dies which are depreciated
over a period of 3-8 years grouped under property, plant and
equipment.
An item of property, plant and equipment is derecognised upon
disposal or when no future economic benefits are expected to
arise from the continued use of the asset. Any gain or loss arising
on the disposal or retirement of an item of property, plant and
equipment is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised
in the Statement of Profit and loss.
Expenditure during construction period
Expenditure during construction period (including financing
cost related to borrowed funds for construction or acquisition of
qualifying PPE) is included under Capital Work-in-Progress, and
the same is allocated to the respective PPE on the completion
of their construction. Advances given towards the acquisition
or construction of PPE outstanding at each reporting date are
disclosed as Capital Advances under "Other non-current Assets'.
3.9 Intangible assets
Intangible assets acquired separately Intangible assets with
finite useful lives that are acquired separately are carried at cost
less accumulated amortisation and accumulated impairment
losses. Amortisation is recognised on a written down value over
their estimated 8 to 12 years of useful lives. The estimated useful
life and amortisation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate
being accounted for on a prospective basis. Intangible assets
with indefinite useful lives that are acquired separately are
carried at cost less accumulated impairment losses. Internally-
generated intangible assets - research and development
expenditure. Expenditure on research activities is recognised as
an expense in the period in which it is incurred.
An internally-generated intangible asset arising from
development (or from the development phase of an internal
project) is recognised if, and only if, all of the following have
been demonstrated:
• The technical feasibility of completing the intangible asset
so that it will be available for use or sale;
• The intention to complete the intangible asset and use or
sell it;
• The ability to use or sell the intangible asset;
• How the intangible asset will generate probable future
economic benefits;
• The availability of adequate technical, financial and other
resources to complete the development and to use or sell
the intangible asset; and
• The ability to measure reliably the expenditure attributable
to the intangible asset during its development.
The amount initially recognised for internally-generated
intangible assets is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria
listed above. Where no internally-generated intangible asset can
be recognised, development expenditure is recognised in the
Statement of profit and loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated
intangible assets are reported at cost less accumulated
amortisation and accumulated impairment losses, on the same
basis as intangible assets that are acquired separately.
An intangible asset is derecognised on disposal, or when no
future economic benefits are expected from use or disposal.
Gains or losses arising from de-recognition of an intangible asset,
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 when the asset is derecognised.
Useful lives of intangible assets
Intangible assets, comprising of software, expenditure on model
fee, etc. incurred are amortised on a WDV method over a period
as stated below:
3.10 Impairment of tangible and intangible assets
At the end of each reporting period, the Company reviews
the carrying amounts of its tangible and intangible assets to
determine whether there is any indication that those assets
have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Recoverable
amount is the higher of fair value less costs of disposal and value
in use.
Intangible assets with indefinite useful lives and intangible
assets not yet available for use are tested for impairment at
least annually, and whenever there is an indication that the asset
may be impaired. 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 of money and the risks specific to the asset for which
the estimates of future cash flows have not been adjusted.
For impairment testing, assets that don't generate independent
cash flows are grouped together into cash generating units
(CGU's). Each CGU represents the smallest group of assets that
generate cash inflows that are largely independent of the cash
inflows of other assets or CGU's.
When it is not possible to estimate the recoverable amount of
an individual asset, the Company estimates the recoverable
amount of the cash- generating unit to which the asset belongs.
When a reasonable and consistent basis of allocation can be
identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the
smallest group of cash-generating units for which a reasonable
and consistent allocation basis can be identified.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (or cash-generating unit) is reduced to
its recoverable amount. An impairment loss is recognised
immediately in the Statement of profit and loss. When an
impairment loss subsequently reverses, the carrying amount of
the asset (or a cash-generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased
carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been
recognised for the asset (or cash-generating unit) in prior years.
A reversal of an impairment loss is recognised immediately in the
Statement of profit and loss.
3.11 Inventories
Raw Materials, Stores & Spare Parts and Packing
Materials:
Inventories are stated at the lower of cost and net realisable
value. Cost of inventories includes expenditure incurred in
acquiring the inventories, production or conversion costs and
other costs incurred in bringing them to their present location
and condition. Costs of inventories are determined on a moving
weighted average. Finished goods and work-in-progress
include appropriate proportion of overheads. Net realisable
value represents the estimated selling price for inventories less
all estimated costs of completion and costs necessary to make
the sale.
Work-in-progress (WIP), finished goods, and
stock-in-trade:
Valued at lower cost and NRV. Cost of Finished goods and
WIP includes cost of raw materials, cost of conversion, and
other costs incurred in bringing the inventories to their present
location and condition.
3.12 Cash and cash equivalents
Cash and cash equivalents in the Balance Sheet comprise cash
at the bank and in hand and short-term deposits with banks
that are readily convertible into cash which is subject to an
insignificant risk of changes in value and is held for the purpose
of meeting short-term cash commitments.
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