2.2 Summary of material accounting policies
This note provides a list of the material accounting policies
adopted in the preparation of these standalone financial
statements. These policies have been consistently applied
for all the years presented, unless otherwise stated.
(a) Current vs non-current classification
The Company presents assets and liabilities in
the balance sheet based on current/ non-current
classification. An asset is treated 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.
The Company classifies all other assets as non-current.
A liability is 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.
The Company classifies all other liabilities as non¬
current.
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
realisation in cash and cash equivalents. The Company
has identified twelve months as its operating cycle.
(b) Significant accounting judgements, estimates and
assumptions
Significant accounting judgements, estimates
and assumptions identified by the management is
mentioned in Note 31 of this standalone financial
statements
(c) Fair value measurement
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. The fair value measurement is
based on the presumption that the transaction to sell
the asset or transfer the liability takes place either:
- In the principal market for the asset or liability; or
- In the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must
be accessible by the Company. The fair value of an
asset or a liability is measured using the assumptions
that market participants would use when pricing the
asset or liability, assuming that market participants act
in their economic best interest.
A fair value measurement of a non-financial asset
takes into account a market participant's ability to
generate economic benefits by using the asset in its
highest and best use of selling it to another market
participant that would use the asset in its highest and
best use.
The Company uses valuation techniques that are
appropriate under the circumstances and for which
sufficient data are available to measure fair value,
maximising the use of relevant observable inputs and
minimising the use of unobservable inputs.
All assets and liabilities for which fair value is
measured or disclosed in the standalone financial
statements are categorised 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:
- Level 1- Quoted (unadjusted) market price in
active markets for identical assets or liabilities.
- Level 2 - Valuation techniques for which the
lowest level input that is significant to the fair
value measurement is directly or indirectly
observable.
- Level 3 - Valuation techniques for which the
lowest level input that is significant to the fair
value measurement is unobservable.
For assets and liabilities that are recognized in the
standalone financial statements on a recurring
basis, the Company determines whether transfers
have occurred between levels in the hierarchy by re¬
assessing categorisation (based on the lowest level
input that is significant to the fair value measurement
as a whole) at the end of each reporting period.
The Company's management determines the
policies and procedures for both recurring fair value
measurement, such as investments and deposits
measured at fair value, and for non-recurring
measurement.
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.
This note summarizes accounting policy for fair value.
Other fair value related disclosures are given in the
relevant notes to the standalone financial statements.
(d) Revenue recognition(i) Revenue from contracts with customers
Revenue from contracts with customers is recognised
when control of the goods or services are transferred
to the customer at an amount that reflects the
consideration to which the Company expects to be
entitled in exchange for those goods or services.
The Company has generally concluded that it is
the principal in its revenue arrangements, because
it typically controls the goods or services before
transferring them to the customer.
Goods and Services Tax (GST) is the tax collected on
the commodities sold by the Company on behalf of the
government, accordingly, it is excluded from revenue.
Revenue recognised by the Company is net of price
revision and claims. The specific revenue recognition
criteria described below, must also be met before
revenue is recognised.
a. Sale of products / goods
Revenue from sale of goods is recognised
when control of the goods is transferred to the
Customers. The normal credit term is in the range
of 15 to 90 days upon delivery except for some
customers who are on advance payment term.
Revenue from the sale of goods is measured
at the transaction price, net of returns and
allowances, trade discounts and volume rebates.
The Company considers whether there are
other promises in the contract that are separate
performance obligations to which a portion of
the transaction price needs to be allocated (e.g.,
warranties). In determining the transaction price
for the sale of goods, the Company considers the
effects of variable consideration, the existence
of significant financing components, non-cash
consideration, and consideration payable to the
customer (if any).
Variable consideration
If the consideration in a contract includes a
variable amount, the Company estimates the
amount of consideration to which it will be
entitled in exchange for transferring the goods
to the customer. The variable consideration is
estimated at contract inception and constrained
until it is highly probable that a significant
revenue reversal in the amount of cumulative
revenue recognised will not occur when
the associated uncertainty with the variable
consideration is subsequently resolved.
Volume rebates / discounts
Arrangements with most Original Equipment
Manufacturer ('OEM') customers include a
provision for volume rebates / discounts. In those
instances where there is a valid expectation from
the customers to receive a discount, the amount
of variable consideration which is included in
the transaction price may be constrained, and is
included in the net sales price only to the extent
that it is probable that a significant reversal in the
amount of the cumulative revenue recognized
under the arrangement will not occur in a future
period. The Company applies the most likely
amount method for determining the discount.
b. Revenue from sale / rendering of services- Revenue from software services
Revenue from sale of services is recognized
as and when related costs are incurred and
services are performed in accordance with
the terms of specific contracts.
- Revenue from research and development
services
Revenue relating to research & development
services are recognized on a fixed hourly
basis when the services are rendered.
- Revenue from business support services
and other service income
Revenue from sale of services is recognized
as related costs are incurred and services
are performed in accordance with the
terms of specific contracts. Revenue from
test track usage income is recognised as
and when the services are performed in
accordance with contractual terms.
Contract balances
Contract assets
A contract asset is the right to consideration
in exchange for goods or services transferred
to the customer. If the Company performs by
transferring goods or services to a customer
before the customer pays consideration or before
payment is due, a contract asset is recognised
for the earned consideration for work completed
but not billed as the billing is conditional upon
completion of another milestone.
Trade receivables
A receivable represents the Company's right to
an amount of consideration that is unconditional
(i.e., only the passage of time is required before
payment of the consideration is due). Refer to
accounting policies of financial assets in section
(q) financial instruments - initial recognition and
subsequent measurement.
Contract liabilities
A contract liability is the obligation to transfer
goods or services to a customer for which
the Company has received consideration (or
an amount of consideration is due) from the
customer. If a customer pays consideration
before the Company transfers goods or services
to the customer, a contract liability is recognised
when the payment is made or the payment is
due (whichever is earlier). Contract liabilities
are recognised as revenue when the Company
performs under the contract.
(ii) Interest income
Interest income or expense is recognised using the
effective interest method.
The 'effective interest rate' is the rate that exactly
discounts estimated future cash payments or receipts
through the expected life of the financial instrument to:
- the gross carrying amount of the financial asset;
or
- the amortised cost of the financial liability.
In calculating interest income and expense, the
effective interest rate is applied to the gross carrying
amount of the asset (when the asset is not credit-
impaired) or to the amortised cost of the liability.
However, for financial assets that have become credit-
impaired subsequent to initial recognition, interest
income is calculated by applying the effective interest
rate to the amortised cost of the financial asset. If the
asset is no longer credit-impaired, then the calculation
of interest income reverts to the gross basis.
(e) Foreign currency transactions and balances
The Company's standalone financial statements are
presented in INR which is also the functional currency
of the Company. Transactions in foreign currencies
are initially recorded in the functional currency using
the spot rates at the date the transaction first qualifies
for recognition. However, for practical reasons, the
Company uses an average rate if the rate approximates
the actual rate at the date of the transaction. 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 item
are recognised in standalone statement of profit or
loss.
(f) Inventories
Inventories are valued at the lower of cost and net
realisable value. Cost includes cost incurred in
bringing each product to its present location, condition
and are accounted for as follows:
Raw materials: Cost includes cost of purchase and
other costs incurred in bringing the inventories to their
present location and condition. Cost is determined on
weighted average basis.
Finished goods and work-in-progress: Cost
includes cost of direct materials, direct labour and an
appropriate proportion of variable and fixed overhead
expenditure, the latter being allocated on the basis of
normal operating capacity, but excluding borrowing
costs.
Stores and spare parts: Cost includes cost of
purchase and other costs incurred in bringing the
inventories to their present location and condition.
Cost is determined on weighted average basis.
Net realisable value is the estimated selling price in
the ordinary course of business, less estimated costs
of completion and the estimated costs necessary to
make the sale.
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