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) 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 recognised
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 summarises accounting policy for fair
value. Other fair value related disclosures are
given in the relevant notes to the standalone
financial statements.
(c) 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. 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 recognised 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
recognised 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 recognised
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
recognised 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 (p)
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.
(d) 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.
(e) 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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