l) Provisions
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
When the Company expects some or all of a provision to be reimbursed, for example, under an
insurance contract, the reimbursement is recognised as a separate asset, but only when the
reimbursement is virtually certain. The expense relating to a provision is presented in the statement of
profit and loss net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax
rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the
increase in the provision due to the passage of time is recognised as a finance cost.
m) Retirement and other Employee Benefits
Retirement benefit in the form of provident fund is a defined contribution scheme. The Company has
no obligation, other than the contribution payable to the provident fund. The Company recognizes
contribution payable to the provident fund scheme as an expense, when an employee renders the
related service. If the contribution payable to the scheme for service received before the balance sheet
date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a
liability after deducting the contribution already paid. If the contribution already paid exceeds the
contribution due for services received before the balance sheet date, then excess is recognized as an
asset to the extent that the pre-payment will lead to, for example, a reduction in future payment or a
cash refund.
The cost of providing benefits under the defined benefit plan is determined using the projected unit
credit method.
Accumulated leave, which is expected to be utilized within the next 12 months, is treated as short¬
term employee benefit. The Company measures the expected cost of such absences as the additional
amount that it expects to pay as a result of the unused entitlement that has accumulated at the
reporting date. The Company treats accumulated leave expected to be carried forward beyond twelve
months as long-term employee benefit for measurement purpose & such long term compensated
absences are provided for based on the actuarial valuation using the projected unit credit method at
the year-end.
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding
amounts included in net interest on the net defined benefit liability and the return on plan assets
(excluding amounts included in net interest on the net defined benefit liability), are recognised
immediately in the balance sheet with a corresponding debit or credit to retained earnings through
OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in
subsequent periods.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The
Company recognizes the following changes in the net defined benefit obligation as an expense in the
statement of profit and loss: - Service costs comprising current service costs, past-service costs, gains
and losses on curtailments and non- routine settlements; and Net interest expense or income.
n) 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 other entity.
Financial Assets
Initial recognition and measurement
Financial assets and financial liabilities are recognised when the Company becomes a party to the
contractual provisions of the financial instrument and are measured initially at fair value adjusted for
transaction costs, except for those carried at fair value through profit or loss which are measured
initially at fair value. Subsequent measurement of financial assets and financial liabilities is described
below:
Subsequent measurement
For the purposes of subsequent measurement, Financial Assets are classified in four categories:
1. Debt Instruments at Amortized Cost.
2. Debt Instruments at Fair Value through other Comprehensive Income.
3. Debt Instruments and Equity instruments at Fair Value through Profit or Loss.
4. Equity Instruments measured at fair value through other Comprehensive Income.
Company doesn't have any Financial Asset from 1-4.
i. Financial assets carried at amortized cost - a financial asset is measured at the amortised
cost if both the following conditions are met:
• The asset is held within a business model whose objective is to hold assets for collecting
contractual cash flows, and
• 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 amortised
cost using the effective interest rate (EIR) method.
ii. Financial assets carried at fair value
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments
which are held for trading are generally classified as at fair value through profit and loss
(FVTPL). For all other equity instruments, the Company decides to classify the same either
as at fair value through other comprehensive income (FVOCI) or fair value through profit
and loss (FVTPL). The Company makes such election on an instrument-by-instrument basis.
The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVOCI, then all fair value
changes on the instrument, excluding dividends, are recognised in the other
comprehensive income (OCI). There is no recycling of the amounts from OCI to P&L, even
on sale of investment. However, the Company may transfer the cumulative gain or loss
within equity. Dividends on such investments are recognised in profit or loss unless the
dividend clearly represents a recovery of part of the cost of the investment.
Equity instruments included within the FVTPL category are measured at fair value with all
changes recognised in the P&L.
De-recognition of financial assets
A financial asset is primarily de-recognised when the rights to receive cash flows from the asset have
expired or the Company has transferred its rights to receive cash flows from the asset.
o) Impairment of financial assets
The Company recognizes loss allowances using the expected credit loss (ECL) model for the financial
assets which are not fair valued through profit or loss. Loss allowance for trade receivables and all
other financial assets with no significant financing component is measured at an amount equal to 12-
month ECL, unless there has been a significant increase in credit risk from initial recognition in which
case those are measured for specific assets. The amount of expected credit losses (or reversal) that is
required to adjust the loss allowance at the reporting date to the amount that is required to be
recognized is recognized as an impairment gain or loss in profit or loss.
Trade receivables
In respect of trade receivables, the Company applies the simplified approach as per Ind AS 109, which
requires measurement of loss allowance at an amount equal to lifetime expected credit losses.
Lifetime expected credit losses are the expected credit losses that result from all possible default
events over the expected life of a financial instrument.
Other financial assets
In respect of its other financial assets, the Company assesses if the credit risk on those financial assets
has increased significantly since initial recognition. If the credit risk has not increased significantly since
initial recognition, the Company measures the loss allowance at an amount equal to 12-month
expected credit losses, else at an amount equal to the lifetime expected credit losses.
When making this assessment, the Company uses the change in the risk of a default occurring over the
expected life of the financial asset. To make that assessment, the Company compares the risk of a
default occurring on the financial asset as at the balance sheet date with the risk of a default occurring
on the financial asset as at the date of initial recognition and considers reasonable and supportable
information, that is available without undue cost or effort, that is indicative of significant increases in
credit risk since initial recognition. The Company assumes that the credit risk on a financial asset has
not increased significantly since initial recognition if the financial asset is determined to have low
credit risk at the balance sheet date
Financial Liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit
or loss, loans and borrowings, payables as appropriate. All financial liabilities are recognised 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.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
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 at fair value through profit or loss. Financial
liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the
near term. Gains or losses on liabilities held for trading are recognised in the profit or loss.
Loans and borrowings
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are
recognised in profit or loss when the liabilities are derecognised as well as through the EIR
amortisation process. Amortised 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 amortisation is included as
finance costs in the statement of profit and loss.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or
expires. 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 derecognition 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 or loss.
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
p) Fair Value of financial instrument
The Company measures financial instruments at fair value in accordance with the accounting policies
mentioned above. 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.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are
categorized within the fair value hierarchy that categorizes into three levels, described as follows, the
inputs to valuation techniques used to measure value. The fair value hierarchy gives the highest
priority to quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the
lowest priority to unobservable inputs (Level 3 inputs).
- Level 1: Quoted prices for identical instruments in an active market;
- Level 2: Directly (i.e. as prices) or indirectly (i.e. derived from prices) observable market inputs,
other than Level 1 inputs; and
- Level 3: Inputs which are not based on observable market data (unobservable inputs). Fair values
are determined in whole or in part using a net asset value or valuation model based on
assumptions that are neither supported by prices from observable current market transactions in
the same instrument nor are they based on available market data.
For assets and liabilities that are recognized in the financial statements at fair value on a recurring
basis, the Company determines whether transfers have occurred between levels in the hierarchy by
re-assessing categorization at the end of each reporting period and discloses the same.
q) Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as
part of the cost of the respective asset. All other borrowing costs are expensed in the period they
occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the
borrowing of funds
A qualifying asset is one that necessarily takes substantial period of time to get ready for its intended
use. Capitalisation of borrowing costs is suspended in the period during which the active development
is delayed due to, other than temporary interruption.
r) Earnings per Share
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to
equity shareholders by the weighted average number of equities shares outstanding during the year.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year
attributable to equity shareholders and the weighted average number of shares outstanding during
the year are adjusted for the effects of all dilutive potential equity shares.
s) Cash and Cash Equivalents
Cash and cash equivalent comprise cash at banks and on hand and short-term deposits with original
maturities of three months or less that are readily convertible to known amounts of cash and which
are subject to an insignificant risk of changes in value.
t) Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision maker. The board of directors assess the financial performance and position
of the Company, and makes strategic decisions and therefore the board would be the chief operating
decision maker. The Company's primary business segment is manufacturing and trading of auto
components. Considering the nature of Company's business and operations, there is only one
reportable business segment.
u) Significant management judgement in applying accounting policies and estimation uncertainty
When preparing the financial statements management undertakes a number of judgments, estimates
and assumptions about recognition and measurement of assets, liabilities, income and expenses.
The actual results are likely to differ from the judgments, estimates and assumptions made by
management, and will seldom equal the estimated results.
Information about significant judgments, estimates and assumptions that have the most significant
effect on recognition and measurement of assets, liabilities, income and expenses are discussed
below:
Significant management judgements
Contingent Liabilities - The Company is the subject of certain legal proceedings which are pending in
various jurisdictions. Due to the uncertainty inherent in such matters, it is difficult to predict the final
outcome of such matters. The cases and claims against the Company often raise difficult and complex
factual and legal issues, which are subject to many uncertainties, including but not limited to the facts
and circumstances of each particular case and claim, the jurisdiction and the differences in applicable
law. In the normal course of business, management consults with legal counsel and certain other
experts on matters related to litigation and taxes. The Company accrues a liability when it is
determined that an adverse outcome is probable and the amount of the loss can be reasonably
estimated.
Significant estimation uncertainties
Recoverability of advances/receivables - At each balance sheet date, based on historical default rates
observed over expected life, the management assesses the expected credit loss on outstanding
receivables and advances.
Useful lives of depreciable/amortisable assets - Management reviews its estimate of the useful lives
of depreciable/amortisable assets at each reporting date, based on the expected utility of the assets.
Uncertainties in these estimates relate to technical and economic obsolescence that may change the
utility of certain software, customer relationships, IT equipment and other plant and equipment.
Defined benefit obligation (DBO) - Management's estimate of the DBO is based on a number of
underlying assumptions such as standard rates of inflation, mortality, discount rate and anticipation of
future salary increases. Variation in these assumptions may significantly impact the DBO amount and the
annual defined benefit expenses.
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