6. Significant accounting policies
6.1- Property, Plant and Equipment & Depreciation :
Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of an asset comprises its purchase price including import duties and non-refundable purchase taxes or construction cost, any costs directly attributable to bringing the asset into the location and condition necessary for it to be capable of operating in the manner intended by management, the initial estimate of any decommissioning obligation, if any, and finance costs if any. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Assets in the course of construction are initially kept under assets under construction and are capitalized when the assets is available for use as intended by the management.
(iv) For these classes of assets, based on technical evaluation carried out by external technical experts, the Company believes that the useful lives as given above best represent the period over which Company expects to use these assets.
(v) The charge over and above the depreciation calculated on the original cost of the revalued assets are transferred from Fixed Asset Revaluation Reserve to General Reserve and shown as a deduction from Revaluation Reserve.
(vi) An item of property, plant and equipment is derecognized 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 de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the period in which the item is derecognized. Any Tangible asset, when determined to be of no further use, is deleted from the Gross Block of assets. The deleted assets are carried as ‘Assets awaiting disposal' under Inventories at lower of "Rs. 1000 or 5% of the original cost and the balance Written down Value, is charged off.
(vii) Physical verification of the fixed assets are carried out by the Company in a phased manner to cover all the items over a period of three years. The discrepancies, if any, noticed are accounted for after reconciliation of the same.
(viii) Capital work-in-progress in respect of assets which are not ready for their intended use are carried at cost, comprising of direct costs, related incidental expenses and attributable interest.
Subsequent Expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will flow to the Group.
6.2 Intangible assets
Costs of intangible assets are capitalized when the asset is ready for its intended use. Intangible assets include expenditure on computer software and technical Knowhow which are stated at the amount initially recognized less accumulated amortization and accumulated impairment losses.
Cost of computer software is amortized over the useful life not exceeding 10 years from the date of capitalization.;
Any intangible asset, when determined of no further use, is written off.
6.3 Development Expenditure:
Testing and material expense for Development are amortized within the use full life of that particular transformers . The accounting in this regards is as follows :
If transformers goes for testing as failed and a substantial expense ( if the total cost is realization value) being incurred for testing if ready for realization than the company needs to keep proper documentation for the expenses along with the supporting evidence .
In such case the expenses so incurred to be treated as R&D expense and in place of debited to Profit and Loss account it should be kept as an asset.
such amount standing in the asset side needs to be written off within use full life of the transformers
6.4 Impairment of property, plant & equipment (PPE) and intangible assets, other than goodwill.
At the end of each reporting period, the Company reviews the carrying amounts of its property, plant & equipment (including capital work in progress) to determine whether there is any indication that those assets have suffered an impairment loss. If any of such indication exists, the recoverable amount of the cash generating unit(CGU) is estimated in order to determine the extent of the impairment loss (if
any). Corporate assets and common service assets are also allocated to individual cash-generating units on a reasonable and consistent basis.
Intangible assets are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
If recoverable amount is the higher of fair value less costs of disposal and value in use. 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. If the recoverable amount of a CGU is estimated to be less than its carrying amount, the carrying amount of the asset or group of assets covered under the CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of profit and loss.
When an impairment loss subsequently reverses, the carrying amount of the asset or group of assets covered under the CGU is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment has loss been recognized for the asset or group of assets covered under the CGU in prior years. A reversal of an impairment loss is recognized immediately in the statement of profit and loss.
6.5 Revenue recognition
• Revenue from operations includes sale of goods, services and adjusted for discounts (net), and gain/ loss on corresponding hedge contracts.
• Revenue from sale of goods are measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the government and considering the warranty obligations as compliance to IND AS 115.
• Revenue from sale of goods are recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated cost can be estimated reliably, there is no continuing effective control or managerial involvement with the goods, and the amount of revenue can be measured reliably.
• Revenue from rendering of services are recognized when the performance of agreed contractual task has been completed.
• Dividend Revenue are recognised when the Company's right to receive the payment has been established.
• Insurance claims:
• Insurance claims are accounted for on the basis of claims admitted / expected to be admitted and to the extent that the amount recoverable can be measured reliably and it is reasonable to expect the ultimate collection.
6.6 Adjustment pertaining to Earlier Years:
Income/Expenditure relating to a prior period, which do not exceed 5% of the Gross Block of the Property, Plant & Equipment in each case, are treated as income/expenditure of current year.
6.7 Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
i) The Company as lessor
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.
ii) The Company as lessee
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in the statement of profit and loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company's general policy on borrowing costs.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are obtained/availed by the Company.
In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are are obtained/ availed by the Company.
6.8 Foreign currency transactions and translations
(i) In preparing the 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 the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
(ii) Exchange differences on monetary items are recognized in the statement of profit and loss in the period in which they arise except for:
(a) exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;
(b) exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), are recognized initially in other comprehensive income and reclassified from equity to the statement of profit and loss on repayment of the monetary items.
(iii) Forward Exchange Contracts not intended for trading or speculation purpose : The premium or discount arising at the inception of forward exchange contracts is amortized as expenses or income over the life of the respective contracts. Exchange differences on such contracts are recognized in the statement of profit and loss on the period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of forward exchange contract is recognized as income or expense for the year.
6.9 Borrowing costs
(i) 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 for sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use for sale and also includes exchange difference arising from Foreign Currency borrowings to the extent that they are regarded as an adjustment to interest cost.
(ii) All other borrowing costs are recognized in the statement of profit and loss in the period in which they are incurred.
6.10 Government grants
The Company may receive government grants that require compliance with certain conditions related to the Company's operating activities or are provided to the Company by way of financial assistance on the basis of certain qualifying criteria.
Government grants are recognised when there is reasonable assurance that the grant will be received, and the Company will comply with the conditions attached to the grant. Accordingly, government grants:
(a) related to or used for assets are included in the Balance Sheet as deferred income and recognized as income over the useful life of the assets.
(b) related to incurring specific expenditures are taken to the Statement of Profit and Loss on the same basis and in the same periods as the expenditures incurred.
(c) by way of financial assistance on the basis of certain qualifying criteria are recognised as they become receivable.
6.11 Employee benefits :
6.11.1 Retirement benefit costs and termination benefits:
(i) Short Term Employee Benefits:
All employee benefits payable wholly within twelve months of rendering service are classified as short term employees benefits. Benefits such as salaries, wages, short term compensated absences, etc and the expected cost of bonus, ex-gratia are recognized in the period in which the employees render the related service.
(ii) Defined Contribution Plans.
Provident Fund, Superannuation Fund/Annuity Fund and Employees State Insurance Scheme are defined contribution plans. The contribution paid/ payable under the schemes is recognized during the period in which the employees renders the related services.
(iii) Defined Benefits Plans
Gratuity on account of services gratuity is covered under Gratuity-cum-Life Assurance Scheme of Life Insurance Corporation of India. Annual premium paid for the scheme is charged to Statement of Profit and Loss
Re-measurement of the defined benefit liability and asset, comprising actuarial gains and losses, and the return on plan assets (excluding amounts included in net interest described above) are recognized in other comprehensive income in the period in which they occur and are not subsequently reclassified to the statement of profit and loss.
6.12 Taxation
Income tax expense represents the aggregate of current tax and deferred tax.
6.12.1 Current tax
Current tax is the amount of income tax payable based on taxable profit for the period. 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 and the prevailing tax laws that have been enacted or substantively enacted by the end of the reporting period.
6.12.2 Deferred tax
(i) Deferred tax is recognized on the 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 recognized
for all taxable temporary differences. Deferred tax assets are generally recognized 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 utilized.
(ii) 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 the benefits of all or part of the deferred tax asset to be utilized. Any such reduction shall be reversed to the extent that it becomes probable that sufficient taxable profit will be available.
(iii) 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.
6.12.3 Current and deferred tax for the year
Current and deferred tax are recognized in the statement of profit and loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively.
6.13. INVESTMENT PROPERTY
Investment properties are properties held to earn rentals and/or for capital appreciation (including property under construction for such purposes). The shops, flats and other properties held under operating leases to earn rentals or for capital appreciation purposes are accounted for as investment properties . Investment properties are measured initially at cost , including transaction costs. Subsequent to initial recognition the , investment properties are stated at cost less accumulated depreciation.
An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. Any gain or loss arising on de-recognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognized.
6.14 Inventories
Stock of Raw Materials, Components and stores are valued at lower of cost and net realizable value . Cost of raw material is determined on average method, excluding GST paid on purchases. Scrap is valued at estimated realisable value.
Stock of Materials-in-Process and Finished Goods are valued at lower of cost and net realizable value. Average cost excludes GST paid on inputs.
Stores and spares are valued at average cost or net realizable value whichever is lower. Physical verification of inventories is carried out by the Company to cover all the items during the year.
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