3. Summary of “Material Accounting Policies” (Material accounting policy information) related to preparation of the standalone financial statements are;
3.1 Revenue recognition:
Revenue is recognized to the extent that it is probable that the economic benefits will flow to
the company and the revenue can be reliably measured. Revenue is measured at the transaction price (net of variable consideration) allocated to the performance obligations. The transaction price of goods sold, and services rendered is net of variable consideration on account of various discounts and schemes offered by the Company as part of the contract. Amounts disclosed as revenue are inclusive of excise and duties, if any, but exclusive of Goods and Service tax (GST), which the company pays as principal and net of returns, trade allowances, rebates, and taxes collected on behalf of the government.
The Company earns revenue primarily from sale of “Aluminium fluoride”. Revenue is recognized as and when the entity satisfies a performance obligation by transferring a promised goods or services and upon transfer of control of promised products or services to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those products or services.
Other income is comprised primarily of interest income, dividend income, gain/loss on investments.
• Interest income is recognized using the effective interest method.
• Dividend income is recognized when the right to receive payment is established.
Contract asset and contract liability
> Contract assets are recognized when there is excess of revenue earned over billings on contracts. “Contract assets” the company classifies as unbilled receivables (only act of invoicing is pending) when there is unconditional right to receive cash, and only passage of time is required, as per contractual terms.
> Advances received from customers (“contract liability”) is recognized when there is billings or receipts in excess of revenues.
Incremental costs of obtaining a contract are recognized as assets and amortized over the term of the contract.
The company accounts for volume discounts and pricing incentives to customers as a reduction of revenue based on the ratable allocation of the
discounts/incentives to each of the underlying performance obligation that corresponds to the progress by the customer towards earning the discount/incentive. If it is probable that the criteria for the discount will not be met, or if the amount thereof cannot be estimated reliably, then discount is not recognized until the payment is probable and the amount can be estimated reliably. The company recognizes changes in the estimated amount of obligations for discounts in the period in which the change occurs.
The Company disaggregates revenue from contracts with customers by industry verticals, geography and nature of services.
3.2 Property, Plant and Equipment:
All other items of property, plant and equipment are stated at historical cost less accumulated depreciation and impairment loss, if any. Historical cost includes all costs directly attributable to bringing the asset to the location and condition necessary for its intended use. Subsequent costs relating to property, plant and equipment is capitalized only when it is probable that future economic benefits associated with these will flow to the company and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognized when replaced.
Expenditure during construction/erection period is included under Capital Work-in-Progress and allocated to the respective fixed assets on completion of construction/erection.
Depreciation and Amortization
Property, Plant and Equipment are componentized and are depreciated separately over their estimated useful lives as prescribed under Part C of Schedule II of the Companies Act, 2013.
Depreciation on all the assets is charged under straight line method. The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate. Scrap value is taken as 5% of the cost of the asset for calculation of depreciation.
De-recognition of assets
An item of property, plant and equipment and any significant part initially recognized is derecognized
upon disposal or when no future economic benefits are expected from its use or disposal. 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 asset) is included in the income statement when the asset is de-recognized.
3.3 Inventories:
Inventories are valued at the lower of the cost (net of eligible input tax credits) or net realisable value (except by-products, waste and scrap which are valued at estimated net realisable value). Costs incurred in bringing each product to its present location and condition is 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 FIFO basis.
• Finished goods and work in progress: Cost includes cost of direct materials and labour and a proportion of manufacturing overheads based on the normal operating capacity, but excluding borrowing costs. Cost is determined on weighted average basis.
• Stores and spares: 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.
• Stock of banked Solar power Units are valued at cost or net realizable value whichever is lower.
Net realizable 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.
In the opinion of the management, no value is attributable to Silica and the same is considered as a process waste and has no guaranteed market value (net realisable value), except for the quantities which are disposed off to parties with irregular quantities and prices. The excess Silica is disposed off and corresponding expenditure is charged to Profit & loss.
3.4 Non-Derivative Financial Instruments:
The Financial assets and financial liabilities are recognised when the Company becomes a party
to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Company recognizes financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument.
A. Financial Assets
3.4.1 Initial Recognition:
All financial assets are recognized at fair value on initial recognition, except for trade receivables which are initially measured at transaction price. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities, which are not at fair value through profit or loss, are added/ deducted to/from the fair value on initial recognition. Regular purchase and sale of financial assets are accounted for on trade date.
3.4.2 Subsequent measurement:
For purposes of subsequent measurement, financial assets are classified in four categories:
> Financial assets at amortized cost.
> Financial assets measured at fair value through other comprehensive income (FVTOCI).
> Financial assets at fair value through profit or loss (FVTPL).
I. Financial assets at amortized cost
A financial instrument is subsequently measured at amortized cost if it is
a. Held within a business model whose objective is to hold the asset in order to collect contractual cash flows and
b. The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized 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 amortization of EIR is included in finance income in the profit or loss. The impairment losses and gain/loss on de-recognition are recognized in the profit or loss.
II. Equity assets measured at fair value through other comprehensive income.
Financial asset is measured at FVTOCI if both of the following conditions are met:
a. The Company’s business model objective for managing the financial asset is achieved both by collecting contractual cash flows and selling the financial assets, and
b. The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
The Company has made an irrevocable election to present the subsequent fair value changes in ‘other comprehensive income’ for its investments in equity instruments that are not held for trading. Fair value changes on the instrument, impairment losses & reversals and foreign exchange gain or loss are recognized in the OCI. Dividends are recognized in the Profit &Loss.
III. Financial assets at fair value through profit or loss
Any financial instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL (residual category).
Financial instruments included within the FVTPL category are measured at fair value with all changes recognized in the P&L.
3.4.3 Reclassification of financial assets;
The company reclassifies its financial assets only when there is a change in entity’s business model for managing its financial assets.
3.4.4 De-recognition:
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar
financial assets) is derecognized (i.e. removed from the Company’s Balance Sheet) when any of the following occurs:
a. The contractual rights to cash flows from the financial asset expires;
b. The Company transfers its contractual rights to receive cash flows of the financial asset and has substantially transferred all the risks and rewards of ownership of the financial asset;
c. The Company retains the contractual rights to receive cash flows but assumes a contractual obligation to pay the cash flows without material delay to one or more recipients under a ‘pass-through’ arrangement (thereby substantially transferring all the risks and rewards of ownership of the financial asset);
d. The Company neither transfers nor retains substantially all risk and rewards of ownership and does not retain control over the financial asset.
In cases where Company has neither transferred nor retained substantially all of the risks and rewards of the financial asset, but retains control of the financial asset, the Company continues to recognize such financial asset to the extent of its continuing involvement in the financial asset. In that case, the Company also recognizes an associated liability.
The financial asset and the associated liability are measured on the basis that reflects the rights and obligations that the Company has retained control.
On de-recognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss if such gain or loss would have otherwise been recognised in profit or loss on disposal of that financial asset.
3.4.5 Impairment of financial assets:
The Company applies expected credit losses (ECL) model for measurement and recognition of loss allowance on the following:
a. Trade receivables
b. Financial assets measured at amortized cost (other than trade receivables)
c. Financial assets measured at fair value through other comprehensive income (FVTOCI)
In case of trade receivables, the Company follows a simplified approach wherein an amount equal to lifetime ECL is measured and recognized as loss allowance.
In case of other assets, the Company determines if there has been a significant increase in credit risk of the financial asset since initial recognition. If the credit risk of such assets has not increased significantly, an amount equal to 12-month ECL is measured and recognized as loss allowance. However, if credit risk has increased significantly, an amount equal to lifetime ECL is measured and recognized as loss allowance.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original effective interest rate.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/expense in the Statement of Profit and Loss under the head ‘Other expenses’.
B. Financial liabilities and equity instruments:
Debt and equity instruments issued by a Company entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
i. Equity instruments: -
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a Company entity are recognised at the proceeds received net of direct issue costs.
ii. Financial Liabilities: -
a. Initial recognition and measurement:
Financial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. Financial liabilities are initially measured at fair value.
b. Subsequent measurement:
Financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Financial liabilities carried at fair value through profit or loss are measured at fair value with all changes in fair value recognised in the Statement of Profit and Loss.
c. De-recognition of financial liabilities:
A financial liability is derecognized 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 De-recognition of the original liability and the recognition of a new liability. The difference between the carrying amount of the financial liability derecognized and the consideration paid is recognized in the Statement of Profit and Loss.
C. Offsetting of financial instruments: -
Financial assets and financial liabilities can be offset and the net amount can be reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention either to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
3.5 Leases:
The accounting policy adopted for lease are given below; When company is a lessee.
The Company’s lease asset classes primarily consist of leases for land and buildings. The Company assesses whether a contract contains a lease, at inception of a contract. 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. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether;
(i) The contract involves the use of an identified asset.
(ii) The Company has substantially all of the economic benefits from use of the asset through the period of the lease and
(iii) The Company has the right to direct the use of the asset.
At the date of commencement of the lease, the Company recognizes a right-of-use asset (“ROU”) and a corresponding lease liability for all lease arrangements in which it is a lessee. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or company’s incremental borrowing rate, if that implicit rate cannot be readily determined. Generally, the company uses its incremental borrowing rate as the discount rate.
Lease payments compromises of the following for determination lease liability:
> Fixed payments, including in-substance fixed payments.
> Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date.
> Amounts expected to be payable under a residual value guarantee; and
> The exercise price under a purchase option that the company is reasonably certain to exercise, lease payments in an optional renewal period if the company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the company is reasonably certain not to terminate early.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the company’s estimate of the amount expected to be payable under a residual value guarantee, or if company changes its assessment of whether it will exercise a
purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
When company is a lessor
Leases for which the Company is a lessor is classified as a finance or operating lease. Whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease. All other leases are classified as operating leases.
When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sublease separately. The sublease is classified as a finance or operating lease by reference to the right-of-use asset arising from the head lease.
For operating leases, rental income is recognized on a straight-line basis over the term of the leases.
Short-term leases and leases of low-value assets
The company has elected not to recognize right-of-use assets and lease liabilities for short term leases of real estate properties that have a lease term of 12 months. The company recognizes the lease payments associated with these leases as operating expenses on a straight-line basis over the lease term.
3.6 Employee Benefits include:
i. Short term employee benefits-
Liabilities for wages and salaries, including non-monetary benefits that are expected to be settled wholly within 12 months after the end of the period in which the employees render the related service are recognised in respect of employees’ services up to the end of the reporting period and are measured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee benefit obligations in the balance sheet.
The company recognizes a liability and an expense for bonus only when it has a present legal or constructive obligation to make such payments as a result of past events and a reliable estimate of obligation can be made.
(ii) Long term employee benefits-
Liabilities for earned leave and sick leave are not expected to be settled wholly within 12 months after the end of the period in which the employees render the related service. They are therefore measured at the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. The benefits are discounted using the market yields at the end of the reporting period that have terms approximating to the terms of the related obligation. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss.
The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur.
(iii) Post-employment benefits-
The company operates the following postemployment schemes:
a) Defined benefit plans such as gratuity: and
b) Defined contribution plans such as provident and pension funds.
a) Defined Benefit Plans - The liability or asset recognised in the balance sheet in respect of defined benefit gratuity plan is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by actuaries using the projected unit credit method. Re-measurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income.
b) Defined Contribution Plans- The Company pays provident fund contributions to publicly administered provident funds as per local regulations. It has no further payment obligations once the contributions have been paid. The contributions are accounted for as defined contribution plans and the contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
3.7 Foreign currency Transactions:
A. Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currency year end exchange rates are generally recognised in profit or loss. They are deferred in equity if they relate to qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation.
Foreign exchange differences regarded as an adjustment to borrowing costs are presented in the statement of profit and loss, as finance costs. All other foreign exchange gains and losses are presented in the statement of profit and loss.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. For example, translation differences on non-monetary assets and liabilities such as equity instruments held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss and translation differences on non-monetary assets such as equity investments classified as FVOCI are recognised in other comprehensive income.
B. investment in wholly owned foreign subsidiaries are classified as non-integral foreign operations and exchange differences relates to investment are transferred to foreign Currency Translation Reserve.
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