B. SIGNIFICANT ACCOUNTING POLICIES
1. Statement of Compliance
The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) notified
under the Section 133 of the Companies Act, 2013 (the Act) read with the Companies (Indian Accounting
Standards) Rules, 2015 and other relevant provisions of the Act. In addition, the guidance notes/announcements
issued by the Institute of Chartered Accountants of India (ICAI) are also applied except where compliance with
other statutory promulgations require a different treatment.
2. Basis of Preparation
The financial statements have been prepared on the historical cost convention on accrual basis except for
following assets and liabilities which have been measured at fair value amount:
i) Certain financial assets and liabilities (including derivative instruments),
ii) Defined benefit plans - plan assets
Historical cost is generally based on the fair value of the consideration given in exchange of goods or
services.
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, regardless of whether that price is
directly observable or estimated using another valuation technique.
3. Operating Cycle for Current and Non-Current Classification
The Company presents assets and liabilities in the Balance Sheet based on current/non-current classification.
An asset is classified as current when it is:
a) expected to be realised or intended to be sold or consumed in the normal operating cycle,
b) held primarily for the purpose of trading,
c) expected to be realised within twelve months after the reporting period, or
d) cash or cash equivalents unless restricted from being exchanged or used to settle a liability for at least
twelve months after the reporting period.
All other assets are classified as non-current.
A liability is classified as current when:
a) it is expected to be settled in the normal operating cycle,
b) it is held primarily for the purpose of trading,
c) it is due to be settled within twelve months after the reporting period, or
d) there is no unconditional right to defer settlement of the liability for at least twelve months after the
reporting period.
All other liabilities are classified as non-current.
The operating cycle of the Company, that is, the time between the acquisition of assets for
processing and their realisation in cash or cash equivalent is 12 months.
Deferred tax assets and liabilities are classified as non-current.
4. Company's financial statements are presented in Indian Rupees, which is also its functional currency.
5. Critical estimate and Judgements
The preparation of financial statements in conformity with Ind AS requires management to make judgements, estimates
and assumptions that affect the application of the accounting policies and the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the year. Actual results could differ from those estimates. The estimates and underlying
assumptions are reviewed on an ongoing basis.
The areas involving critical estimates or judgements are:
• Employee benefits (estimation of defined benefit obligation)
Post-employment benefits represent obligations that will be settled in the future and require assumptions to project
benefit obligations. Post-employment benefit accounting is intended to reflect the recognition of future benefit costs
over the employee's approximate service period, based on the terms of the plans and the investment and funding
decisions made. The accounting requires the Company to make assumptions regarding variables such as discount rate
and salary growth rate. Changes in these key assumptions can have a significant impact on the defined benefit
obligations.
• Estimation of expected useful lives of property, plant and equipment.
Management reviews its estimate of the useful lives of property, plant and equipment 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 property, plant and equipment.
• Contingencies
Legal proceedings covering a range of matters are pending against the Company. Due to the uncertainty inherent in such
matters, it is often difficult to predict the final outcome. The cases and claims against the Company often raise difficult
and complex factual and legal issues that are subject to many uncertainties and complexities, including but not limited to
the facts and circumstances of each particular case/claim, the jurisdiction and the differences in applicable law. In the
normal course of business, the Company consults with legal counsel and other experts on matters related to litigations.
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. In the event an adverse outcome is possible or an estimate is not determinable, the matter
is disclosed.
• Valuation of deferred tax assets
Deferred income tax expense is calculated based on the differences between the carrying value of assets and liabilities for
financial reporting purposes and their respective tax bases that are considered temporary in nature. Valuation of
deferred tax assets is dependent on management's assessment of future recoverability of the deferred benefit. Expected
recoverability may result from expected taxable income in the future, planned transactions or planned optimising
measures. Economic conditions may change and lead to a different conclusion regarding recoverability.
• Fair value measurements
When the fair values of financial assets and financial liabilities recorded in the Balance Sheet cannot be measured based
on quoted prices in active markets, their fair values are measured using valuation techniques, including market multiples
model (Market Approach) and Capitalisation method (Income Approach) which involve various judgements and
assumptions.
• Impairment of Property, plant and equipment, Right-of-use assets, intangible assets (other than goodwill) and
Capital work-in-progress
The Company estimates the value in use of the cash generating unit (CGU) based on future cash flows after considering
current economic conditions and trends, estimated future operating results and growth rates and anticipated future
economic and regulatory conditions. The estimated cash flows are developed using internal forecasts. The cash flows are
discounted using a suitable discount rate in order to calculate the present value.
For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets.
Revisions to accounting estimates are recognised prospectively in the period in which the estimate is revised if the
revision affects only that period; they are recognised in the period of the revision and future periods if the revision affects
both current and future periods.
6. Property, plant and equipment (PPE)
Property, plant and equipment are stated at cost, net of recoverable taxes, trade discount and rebates less accumulated
depreciation and impairment losses, if any. For this purpose, cost includes deemed cost which represent the carrying
value of property, plant and equipment recognised at 1st April 2016 measured as per the previous GAAP. Such cost
includes purchase price, borrowing cost and any cost directly attributable to bringing the assets to its working condition
for its intended use, net charges on foreign exchange contracts and adjustments arising from exchange rate variations
attributable to the assets.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when
it is probable that future economic benefits associated with the item will flow to the entity and the cost can be measured
reliably.
Assets are classified to the appropriate categories of property, plant and equipment when completed and ready for
intended use.
Expenses incurred relating to project, including borrowing cost and net of income earned during the project
development stage prior to its intended use, are considered as pre - operative expenses and disclosed under Capital Work
-in-Progress.
Spare parts are capitalized when they meet the definition of PPE, i.e., when the Company intends to use these during
more than a period of 12 months.
7. Investment property
Property that is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the
Company, is classified as investment property. Property, plant and equipment are stated at cost, net of recoverable taxes,
trade discount and rebates less accumulated depreciation and impairment losses, if any. For this purpose, cost includes
deemed cost which represent the carrying value of property, plant and equipment recognised at 1st April 2016 measured
as per the previous GAAP. Such cost includes purchase price, borrowing cost and any cost directly attributable to bringing
the assets to its working condition for its intended use, net charges on foreign exchange contracts and adjustments
arising from exchange rate variations attributable to the assets.
An item of property, plant and equipment or any significant part initially recognised of such item of property plant and
equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any
gain or loss arising on derecognition 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 derecognised.
8. Depreciation
Depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated residual
value. Depreciation has been provided on such cost of assets less their residual values on straight line method on the basis
of estimated useful life of assets as prescribed in Schedule II of the Act.
Estimated useful lives of the property, plant and equipment as estimated by the management is the same as prescribed in
Schedule II and the same are as follows:
Factory buildings -30years
Plant and equipments -15 years
Furniture and fixtures -8 to 10 years
Computers (included under plant and equipments) - 3 years
Office equipments - 5 years
Electric Installation 8> Fittings -15 years
Vehicles - 8 to 10 years
Freehold land is not depreciated/amortised.
Assets held under financial leases are depreciated over their expected useful lives on the same basis as owned assets or,
wherever shorter, the term of relevant lease.
Depreciation is calculated on a pro rata basis except that, assets costing upto Rs. 5,000 each are fully depreciated in the
year of purchase.
The estimated useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial
year end and adjusted prospectively, if appropriate.
9. Intangible Assets
Intangible Assets are stated at cost of acquisition net of recoverable taxes, trade discount and rebates less accumulated
amortisation/depletion and impairment loss, if any. Such cost includes purchase price, borrowing costs, and any cost
directly attributable to bringing the asset to its working condition for the intended use, net charges on foreign exchange
contracts and adjustments arising from exchange rate variations attributable to the intangible assets.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated with the item will flow to the entity and the cost can be
measured reliably.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated
impairment losses, if any.
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal
proceeds and the carrying amount of the asset and are recognised in the Statement of Profit and Loss when the asset is
derecognised.
Intangible assets being computer software is amortised on straight line method over the period of five years.
The Company has elected to continue with the carrying value of all of its intangibles assets recognised as on April 1,2016
measured as per the previous GAAP and use that carrying value as its deemed cost as of transition date.
The amortisation period and the amortisation method for an intangible asset are reviewed at least at the end of each
reporting period and adjusted prospectively, if appropriate.
The amortisation expense on intangible assets is recognised in the statement of profit and loss unless such expenditure
forms part of carrying value of another asset.
10. Impairment of tangible and intangible assets otherthan goodwill
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any
indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset's
recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's (CGU) fair value
less costs of disposal and its value in use.
Impairment loss is recognized when the carrying amount of an asset exceeds recoverable amount.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication
that previously recognized impairment losses no longer exist or have decreased.
If such indication exists, the Company estimates the asset's or CGU's recoverable amount. A previously recognised
impairment loss is reversed. The reversal is limited so that the carrying amount of the asset does not exceed its
recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years.
11. Leases
Company as a Lessee
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 define period of time in exchange for
consideration. To assess whether a contract conveys the right to control the use of an identified assets, the Company
assesses whether: (i) the contact 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.
As a lessee. The Company recognises a right of use asset and a lease liability at the lease commencement date. The right
of use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any
lease incentives received.
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, if that rate cannot be readily determined, the Company's
incremental borrowing rate. For leases with reasonably similar characteristics, the Company, on a lease by lease basis,
may adopt either the incremental borrowing rate specific to the lease or the incremental borrowing rate for the portfolio
as a whole.
Lease payments included in the measurement of the lease liability comprise the fixed payments, including in-substance
fixed payments and lease payments in an optional renewal period if the Company is reasonably certain to exercise an
extension option;
The lease liability is measured at amortised cost using the effective interest method.
The Company has elected not to recognise right of use assets and lease liabilities for short-term leases that have a lease
term of 12 months or less and leases of low-value assets. The Company recognises the lease payments associated with
these leases as an expense on a straight-line basis over the lease term. The Company applied a single discount rate to a
portfolio of leases of similar assets in similar economic environment with a similar end date.
Company as a Lessor
Leases in which the Company does not transfer substantially all the risks and rewards of ownership of an asset are
classified as operating leases. Where the Company is a lessor under an operating lease, the asset is capitalised within
property, plant and equipment and depreciated over its useful economic life. Payments received under operating leases
are recognised in the Statement of Profit and Loss on a straight-line basis over the term of the lease.
12. Inventories
Inventories are valued at cost or net realisable value, whichever is lower. The basis of determining the cost for various
categories of inventory are as follows:
(a) Raw materials. Chemicals, Components, stores & spares and Stock in Trade - Cost includes cost of purchase (Net of
recoverable taxes) and other costs incurred in bringing the inventories to their present location and condition. Cost
is determined on FIFO basis.
(b) Stock in process and finished goods- Direct cost plus appropriate share of overheads.
(c) Saleable Scrap/Waste/By products - At estimated realisable value.
(d) Import Entitlement / Licences-At estimated realisable/Utilisation value
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.
13. Foreign Currencies
a) Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic environment
in which the entity operates ('the functional currency'). The financial statements are presented in Indian Rupee
(IN R/Rupees), which is the Company's functional and presentation currency.
b) Transaction and Balances
Transactions in foreign currencies are recorded on initial recognition at the exchange rate prevailing on the date of
the transaction.
Any gains or losses arising due to differences in exchange rates at the time of translation or settlement are
accounted for in the Statement of Profit & Loss either under the head foreign exchange fluctuation or interest cost,
as the case may be, except those relating to long-term foreign currency monetary items.
14. Investment in Subsidiaries and Associates
Investment in associates and other related parties are carried at cost less accumulated impairment, if any.
15. 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 which can be accessed by the Company for
the asset or liability.
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.
The Company uses valuation techniques that are appropriate in 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 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 prices 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
Ý 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 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.
16. Financial Assets
Initial recognition and measurement
All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value
through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of
financial assets that require delivery of assets within a time frame established by regulation or convention in the market
place (regular way trades) are recognised on the trade date, i.e., the date that the Company commits to purchase or sell
the asset.
Subsequent measurement
Subsequent measurement is determined with reference to the classification of the respective financial assets. Based on
the business model for managing the financial assets and the contractual cash flow characteristics of the financial asset,
the Company classifies financial assets as subsequently measured at amortised cost, fair value through other
comprehensive income or fair value through profit and loss.
Debt instruments at amortised cost
Debt instruments such as trade and other receivables, security deposits and loans given are 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. 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 in finance income in the profit or loss. The losses
arising from impairment are recognised in the profit or loss.
Debt instruments at Fair value through Other Comprehensive Income (FVOCI)
A 'debt instrument' is classified as at the FVTOCI if both of the following criteria are met:
• The objective of the business model is achieved both by collecting contractual cash flows and selling the financial
assets, and
• The asset's contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at fair
value. Fair value movements are recognized in the other comprehensive income (OCI).
Debt instruments at Fair value through Profit or Loss (FVTPL)
FVTPL is a residual category for debt instruments excluding investments in subsidiary and associate companies. Any debt
instrument, which does not meet the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
After initial measurement, any fair value changes including any interest income, foreign exchange gain and losses,
impairment losses and other net gains and losses are recognised in the Statement of Profit and Loss.
De-recognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily
derecognised (i.e. removed from the Company's Balance Sheet) 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 or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either:
• The Company has transferred substantially all the risks and rewards of the asset, or
• The Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the asset.
On de-recognition, any gains or losses on all debt instruments (other than debt instruments measured at FVOCI) and
equity instruments (measured at FVTPL) are recognised in the Statement of Profit and Loss. Gains and losses in respect of
debt instruments measured at FVOCI and that are accumulated in OCI are reclassified to profit or loss on de-recognition.
Gains or losses on equity instruments measured at FVOCI that are recognised and accumulated in OCI are not reclassified
to profit or loss on de-recognition.
17. Impairment of financial assets
The Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the
following financial assets and credit risk exposure:
a) Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities,
deposits, trade receivables and bank balance.
b) Financial assets measured at fair value through other comprehensive income.
In case of other assets (listed as a) above), 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.
18. Financial Liabilities
Initial recognition and measurement
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 including bank overdrafts, and
derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial Liabilities at Fair Value through Profit or Loss (FVTPL)
Financial liabilities at fair value through profit or loss include financial liabilities designated upon initial recognition as at
fair value through profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date
of recognition, and only if the criteria in Ind-AS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/ losses
attributable to changes in own credit risk is recognized in OCI. These gains/ losses are not subsequently transferred to
profit or loss. However, the company may transfer the cumulative gain or loss within equity. All other changes in fair value
of such liability are recognised in the statement of profit or loss.
Financial Liabilities at amortised cost
Financial liabilities classified and measured at amortised cost such as loans and borrowings are initially recognized at fair
value, net of transaction cost incurred. After initial recognition, financial liabilities are subsequently measured at
amortised cost using the Effective interest rate (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 de-recognition 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.
19. Derivative financial instruments
The Company uses derivative financial instruments to manage the commodity price risk and exposure on account of
fluctuation in interest rate and foreign exchange rates. Such derivative financial instruments are initially recognized at
fair value on the date on which a derivative contract is entered into and are subsequently measured at fair value with
changes being recognized in Statement of Profit and Loss. Derivatives are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of derivatives are taken through profit and loss.
20. Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently
measured at amortised cost. Any differences between the proceeds (net of transaction costs) and the redemption
amount is recognised in Profit or loss over the period of the borrowing using the effective interest method. Fees paid on
the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that
some or all of the facilities will be drawn down. In this case, the fee is deferred until the drawdown occurs.
The borrowings are removed from the Balance sheet when the obligation specified in the contract is discharged,
cancelled or expired. The difference between the carrying amount of the financial liability that has been extinguished or
transferred to another party and the consideration paid including any noncash asset transferred or liabilities assumed, is
recognised in profit or loss as other gains/(losses).
Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the
liability of at least 12 months after the reporting period. Where there is a breach of a material provision of a long-term
loan arrangement on or before the end of the reporting period with the effect that the liability becomes payable on
demand on the reporting date, the entity does not classify the liability as current, if the lender agreed, after the reporting
period and before the approval of the financial statement for issue, not to demand payment as a consequence of the
breach.
21. Borrowing costs
Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
Borrowing costs, allocated to and utilised for qualifying assets, pertaining to the period from commencement of
activities relating to construction/development of the qualifying asset upto the date of capitalisation of such asset is
added to the cost of the assets.
Interest income earned on temporary investment of specific borrowing pending expenditure on qualifying asset is
deducted from the borrowing costs eligible for capitalisation.
All other borrowing costs are expensed in the period in which they occur.
22. Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the standalone 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. The legally enforceable right must not be contingent on future
events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of
the company, or the counterparty.
23. Claims
Claims against the Company not acknowledged as debts are disclosed after a careful evaluation of the facts and legal
aspects of the matter involved.
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