NOTE: 2 SIGNIFICANT ACCOUNTING
POLICIES
a. Basis of Preparation of Financial
Statements
Compliance with Ind As
These financial statements have been prepared in
accordance with the Indian Accounting Standards
(hereinafter referred to as the ‘Ind AS’) as notified by
Ministry of Corporate Affairs pursuant to Section 133
of the Companies Act 2013 (‘Act’) read with of the
Companies (Indian Accounting Standards) Rules, 2015
as amended and other relevant provisions of the Act.
Functional and presentation currency
These financial statements are presented in Indian
Rupees (INR), which is also the Company’s functional
currency. All financial information presented in Indian
rupees have been rounded-off to two decimal places to
the nearest lakhs as per the requirement of Schedule III,
except share data or as otherwise stated.
The accounting policies are applied consistently to all
the periods presented in the financial statements.
Historical Cost Convention
The financial statements have been prepared under
the historical cost convention except for the followings
assets and liabilities which have been measured at their
fair value:
• Certain financial assets and liabilities that are
measured at fair value (refer-Accounting policy
regarding financials instruments).
• Defined benefit plans - present value of defined
benefit obligation unless otherwise indicated.
b. Use of estimates and judgements
The preparation of financial statements in conformity
with Ind AS requires the management to make
judgments, estimates and assumptions that affect the
application of accounting policies and the reported
amounts of assets and liabilities and the disclosures
of contingent assets and liabilities at the date of
the financial statements and reported amounts of
revenues and expenses during the period. Although
these estimates are based on the management’s best
knowledge of current events and actions, uncertainty
about these assumptions and estimates could result
in the outcomes requiring a material adjustment
to the carrying amounts of assets or liabilities
prospectively. Information about critical judgments in
applying accounting policies, as well as estimates and
assumptions that have the most significant effect to the
carrying amounts of assets and liabilities within the next
financial year, are included in the following notes:
i. Measurement of defined benefit obligations - Note
No. 36.
ii. Measurement and likelihood of occurrence of
provisions and contingencies - Note No. 16, 21A
& 30.
iii. Recognition of deferred tax assets/liabilities - Note
No. 17B.
c. Property, Plant & Equipment & Intangible
Assets:
i. Property, Plant & Equipment
The Company had applied for the one-time transition
exemption of considering the carrying cost on the
transition date i.e., 1st April 2016 as the deemed cost
under Ind AS. Hence regarded thereafter as historical
cost.
An item of Property, plant and equipment is recognized
as an asset if it is probable that future economic benefits
associated with the item will flow to the Company
and its cost can be measured reliably. property, plant
and equipment are initially recognized at cost after
deducting refundable purchase taxes and including
the cost directly attributable to bring the asset to the
location and conditions necessary for it to be capable of
operating in the manner intended by the management,
borrowing cost in accordance with the established
accounting policy, cost of restoring and dismantling, if
any, initially estimated by the management.
Freehold Land is carried at historical cost. All Other
items of Property, Plant & Equipment are stated
at historical cost less depreciation. Historical Cost
includes expenditure that is directly attributable to the
acquisition of the items. After the initial recognition the
property, plant and equipment are carried at cost less
accumulated depreciation and impairment losses.
Subsequent costs are included in the asset’s carrying
amount or recognized as a separate asset, as appropriate,
only when it is probable that future economic benefits
associated with the item will flow to the Company and
its cost can be measured reliably.
All other repair and maintenance costs, including
regular servicing are charged to the Statement of Profit
and Loss during the reporting period in which they are
incurred.
In case of self-constructed assets, cost includes the
costs of all materials used in construction, direct labour,
allocation of overheads, directly attributable borrowing
costs. Cost of Self-constructed assets is determined
using the same principles as for acquired assets after
eliminating the component of internal profits.
Any gain or loss arising on retirement or disposal of
property, plant and equipment is recognized in the
Statement of Profit and Loss.
Capital work-in-progress assets in the course of
construction for production or/and supply of goods or
services or administrative purposes, or for purposes not
yet determined, are carried at cost, less any recognised
impairment loss. At the point when an asset is
operating at management’s intended use, the cost of
construction is transferred to the appropriate category
of property, plant and equipment. Costs associated with
the commissioning of an asset are capitalised where the
asset is available for use but incapable of operating at
normal levels until a period of commissioning has been
completed.
ii. Intangible Assets
Intangible Assets are stated at cost of acquisition net
of recoverable taxes, trade discount and rebates less
accumulated amortization/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.
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.
iii. Depreciation/Amortization
Depreciation on all property, plant and equipment are
provided for, from the date of put to use for commercial
production on a pro-rata basis on the straight-line
method based on at the useful life prescribed under
Schedule II to the Companies Act, 2013. Freehold land
is not depreciated.
Depreciation commences when the assets are ready for
their intended use. Depreciated assets in property and
accumulated depreciation accounts are retained fully
until they are removed from service.
The residual values, useful lives and method of
depreciation of property, plant and equipment is
reviewed at each financial year end and adjusted
prospectively, if appropriate.
Intangible assets with a finite useful life are amortised in
a straight-line basis over their estimated useful life.
d. Disposal of Assets
An item ofproperty, plant and equipment is derecognised
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 the disposal or retirement of
an item of property, plant and equipment is determined
as the difference between net disposal proceeds and
the carrying amount of the asset and is recognised in
the Statement of Profit and Loss.
e. Leases
The Company, as a lessee, recognises a right-of-use
asset and a lease liability for its leasing arrangements,
if the contract conveys the right to control the use of an
identified asset.
The contract conveys the right to control the use of an
identified asset if it involves the use of an identified asset
and the Company has substantially all of the economic
benefit from the use of asset and has right to direct the
use of the identified asset.
The cost of right-of-use asset shall comprise of
amount of the initial measurement of the lease liability
adjusted for any lease payments made at or before
the commencement date plus any initial direct costs
incurred.
Right-of-use assets is subsequently measured at cost,
less any accumulated depreciation, accumulated
impairment losses, if any and adjusted for any
remeasurement of lease liabilities.
Right-of-use assets is depreciated using the straight¬
line method from the commencement date over the
shorter of lease term or useful life of the Right-of-use
asset.
The Company measures the lease liability at the present
value of the lease payments that are not paid at the
commencement date of the lease. The lease payments
are discounted using the interest rate implicit in the
lease, if that rate can be readily determined. If that
rate cannot be readily determined, the Company uses
incremental borrowing rate.
For short term and low value leases, the Company
recognises the lease payments as an operating expense
on a straight-line basis over the lease term.
The Company's lease arrangements do not contain an
obligation to dismantle and remove the underlying
asset, restore the site on which it is located or restore
the underlying asset to a specified condition.
f. Impairment
The Company assesses at each reporting date as to
whether there is any indication that any property, plant
and equipment and intangible assets or group of assets,
called cash generating units (CGU) may be impaired. If
any such indication exists the recoverable amount of an
asset or CGU is estimated to determine the extent of
impairment, if any. When it is not possible to estimate
the recoverable amount of an individual asset, the
Company estimates the recoverable amount of the CGU
to which the asset belongs.
An impairment loss is recognised in the Statement of
Profit and Loss to the extent, asset’s carrying amount
exceeds its recoverable amount. The recoverable
amount is higher of an asset’s fair value less cost of
disposal and value in use. Value in use is based on the
estimated future cash flows, discounted to their present
value using pre-tax discount rate that reflects current
market assessments of the time value of money and risk
specific to the assets.
The impairment loss recognised in prior accounting
period is reversed if there has been a change in the
estimate of recoverable amount.
g. Research and development expenditure
Revenue expenditure pertaining to research is charged
to the Statement of Profit and Loss. Development costs
of products are charged to the Statement of Profit and
Loss unless a product’s technological and commercial
feasibility has been established, in which case such
expenditure is capitalised.
h. Borrowing Costs
Borrowing costs that are directly attributable to the
acquisition, construction or production of qualifying
assets, which are assets that necessarily takes substantial
period of time to get ready for their its intended use or
sale, are capitalised as part of the cost of such assets,
until such time as the assets are substantially ready for
the intended use or sale.
Investment income earned on the temporary
investment of specific borrowings pending their
expenditure on qualifying assets is recognized in the
Statement of Profit and Loss.
All other borrowing costs are charged to the Statement
of Profit and Loss for the period for which they are
incurred.
i. Inventories
Inventories are stated at the lower of cost and net
realizable value. The cost of finished goods and work
in progress includes raw materials, direct labour, other
direct costs and related production overheads.
Raw Materials and other materials including packaging,
stores and fuels are valued at lower of cost, based on first-
in-first- out method arrived at after including freight
inward and other expenditure directly attributable to
acquisition or net realizable value. Cost of Stores, Spares
and fuels are computed on Moving Weighted Average.
Net realizable value is the estimated selling price in the
ordinary course of business, less the estimated costs of
completion and selling expenses.
j. Financial Instruments
I. Financial assets
a. Initial Recognition and Measurement
The Company recognizes financial assets and financial
liabilities when the Company becomes a party to the
contractual provisions of the instrument. Financial
assets and liabilities are recognised at fair value initial
recognition except for Trade receivables/payables and
where cost of generation or fair value exceeds benefits,
which are initially measured at the transaction price.
Transaction costs directly related to the acquisition or
issue of the financial assets and financial liabilities (other
than financial assets and financial liabilities through
profit and loss account) are added to or deducted
from the cost of financial assets and financial liabilities.
Transaction costs directly attributable to the acquisition
or issue of the financial assets and financial liabilities at
fair value through profit and loss account are recognized
immediately in the statement of profit and loss.
b. Classification and Subsequent Measurement
i. Amortised cost:
A financial asset is measured at amortised cost if it is
held within a business model whose objective is to hold
the asset in order to collect contractual cash flows and
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.
ii. Fair value through other comprehensive income
(FVOCI):
A financial asset is measured at FVTOCI if it is held within
a business model whose objective is achieved by both
collecting contractual cash flows and selling financial
assets and 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.
iii. Fair value through profit and loss (FVTPL):
A financial asset which is not classified in any of the
above categories are measured at FVTPL.
Financial assets are not reclassified subsequent to their
recognition, except if and in the period the Company
changes its business model for managing financial
assets.
iv. Investments in Subsidiaries:
Investments in subsidiaries are carried at cost less
accumulated impairment losses, if any. Where an
indication of impairment exists, the carrying amount
of the investment is assessed and written down
immediately to its recoverable amount. On disposal
of investments in subsidiaries, the difference between
net disposal proceeds and the carrying amounts are
recognized in the Statement of Profit and Loss.
v. Equity Instruments:
An equity instrument is any contract that evidences
a residual interest in the assets of the Company after
deducting all of its liabilities. Equity instruments are
recorded at the proceeds received, net of direct issue
costs.
All equity investments are measured at fair value, with
value changes recognised in Statement of Profit and
Loss, except for those equity investments for which the
Company has elected to present the value changes in
‘Other Comprehensive Income’.
vi. Cash and Bank Balances:
Cash and cash equivalents - which includes cash in
hand, deposits at call with banks and other short-term
deposits which are readily convertible into cash and
which are subject to an insignificant risk of changes in
value and have maturities of less than one year from the
date of such deposits.
Other Bank Balances - which includes balances and
deposits with banks that are restricted for withdrawal
and usage.
vii. Trade Receivables and Loans:
Trade receivables are amounts due from customers for
goods sold or services performed in the ordinary course
of business and reflects company's unconditional right
to consideration (that is, payment is due only on the
passage of time). Trade receivables of the Company,
are recognised initially at the transaction price as they
do not contain significant financing components. The
company holds the trade receivables with the objective
of collecting the contractual cash flows and therefore
measures them subsequently at amortised cost using
the effective interest method, less loss allowance.
viii. Debt Instruments:
Debt instruments are initially measured at amortised
cost, fair value through other comprehensive income
(‘FVOCI’) or fair value through profit or loss (‘FVTPL’) till
derecognition on the basis of (i) the entity’s business
model for managing the financial assets and (ii) the
contractual cash flow characteristics of the financial
asset.
C. Impairment of Financial Asset
In accordance with Ind AS 109, the Company uses
‘Expected Credit Loss’ (ECL) model, for evaluating
impairment of financial assets other than those
measured at fair value through profit and loss (FVTPL).
For financial assets other than trade receivables, as
per Ind AS 109, the Company recognizes 12 month
expected credit losses for all originated or acquired
financial assets if at the reporting date the credit risk
of the financial asset has not increased significantly
since its initial recognition. The expected credit losses
are measured as lifetime expected credit losses if the
credit risk on financial asset increases significantly since
its initial recognition. The Company’s trade receivables
do not contain significant financing component and
loss allowance on trade receivables is measured at an
amount equal to lifetime expected losses i.e. expected
cash shortfall.
The impairment losses and reversals are recognised in
Statement of Profit and Loss.
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. Trade and other payable are initially
recognized at the fair value of the consideration received
less directly attributable transaction cost.
Financial liabilities are initially measured at the
amortised cost unless at initial recognition, they are
classified as fair value through profit and loss. In case of
trade payables, they are initially recognised at fair value
and subsequently, these liabilities are held at amortised
cost, using the effective interest method.
b. Classification and Subsequent Measurement
Financial liabilities are subsequently measured at
amortised cost using the EIR 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.
III. Derecognition of Financial Instruments
The Company derecognizes a financial asset when the
contractual rights to the cash flows from the financial
asset expire or it transfers the financial asset and the
transfer qualifies for derecognition under Ind AS 109.
A financial liability (or a part of a financial liability) is
derecognized from the Company's Balance Sheet when
the obligation specified in the contract is discharged or
cancelled or expires.
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