2. MATERIAL ACCOUNTING POLICIES
2.1 Basis of Preparation of Standalone Financial
Statements
i) Compliance with Ind-AS
These Standalone Financial Statements of the Company
have been prepared in accordance with Indian Accounting
Standards (Ind AS) notified under the Companies (Indian
Accounting Standards) Rules, 2015 (as amended from time
to time) and presentation requirements of Division II of
Schedule III to the Companies Act, 2013, (Ind AS compliant
Schedule III), as applicable to the Standalone Financial
Statements of the Company.
Material Accounting Policies have been consistently applied
except where a newly issued Accounting Standard is initially
adopted or a revision to an existing Accounting Standard
require a change in the Accounting Policy hitherto in use.
ii) The Standalone Financial Statements have been
prepared and presented on the going concern basis and at
historical cost basis considering the applicable provisions
of Companies Act 2013, except for the following items that
have been measured at fair value as required by relevant
IND AS.
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.
a) Certain financial assets/liabilities measured at fair
value (refer accounting policy regarding financial
instruments) and
b) Defined benefit plans: plan assets measured at fair
value
c) Any other item as specifically stated in the accounting
policy.
iii) Functional and presentation currency
The Standalone Financial Statements are presented in Indian
Rupees, which are the functional currency of the Company
and the currency of the primary economic environment in
which the Company operates.
The Standalone Financial Statements are presented in INR
and all values are rounded to the nearest Lakh (INR 00,000)
as per the requirement of Schedule III, unless otherwise
stated.
2.2 Material Accounting Policies Information:
(a) Significant accounting estimates, judgements,
and assumptions
The preparation of financial statements requires
management to make judgments, estimates and
assumptions in the application of accounting policies that
affect the reported amounts of assets, liabilities, income
and expenses. Uncertainty about these estimates and
assumptions could result in different outcomes. Continuous
evaluation is done on the estimation and judgments based
on historical experience and other factors, including
expectations of future events that are believed to be
reasonable.
(i) Depreciation/amortisation and useful lives of
property plant and equipment
Useful lives and residual values of Property, plant and
equipment represent a material portion of the Company's
asset base. The periodic charge of depreciation is derived
after estimating useful life of an asset and expected residual
value at the end of its useful life. The useful lives and
residual values of assets are estimated by the management
at the time the asset is acquired and reviewed periodically,
including at each financial year end. The lives are based
on various external and internal factors including historical
experience, relative efficiency and operating costs and
change in technology.
(ii) Taxes
The Company's tax jurisdiction is India. Significant
judgments are involved in determining the provision for
income taxes including amounts to be recovered or paid for
uncertain tax positions. Management judgment is required
to determine the amount of deferred tax assets that can be
recognised, based upon the likely timing and the level of
future taxable profits.
(iii) Defined benefit obligations
Defined benefit obligations are measured at fair value for
financial reporting purposes. Fair value determined by
actuary is based on actuarial assumptions. Management
judgement is required to determine such actuarial
assumptions. Such assumptions are reviewed annually using
the best information available with the Management.
(iv) Contingencies
In the normal course of business, contingent liabilities may
arise from litigation and other claims against the Company.
Potential liabilities that are possible but not probable
of crystalising or are very difficult to quantify reliably are
treated as contingent liabilities. Such liabilities are disclosed
in the notes but are not recognised.
(v) Impairment of financial assets
The impairment provisions for Financial Assets are based
on assumptions about risk of default and expected cash
loss. The Company uses judgement in making these
assumptions and selecting the inputs to the impairment
calculation, based on Company's past history, existing
market conditions as well as forward looking estimates at
the end of each reporting period.
Estimation of Expected Credit Loss (ECL) on trade
receivables involving export customers.
(b) Classification of Assets and Liabilities as current
and non-Current
The Company presents assets and liabilities in the balance
sheet based on current/non-current classification.
An asset is treated as current when it is:
- expected to be realised or intended to be sold or
consumed in normal operating cycle;
- held primarily for the purpose of trading;
- expected to be realised within twelve months after the
reporting period, or
- cash or cash equivalent 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 current when:
- it is expected to be settled in normal operating cycle;
- it is held primarily for the purpose of trading;
- it is due to be settled within twelve months after the
reporting period, or
- there is no unconditional right to defer the settlement
of the liability for at least twelve months after the
reporting period.
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non¬
current assets and liabilities. Based on the nature and time
lag between the acquisition of assets for processing and
their realisation in cash and cash equivalents, the Company
has identified twelve months as its operating cycle.
(c) Investment in subsidiaries
A subsidiary is an entity that is controlled by another entity.
Investment in subsidiaries is carried at cost less impairment,
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 is recognized
in the Statement of Profit and Loss.
(d) Foreign currency translation
In preparing the financial statements of the Company,
transactions in foreign currencies, other than the Company's
functional currency are recognised at the rates of exchange
prevailing at the dates of the transactions. At the end of
each reporting period, monetary assets and liabilities
denominated in foreign currencies are translated at the
rate prevailing at that date. Non-monetary items that are
measured in terms of historical cost in a foreign currency,
are not retranslated.
Exchange differences on monetary items are recognised
in the Statement of Profit and Loss in the period in which
these arise except for:
• 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;
and
• exchange differences on transactions entered into in
order to hedge certain foreign currency risks.
(e) Revenue recognition
i) Revenue from operations:
Revenue is recognised when control of goods is transferred
to a customer in accordance with the terms of the contract.
The control of the goods is transferred upon delivery to the
customers either at factory gate of the Company or specific
location of the customer or when the goods are handed
over to the freight carrier, as per the terms of the contract.
A receivable is recognised by the Company when the
goods are delivered to the customer as this represents the
point in time at which the right to consideration becomes
unconditional, as only the passage of time is required
before payment is due.
Revenue from services, including those embedded in
contract for sale of goods, namely, freight and insurance
services mainly in case of export sales, is recognised upon
completion of services.
Revenue is measured based on the consideration to which
the Company expects to be entitled as per contract with
a customer. The consideration is determined based on
the price specified in the contract, net of the estimated
variable consideration. Accumulated experience is used to
estimate and provide for the variable consideration, using
the expected value method and revenue is only recognised
to the extent that it is highly probable that a significant
reversal will not occur. The contracts do not grant any rights
of return to the customer. Returns of goods are accepted by
the Company only on an exception basis. Revenue excludes
any taxes or duties collected on behalf of government that
are levied on sales such as goods and services tax.
Eligible export incentives are recognised in the year in
which the conditions precedent are met and there is no
significant uncertainty about the collectability.
ii) Other income:
Interest income from financial assets is recognised using
the effective interest rate method. The effective interest
rate is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial
asset to the gross carrying amount of a financial asset.
When calculating the effective interest rate, the Company
estimates the expected cash flows by considering all the
contractual terms of the financial instrument (for example,
prepayment, extension, call and similar options), but does
not consider the expected credit losses.
Dividends are recognised in the Standalone Statement of
Profit and Loss only when the right to receive payment
is established; it is probable that the economic benefits
associated with the dividend will flow to the Company and
the amount of the dividend can be measured reliably.
Lease rental income is recognised on accrual basis.
Insurance claims are accounted on the basis of claims
admitted/expected to be admitted and to the extent
that there is no uncertainty in receiving the claims. Other
revenue is recognised when it is received or when the right
to receive payment is established.
(f) Government Grants
Government grants are recognized when there is
reasonable assurance that the Company will comply with
the conditions attached to them and that the grants will be
received. When the grant relates to an expense item, it is
recognised in the Statement of Profit and Loss by way of a
deduction to the related expense on a systematic basis over
the periods that the related costs, for which it is intended to
compensate, are expensed. Where the grant relates to an
asset, it is recognised as deferred income and is allocated
to the Statement of Profit and Loss over the periods and
in the proportions in which depreciation on those assets is
charged.
(g) Taxes
Income tax expense represents the sum of tax currently
payable and deferred tax. Tax is recognized in the
Statement of Profit and Loss, except to the extent that it
relates to items recognized directly in equity or in other
comprehensive income.
(i) Current Tax
The current income tax charge is calculated on the basis
of the tax laws enacted or substantively enacted at the
end of the reporting period. The Management periodically
evaluates positions taken in tax returns with respect to
situations in which applicable tax regulation is subject to
interpretation. It establishes provisions where appropriate,
on the basis of amounts expected to be paid to the tax
authorities.
(ii) Deferred Tax
Deferred tax is recognised on temporary differences
between the carrying amounts of assets and liabilities in the
balance sheet and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all
deductible temporary differences, unabsorbed losses and
unabsorbed depreciation to the extent that it is probable
that future taxable profits will be available against which
those deductible temporary differences, unabsorbed losses
and unabsorbed depreciation can be utilised.
The carrying amount of deferred tax assets is reviewed at
each balance sheet date and reduced to the extent that it
is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities 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 balance sheet date. The measurement
of deferred tax liabilities and assets reflects the tax
consequences that would follow from the manner in which
the Company expects, at the reporting date, to recover or
settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Company
intends to settle its current tax assets and liabilities on a
net basis.
(iii) Indirect taxes paid on acquisition of assets or on
incurring expenses
Expenses and assets are recognised net of the amount of
indirect taxes paid, except:
- When the tax incurred on a purchase of assets or
services is not recoverable from the taxation authority,
in which case, the tax paid is recognised as part of
the cost of acquisition of the asset or as part of the
expense item, as applicable.
- When receivables and payables are stated with the
amount of tax included.
The net amount of tax recoverable from, or payable to,
the taxation authority is included as part of receivables or
payables in the balance sheet.
(h) Property, plant and equipment (PPE)
These tangible assets are held for use in production, supply
of goods or services or for administrative purposes. Property,
plant and equipment are stated at cost less accumulated
depreciation and accumulated impairment losses except
for freehold land which is not depreciated. Cost includes
purchase price after deducting trade discount/rebate,
import duties, non-refundable taxes, Net of Cenvat and
VAT credit/GST input credit wherever applicable, cost of
replacing the component parts, borrowing costs and other
directly attributable cost of bringing the asset to its working
condition in the manner intended by the management.
Land (other than investment property) held for use in
production or administration is stated at cost. As no finite
useful life for land can be determined, related carrying
amounts are not depreciated.
If significant parts of an item of PPE have different useful
lives, then they are accounted for as separate items (major
components) of PPE.
The cost of an item of PPE is recognised as an asset if, and
only if, it is probable that the economic benefits associated
with the item will flow to the Company in future periods and
the cost of the item can be measured reliably. Expenditure
incurred after the PPE have been put into operations, such
as repairs and maintenance expenses are charged to the
Statement of Profit and Loss during the period in which
they are incurred.
Items such as spare parts, standby equipment and servicing
equipment are recognised as PPE when it is held for use
in the production or supply of goods or services, or for
administrative purpose, and are expected to be used for
more than one year. Otherwise, such items are classified as
inventory.
Expenditure on acquisition of PPE for research and
development (R&D) is included in PPE and depreciation
thereon is provided as applicable.
The Company adjusts exchange differences arising on
translation difference/settlement of long-term foreign
currency monetary items outstanding and pertaining to the
acquisition of a depreciable asset to the cost of asset and
depreciates the same over the remaining life of the asset.
The depreciation on such foreign exchange difference is
recognised from first day of its financial year.
De-recognised upon disposal
An item of PPE is derecognised on disposal or when
no future economic benefits are expected from use or
disposal. Any gain or loss arising on derecognition of an
item of property, plant and equipment is determined as
the difference between the net disposal proceeds and the
carrying amount of the asset and is recognized in Statement
of Profit and Loss when asset is derecognised.
Treatment of expenditure during construction period
Expenditure, net of income earned, during construction
(including financing cost related to borrowed funds for
construction or acquisition of qualifying PPE) period is
included under capital work-in-progress, and the
same is allocated to the respective PPE on the completion
of construction. Advances given towards acquisition or
construction of PPE outstanding at each reporting date are
disclosed as capital advances under "Other non-current
assets".
Depreciation
The depreciable amount of an asset is determined after
deducting its residual value. Where the residual value of
an asset increases to an amount equal to or greater than
the asset's carrying amount, no depreciation charge is
recognized till the asset's residual value decreases below
the asset's carrying amount. Depreciation of an asset begins
when it is available for use, i.e., when it is in the location and
condition necessary for it to be capable of operating in the
intended manner. Depreciation of an asset ceases at the
earlier of the date that the asset is classified as held for sale
in accordance with IND AS 105 and the date that the asset
is derecognised.
The Company depreciates its property, plant and equipment
(PPE) over the useful life in the manner prescribed in
Schedule II to the Act. Management believes that useful
life of assets are same as those prescribed in Schedule II
to the Act, except for plant and equipment wherein based
on technical evaluation, useful life has been estimated to
be different from that prescribed in Schedule II of the Act.
Useful life considered for calculation of depreciation for
various assets class are as follows:
The identified component of fixed assets are depreciated
over the useful lives and the remaining components are
depreciated over the life of the principal assets.
Depreciation on fixed assets added/disposed of during the
period is provided on pro-rata basis with reference to the
date of addition/disposal.
The assets residual values, useful lives and methods of
depreciation are reviewed at each financial year end and
adjusted prospectively, if appropriate.
Leasehold Land is amortised over the primary period
of the lease.
(i) Intangible assets
Intangible assets with finite useful lives that are acquired
separately are carried at cost less accumulated amortisation
and accumulated impairment losses, if any. Amortisation
is recognised on a straight-line basis over their estimated
useful lives. The estimated useful life and amortisation
method are reviewed at the end of each reporting period,
with the effect of any changes in estimate being accounted
for on a prospective basis.
Computer software
Computer software is amortised over a period of 3 years.
Internally generated intangible assets - Research and
Development expenditure:
Expenditure incurred on development is capitalised if
such expenditure leads to creation of any intangible asset,
otherwise, such expenditure is charged to the Statement of
Profit and Loss. PPE procured for research and development
activities are capitalised.
(j) Borrowing cost
Borrowing cost includes interest expense, amortisation
of discounts, ancillary costs incurred in connection with
borrowing of funds and exchange difference, arising
from foreign currency borrowings, to the extent they are
regarded as an adjustment to the interest cost.
Borrowing costs that are attributable to the acquisition
or construction or production of a qualifying asset are
capitalised as part of the cost of such asset till such time
the asset is ready for its intended use. A qualifying asset is
an asset that necessarily takes a substantial period of time
to get ready for its intended use. All other borrowing costs
are recognised as an expense in the period in which they
are incurred.
Investment income earned on the temporary investment of
specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for
capitalisation. All other borrowing cost are recognised in
the Statement of Profit and Loss in the period in which they
are incurred.
(k) Leases
At the inception of a lease, the lease arrangements is
classified as either a finance lease or an operating lease,
based on the substance of the lease arrangement.
As a Lessee:
The Company assesses whether a contract is, or contains a
lease, at inception of the 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 commencement date of the lease, the Company
recognises a right-of-use asset and a corresponding lease
liability for all lease arrangements in which it is a lessee,
except for short-term leases (leases with a term of twelve
months or less), leases of low value assets and, for contract
where the lessee and lessor has right to terminate a lease
without permission from the other party with no more than
an insignificant penalty. The lease expense of such short¬
term leases, low value assets leases and cancellable leases,
are recognised as an operating expense on a straight-line
basis over the term of the lease.
At the commencement date, lease liability is measured at
the present value of the lease payments to be paid during
non-cancellable period of the contract, discounted using
the incremental borrowing rate. The right-of-use assets is
initially recognised at the amount of the initial measurement
of the corresponding lease liability, lease payments made
at or before commencement date less any lease incentives
received and any initial direct costs.
Subsequently, the right-of-use asset is measured at cost
less accumulated depreciation and any impairment losses.
Lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability
(using effective interest rate method) and reducing the
carrying amount to reflect the lease payments made. The
right-of-use asset and lease liability are also adjusted to
reflect any lease modifications or revised in-substance fixed
lease payments.
As a lessor
Leases for which the Company is a lessor is classified as
finance or operating leases. 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.
Income from operating leases where the Company is a
lessor is recognised as income on a straight-line basis over
the lease term unless the receipts are structured to increase
in line with the expected general inflation to compensate
for the expected inflationary cost increases. The respective
leased assets are included in the Standalone Balance
Sheet based on their nature. Leases of property, plant and
equipment where the Company as a lessor has substantially
transferred all the risks and rewards are classified as finance
lease. Finance leases are capitalised at the inception of the
lease at the fair value of the leased property or, if lower,
the present value of the minimum lease payments. The
corresponding rent receivables, net of interest income,
are included in other financial assets. Each lease receipt
is allocated between the asset and interest income. The
interest income is recognised in the Standalone Statement
of Profit and Loss over the lease period so as to produce a
constant periodic rate of interest on the remaining balance
of the asset for each period.
Under combined lease agreements, land and building are
assessed individually.
(l) Inventories
Inventories consisting of stores and spares, raw materials,
work in progress, stock in trade, goods in transit and finished
goods are valued at lower of cost or and net realisable value.
However, materials held for use in production of inventories
are not written down below cost, if the finished products
are expected to be sold at or above cost.
The cost is computed on FIFO basis and is net of credits
under GST.
Goods and materials in transit include materials, duties
and taxes (other than those subsequently recoverable from
tax authorities) labour cost and other related overheads
incurred in bringing the inventories to their present location
and condition.
Traded goods include cost of purchase and other costs
incurred in bringing the inventories to their present location
and condition.
(m) Impairment of assets
At the end of each reporting period, the Company reviews
the carrying amounts of its PPE and other intangible assets to
determine whether there is any indication that these assets
have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss.
Where it is not possible to estimate the recoverable
amount of an individual asset, the Company estimates the
recoverable amount of the cash-generating unit (CGU) to
which the asset belongs. When the carrying amount of an
asset or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable
amount. The resulting impairment loss is recognised in the
Statement of Profit and Loss Recoverable amount is the
higher of fair value less costs to sell 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.
In determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions
can be identified, an appropriate valuation model is used.
Where an impairment loss subsequently reverses, the
carrying amount of the asset or CGU is increased to the
revised estimate of its recoverable amount, but so that
the increased carrying amount does not exceed the
carrying amount that would have been determined had no
impairment loss been recognised for the asset or CGU in
prior years. A reversal of an impairment loss is recognised
in the Statement of Profit and Loss.
Impairment of investment in subsidiaries
The Company assess at each reporting date whether there is
an indication that an asset may be impaired if any indication
exists, on which annual impairment testing for an asset is
requires, the Company estimates the assets recoverable
amount. An assets recoverable amount is the higher of
an assets or cash generating units (CGU's) fair value less
cost of disposal and its value in use. Recoverable amount
is determined for an individual asset, unless the asset does
not generate cash inflows that are largely independent
of those from other assets or group of assets. When the
carrying amount of an asset or CGU exceeds its recoverable
amount, the asset is considered impaired and is written
down to its recoverable amount.
In assessing the value in use, the estimated future cash
flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessment of the
time value of money and risk specific to the asset.
In determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions
can be identified, an appropriate valuation model is used.
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