1.2 MATERIAL ACCOUNTING POLICIES
a) Property, Plant and Equipmrnt
(i) Recognition and measurement
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.
Property, Plant and Equipment are measured at cost (which includes capitalised borrowing costs)
less accumulated depreciation and accumulated impairment losses, if any. The cost of an item of
Property, Plant and Equipment comprises:
a) its purchase price, including import duties and nonrefundable purchase taxes, after deducting
trade discounts and rebates.
b) any costs directly attributable to bringing the asset to the location and condition necessary for it
to be capable of operating in the manner intended by the management.
c) the initial estimate of the costs of dismantling and removing the item and restoring the site on
which it is located.
If significant parts of an item of Property, Plant and Equipment have different useful lives, then
they are accounted for as separate items (major components) of Property, Plant and Equipment and
depreciated accordingly. Any gain or loss on disposal of an item of Property, Plant and Equipment
is recognised in Statement of profit or loss.
(ii) Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits
associated with the expenditure will flow to the Company.
(iii) Depreciation, Estimated useful life and estimated residual value
Depreciation is calculated using the Straight Line Method, pro rata to the period of use, taking into
account useful lives and residual value of the assets. The Company depreciates its property, plant
and equipment over the useful life in the manner prescribed in Schedule II to the Act and
management believe that useful life of assets are same as those prescribed in Schedule II to the
Act. Depreciation is computed with reference to cost or revalued value as per previous GAPP as
the case may be. The assets residual value and useful life are reviewed and adjusted, if
appropriate, at the end of each reporting period. Gains and losses on disposal are determined by
comparing proceeds with carrying amounts. These are included in the statement of Profit and
Loss.
b) Intangible Assets
(i) Recognition and measurement
Computer soft wares have finite useful lives and are measured at cost less accumulated
amortisation and any accumulated impairment losses. The same are tested for impairment, if any,
at the end of each accounting period.
(ii) Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits
embodied in the specific asset to which it relates. All other expenditure, including expenditure on
internally generated goodwill and brands, when incurred is recognised in statement of profit or
loss.
(iii) Amortisation
Amortisation is calculated to write off the cost of intangible assets less their estimated residual
values using the straight-line method over their estimated useful lives and is generally recognised
in statement of profit or loss. Computer software are amortised over their estimated useful life or 5
years, whichever is lower. Amortisation methods, useful lives and residual values are reviewed at
each reporting date and adjusted, if required.
b) Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity. Financial instruments also include
derivative contracts such as foreign currency foreign exchange forward contracts, interest rate
swaps and currency options.
(i) Financial Assets
A financial instrument is any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity. Financial instruments also include
derivative contracts such as foreign currency foreign exchange forward contracts, interest rate
swaps and currency options.
a) Classification
The Company classifies its financial assets in the following measurement categories:
- those to be measured subsequently at Fair Value Through Other Comprehensive Income-
[FVTOCI], or Fair Value Through Profit and Loss-[FVTPL] and - those measured at
Amortised Cost.[AC]. The classification depends on the Company’s business model for
managing the financial assets and the contractual terms of the cash flows.
b) Measurement
At initial recognition, the Company measures a financial asset at its fair value. Transaction
costs of financial assets carried at fair value through the Profit and Loss are expensed in the
Statement of Profit and Loss.
In case of investments
i) In Equity instruments
- For subsidiaries, associates and Joint ventures - Investments are measured at cost and tested
for impairment periodically. Impairment (if any) is charged to the Statement of Profit and
Loss.
- For Other than subsidiaries, associates and Joint venture - Investments are measured at
FVTOCI.
ii) In Mutual fund
Measured at FVTPL.
iii) In Debt instruments
The Company measures the debts instruments at Amortised Cost. Assets that are held for
collection of contractual cash flows where those cash flows represent solely payment of
principal and interest [SPPI] are measured at amortised cost. Gain or loss on a debt
instrument that is subsequently measured at amortised cost and is not part of the hedging
relationship, is recognised in profit or loss when the asset is derecognised or impaired.
Interest income from these financial assets is included in finance income using the Effective
interest rate method.
c) Derecognition of financial assets
A financial asset is derecognised only when:
- The Company has transferred the rights to receive cash flows from financial asset, or
- Retains the contractual rights to receive the cash flows of the financial assets, but assumes a
contractual obligation to pay the cash flows to one or more recipients.
Where the Company has transferred an asset and has transferred substantially all risks and
rewards of ownership of the financial asset, the financial asset is derecognised.
Where the Company has not transferred substantially all risks and rewards of ownership of
the financial asset, the financial asset is not derecognised.
Where the Company has neither transferred a financial asset nor retains substantially all risks
and rewards of ownership of the financial asset, the financial asset is derecognised if the
Company has not retained the control of the financial asset. Where the Company retains the
control of the financial asset, the asset is continued to be recognised to the extent of
continuing involvement in the financial asset.
d) Impairment of financial assets
In accordance with Ind-AS 109, 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, and bank balance.
b) Trade receivables
The Company follows ‘simplified approach’ for recognition of impairment loss allowance
on:
- Trade receivables which do not contain a significant financing component.
The application of simplified approach does not require the Company to track changes in
credit risk. Rather, it recognises impairment loss allowance based on lifetime ECLs at each
reporting date, right from its initial recognition.
- For recognition of impairment loss on other financial assets and risk exposure, the
Company determines whether there has been a significant increase in the credit risk since
initial recognition. ECL is used to provide for impairment loss.
(ii) Financial Liabilities
a) Classification
The Company classifies its financial liabilities in the following measurement categories:
- those to be measured subsequently at FVTPL and
- those measured at Amortised Cost (AC)
The classification depends on the Company’s business model for managing the financial
assets and the contractual terms of the cash flows.
b) Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL or
AC.
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, financial guarantee contracts and derivative financial instruments.
For trade and other payables maturing within one year from the balance sheet date, the
carrying amount approximate to fair value due to the short maturity of these instruments.
c) Financial liabilities at FVTPL
Financial liabilities at FVTPL include financial liabilities designated upon initial recognition
as at Fair Value Through Profit or Loss. Financial liabilities are classified as held for trading
if they are incurred for the purpose of repurchasing in the near term. This category also
includes derivative financial instruments entered into by the Company that are not designated
as hedging instruments in hedge relationships as defined by Ind-AS 109. Separated
embedded derivatives are also classified as held for trading unless they are designated as
effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
Financial liabilities designated upon initial recognition at FVTPL are designated at the initial
date of recognition, 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 are recognized
in OCI. These gains/loss are not subsequently transferred to statement of 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.
d) Loans and borrowings
After initial recognition, interest-bearing loans and borrowings 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. AC 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. This category generally applies
to interest-bearing loans and borrowings.
e) 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 derecognition 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.
f) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
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.
g) Derivative financial instruments
The Company has not entered into any transactions in derivatives.
c) Inventories
Inventories are measured at the lower of cost and net realisable value after providing for
obsolesce, if any, except for realisable by-products which are measured at net realisable value. The
cost of inventories is determined using the first-in first out (FIFO) method and includes
expenditure incurred in acquiring inventories, production or conversion and other costs incurred in
bringing them to their respective present location and condition. In the case of manufactured
inventories and work in progress, cost includes an appropriate share of production overheads
based on normal operating capacity. The comparison of cost and Net Realisable value is made on
an item by item basis. Net realisable value is estimated selling price in the ordinary course of
business, less estimated cost of completion and the estimated costs necessary to make the sale. The
net realisable value of work in progress is determined with reference to selling prices of finished
products.
d) Trade Receivable
Trade receivable are recognised initially at Fair Value and subsequently measured at amortised
cost (AC) using the effective interest method less provision for impairment. As per Ind AS 109 the
Company has applied ECL for recognising the allowance for doubtful debts. Where Company has
offered extended credit period [ECP] to the debtors, the said amount is recorded at present value,
with corresponding credit in the statement of profit and loss over the tenure of the extended credit
period.
e) Cash and Cash Equivalent
For the purpose of presentation in the statement of the cash flows, cash and cash equivalent
includes the cash on hand, deposits held at call with financial institutions other short term, highly
liquid investments with original maturity of three months or less that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value.
f) Contributed Equity
Equity shares are classified as equity. Incidental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax, from the proceeds.
I) Dividends
Provision is made for the amount of any dividend declared, in the year in which it is approved by
shareholders.
II) Earnings per share
(i) Basic earnings per share
Basic earnings per shares is calculated by dividing Profit/(Loss) attributable to equity holders
(adjusted for amounts directly charged to Reserves) before/after Exceptional Items (net of tax) by
Weighted average number of Equity shares, (excluding treasury shares).
(ii) Diluted earnings per share
Diluted earnings per shares is calculated by dividing Profit/(Loss) attributable to equity holders
(adjusted for amounts directly charged to Reserves) before/after Exceptional Items (net of tax) by
Weighted average number of Equity shares (excluding treasury shares) considered for basic
earning per shares including dilutive potential Equity shares.
g) Borrowing
Borrowings are initially recognised at Fair Value, net of transaction costs incurred. Borrowings
are subsequently measured at AC. Any difference between the proceeds (net of transaction costs)
and the redemption amount is recognised in profit or loss over the period of borrowings using the
effective interest method. Processing/Upfront fee are treated as prepaid asset and netted off from
borrowings. The same is amortised over the period of the facility to which it relates. Preference
shares are classified as liabilities. The dividends on these preference shares, if approved, by
shareholders in the forthcoming Annual General Meeting, are recognised in profit or loss as
finance costs, in the year when approved. Borrowings are derecognised 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 non-cash assets transferred or liability
assumed, is recognised in Statement of profit or loss as other gains or (losses). Borrowings are
classified as current liabilities unless the Company has an unconditional right to defer the
settlement of liabilities for at least twelve 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 same is classified as current unless the lender agreed, after the reporting period and
before the approval of financial statements for issue, not to demand payment as a consequence of
the breach.
h) Trade and Other payables
These amounts represent liabilities for goods and services provided to the Company prior to the
end of financial year which are unpaid at the period end. Trade and other payables are presented as
current liabilities unless payment is not due within 12 months after the reporting period. They are
recognised initially at their Fair Value and subsequently measured at amortised cost using the
effective interest method.
i) Foreign Currency Transactions
The Company has not entered into any transactions in foreign currency.
j) Revenue Recognition
Revenue is recognized on satisfaction of performance obligation upon transfer of control of
promised products or services to customers in an amount that reflects the consideration the
Company expects to receive in exchange for those products or services.
The Company does not expect to have any contracts where the period between the transfer of the
promised goods or services to the customer and payment by the customer exceeds one year. As a
consequence, it does not adjust any of the transaction prices for the time value of money.
The Company satisfies a performance obligation and recognises revenue over time, if one of the
following criteria is met:
1 The customer simultaneously receives and consumes the benefits provided by the Company’s
performance as the Group performs; or
2 The Company’s performance creates or enhances an asset that the customer controls as the
asset is created or enhanced; or
3 The Company’s performance does not create an asset with an alternative use to the Company
and an entity has an enforceable right to payment for performance completed to date.
For performance obligations where one of the above conditions are not met, revenue is recognised
at the point in time at which the performance obligation is satisfied.
(i) Sale of goods
Revenue is recognised on the basis of customer contracts and the performance obligation
contained therein. Revenues is recognised at a point in time when the control to the buyer of
goods or services is transferred to a customer.Control lies with the customer if the customer can
independently determine the use of and consume the benefit derived from a product or service
Revenue from product deliveries are recognised at a point in time based on an overall assessment
of the existence of a right to payment, the allocation of ownership rights, the transfer of risks and
rewards, and acceptance by the customer. The goods are often sold with volume discounts/
pricing incentives and customers have a right to return damaged products.
Revenue from sales is based on the price in the sales contracts, net of discounts. Historical
experience, specific contractual terms and future expectations of sales are used to estimate and
provide for damage claims. No element of financing is deemed present as the sales are made with
the normal credit terms as per prevalent trade practice and credit policy followed by the Company
ond normal credit terms.
(ii) Sale of Services
Revenue from services is recognised when agreed contractual task has been completed.
(iii) Dividend and interest income
a) Dividend income is recognised when right to receive dividend is established.
b) Interest and other income are recognised on accrual basis on time proportion basis and
measured at effective interest rate.
(iv) Other Income
Other income is recognised when no significant uncertainty as to its determination or realisation
exists.
k) Employee Benefits
(i) During Employment benefits
(a) Short term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is
recognised for the amount expected to be paid if the Company has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee and the
obligation can be estimated reliably.
(ii) Post-Employment benefits
(a) Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which Company pays fixed
contribution into a separate entity and will have no legal or constructive obligation to pay future
amounts. The Company makes specified monthly contributions towards government administered
Provident Fund scheme. Obligations for contributions to defined contribution plans are expensed
as the related service is provided. Prepaid contributions are recognised as an asset to the extent
that a cash refund or a reduction in future payments is available.
(b) Defined benefit plans
The Company pays gratuity to the employees who have has completed five years of service with
the company at the time when employee leaves the Company. The gratuity is paid as per the
provisions of Payment of Gratuity Act, 1972. The gratuity liability amount is contributed to the
approved gratuity fund formed exclusively for gratuity payment to the employees. The liability in
respect of gratuity and other post-employment benefits is calculated using the Projected Unit
Credit Method and spread over the periods during which the benefit is expected to be derived from
employees' services. Re-measurement of defined benefit plans in respect of post-employment are
charged to Other Comprehensive Income.
For Leave Encashment Benefits the leave wages are payable to all eligible employees at the rate of
daily salary/wages for each day of accumulated leave and are paid during the financial year itself.
Therefore no liability is accrued at the end of the financial year for leave benefits as per practice
followed by the company year to year.
(c) Termination Benefits
Termination benefits are payable when employment is terminated by the Company before the
normal retirement date or when an employee accepts voluntary redundancy in exchange for these
benefits. In case of an offer made to encourage voluntary redundancy, the termination benefits are
measured based on the number of employees expected to accept the offer. Benefits falling due
more than twelve months after the end of reporting period are discounted to the present value.
l) Income Tax
Income tax expense comprises current and deferred tax. Tax is recognised in statement of profit
and loss, except to the extent that it relates to items recognised in the other comprehensive income
or in equity. In such cases, the tax is also recognised in the other comprehensive income or in
equity.
(a) Current Tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid
to the taxation authorities, based on tax rates and laws that are enacted or subsequently enacted at
the Balance sheet date.
Current tax assets and liabilities are offset only if, the Company:
a) has a legally enforceable right to set off the recognised amounts; and
b) intends either to settle on a net basis, or to realise the asset and settle the liability
simultaneously.
(b) Deferred Tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of
taxable profit. Deferred tax liabilities and assets are measured at the tax rates that are expected to
apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax
laws) that have enacted or subsequently enacted by the end of the reporting period. The carrying
amount of deferred tax liabilities and assets are reviewed at the end of each reporting period.
Deferred tax is recognised to the extent that it is probable that future taxable profit will be
available against which they can be used.
The measurement of deferred tax 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 only if:
a) the Company has a legally enforceable right to set off current tax assets against current tax
liabilities; and
b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same
taxation authority on the same taxable Company.
m) Borrowing Costs
General and specific Borrowing costs that are directly attributable to the acquisition, construction
or production of a qualifying asset that necessarily takes a substantial period of time to get ready
for its intended use are capitalised as part of the cost of that asset till the date it is ready for its
intended use or sale. 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 cost eligible for
capitalisation.All other borrowing costs are charged to the statement of profit and loss for the
period for which they are incurred.
n) Non- Current assets held for sale
Non-Current assets are classified as held for sale if their carrying amount will be recovered
principally through a sale transaction rather than through continuing use and sale is considered
highly probable. They are measured at lower of their (a.) carrying amount and (b.) Fair Value less
cost to sell. Non-current assets are not depreciated or amortised when they are classified as held
for sale.
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