2.2. Summary of material accounting policies
(a) Current-non-current classification
All assets and liabilities are classified into
current and non-current.
Assets
An asset is classified as current when it satisfies
any of the following criteria:
a) it is expected to be realised in, or is
intended for sale or consumption in, the
normal operating cycle;
b) it is held primarily for the purpose
of being traded;
c) it is expected to be realised within 12
months after the reporting date; or
d) it is cash or cash equivalent unless it is
restricted from being exchanged or used
to settle a liability for at least 12 months
after the reporting date.
Current assets include the current portion of
non-current financial assets. All other assets
are classified as non-current.
Liabilities
A liability is classified as current when it satisfies
any of the following criteria:
a) it is expected to be settled in the normal
operating cycle;
b) it is held primarily for the purpose
of being traded;
c) it is due to be settled within 12 months
after the reporting date; or
d) the company does not have an
unconditional right to defer settlement
of the liability for at least 12 months after
the reporting date. Terms of a liability that
could, at the option of the counterparty,
result in its settlement by the issue of
equity instruments do not affect its
classification.
Current liabilities include current portion
of non-current financial liabilities. All other
liabilities are classified as non-current.
Operating cycle
Operating cycle is the time between the
acquisition of assets for processing and their
realisation in cash or cash equivalents. The
Company has determined its operating cycle as
12 months for the purpose of classification of its
assets and liabilities as current and non-current.
(b) Foreign currency transactions
i. Initial recognition
Transactions in foreign currencies are
translated into the functional currency of
the Company at the exchange rates at the
date of the transaction.
ii. Measurement at reporting date
Monetary assets and liabilities denominated
in foreign currencies are translated into the
functional currency at the exchange rate at
the reporting date. Non- monetary assets
and liabilities that are measured based
on historical cost in a foreign currency are
translated at the exchange rate at the date
of the transaction. Exchange differences on
restatement/ settlement of all monetary
items are recognised in the standalone
statement of profit and loss.
(c) 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.
i. Recognition and initial measurement
All financial assets and financial liabilities
are recognised when the Company
becomes a party to the contractual
provisions of the instrument and are
measured initially at fair value adjusted
for transaction costs, except for those
carried at fair value through Profit and
Loss which are measured initially at fair
value. However, trade receivables are
recognised initially at the transaction
price as they do not contain significant
financing components.
ii. Classification and subsequent
measurement
Financial assets
On initial recognition, a financial asset is
classified as measured at
- amortised cost; or
- fair value through profit
or loss (‘FVTPL’)
Financial assets are not reclassified
subsequent to their initial recognition,
except if and in the period the Company
changes its business model for managing
financial assets.
A financial asset is measured at
amortised cost if it meets both of the
following conditions:
- the asset is held within a business
model whose objective is to hold
assets 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.
All financial assets not classified as
measured at amortised cost as described
above are measured at FVTPL.
Investment in equity instruments are
classified at fair value through profit or
loss, unless the Company irrevocably
elects on initial recognition to present
subsequent changes in fair value in other
comprehensive income for investments
in equity instruments which are not
held for trading.
Financial liabilities
Financial liabilities are classified as
measured at amortised cost or FVTPL. A
financial liability is classified as at FVTPL
if it is classified as held for trading, or it is
a derivative or it is designated as such on
initial recognition. Financial liabilities at
FVTPL are measured at fair value and net
gains and losses, including any interest
expense, are recognised in statement of
profit or loss. Other financial liabilities
are subsequently measured at amortised
cost using the effective interest method.
The Company does not have any fixed
liabilities under the category of FVTPL.
iii. Derecognition
Financial assets
The Company de-recognises a financial
asset when the contractual rights to the
cash flows from the financial asset expire,
or it transfers the rights to receive the
contractual cash flows in a transaction
in which substantially all of the risks and
rewards of ownership of the financial asset
are transferred or in which the Company
neither transfers nor retains substantially all
of the risks and rewards of ownership and
does not retain control of the financial asset.
Financial liabilities
The Company de-recognises a financial
liability when its contractual obligations
are discharged or cancelled, or expire. The
Company also de-recognises a financial
liability when its terms are modified
and the cash flows under the modified
terms are substantially different. In this
case, a new financial liability based on
the modified terms is recognised at
fair value. The difference between the
carrying amount of the financial liability
extinguished and the new financial
liability with modified terms is recognized
in statement of profit and loss.
iv. Offsetting
Financial assets and liabilities are offset
and the net amount is reported in the
standalone balance sheet where there
is a legally enforceable right to offset
the recognised amounts and there is
an intention to settle on a net basis or
realise the asset and settle the liability
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
group or the counterparty.
(d) Equity Investment in subsidiary and joint
venture
Investments in equity instruments of joint
venture and subsidiary company are accounted
for at cost less any provision for impairment
in accordance with Ind AS 27 “Separate
Financial Statements”.
(e) Property, plant and equipment
i. Recognition and measurement
Freehold Land is carried at cost and other
items of property, plant and equipment
are initially measured at cost of acquisition
or construction which includes capitalised
borrowing cost. The cost of an item of
property, plant and equipment comprises
its purchase price, including import duties
and other non-refundable purchase taxes
or levies, any directly attributable cost of
bringing the asset to its working condition
for its intended use and estimated cost of
dismantling and removing the item and
restoring the site on which it is located.
Any trade discounts and rebates are
deducted in arriving at the purchase price.
After initial recognition, items of property,
plant and equipment are carried at its cost
less any accumulated depreciation and /
or accumulatedimpairment loss, if any.
The cost of a self-constructed item of
property, plant and equipment including
dies comprises the cost of materials and
direct labour, any other costs directly
attributable / allocable to bring the item to
working condition for its intended use.
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.
Gains or losses arising on sale/disposal of
items of property, plant and equipment are
recognised in the standalone statement of
profit and loss.
Capital work-in-progress comprises the
cost of fixed assets that are not ready for
their intended use at the reporting date.
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
Depreciation on items of property, plant
and equipment is provided on the straight¬
line method based on the estimated useful
life of each asset as determined by the
management. Depreciation is charged over
the number of shift a plant or equipment
is used in the business in accordance
with schedule II of the Companies Act.
Depreciation for assets purchased during
the year is proportionately charged i.e.
from the date on which asset is ready for
use. Depreciation for assets sold during
the year is proportionately charged i.e. up
to the date on which asset is disposed off.
The useful lives have been determined
based on internal evaluation done
by management and are in line with
the estimated useful lives, to the
extent prescribed by the Schedule II of
the Companies Act.
Based on internal valuation done by the
management, hangers and trollies are
depreciated at year end based on the
physical availability of respective assets.
Depreciation method, useful lives
and residual values are reviewed at
each financial year-end and adjusted
if appropriate.
Modification or extension to an existing
asset, which is of capital nature, and
which becomes an integral part thereof
is depreciated prospectively over the
remaining useful life of that asset.
(f) Goodwill
Represents amounts paid over the identifiable
assets towards Business Takeover transaction
is carried forward based on assessment of
benefits arising from such goodwill in future.
Goodwill is tested for impairment annually at
each balance sheet date in accordance with
the Company’s procedure for determining
the recoverable amount of such assets. The
recoverable amount of Cash Generating Unit
(CGU) is based on value in use. The value in use
for Goodwill is determined based on discounted
cash flow projections.
(g) Other Intangible Assets
i. Recognition and initial measurement
Other intangible assets that are acquired
by the Company are measured initially
at cost. After initial recognition, an
intangible asset is carried at its cost less
any accumulated amortisation and any
accumulated impairment loss.
ii. Subsequent expenditure
Subsequent expenditure is included in
the assets carrying amount or recognised
as a separate asset, as appropriate, only
when it is probable that future economic
benefits associated with the expenditure
will flow to the Company and cost can be
measured reliably
Distribution network
Represents allocation of amounts paid
towards Business Takeover transaction
is carried forward based on assessment
of benefits arising from such network in
future. Such expenditure is amortised on
period of ten years on straight line basis.
The above periods also represent
the management’s estimation of
economic useful life of the respective
intangible assets.
Amortisation method, useful lives
and residual values are reviewed at
each financial year-end and adjusted
if appropriate.
iii. Amortisation
Technical know-how is being amortised
over a period of seven years on a
straight-line basis.
Computer software is being amortised over
a period of six years on a straight-line basis.
(h) Inventories
Inventories which comprise of raw material,
work in progress, finished goods, packing
material and stores and spares are valued at
the lower of cost and net realisable value. Cost
of inventories comprises all cost of purchase,
cost of conversion and other costs incurred
in bringing the inventories to their present
location and condition.
The basis of determining costs for various
categories of inventories are as follows: -
Net realisable value is the estimated selling
price in the ordinary course of business, less
the estimated costs of completion and the
estimated costs necessary to make the sale.
The net realisable value of work-in-progress
is determined with reference to the selling
prices of related finished goods. Raw materials
held for use in production of finished goods
are not written down below cost, except in
cases where material prices have declined,
and it is estimated that the cost of the finished
goods will exceed its net realisable value. The
comparison of cost and net realisable value is
made on an item-by-item basis.
(i) Trade Receivables
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 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.
Transfer of Financial Assets
In case of assignment of trade receivables
wherein substantially risk and rewards are
transferred, and the assignee gets absolute
right of disposal/collection, the trade
receivables are derecognized as per Ind AS
109. Trade Receivables which do not qualify
for derecognition, the proceeds received from
such transfers are recorded as loans from
banks / financial institutions and classified
under short-term borrowings.
(j) Impairment of assets
Impairment of financial assets
The Company recognises loss allowances
using the Expected Credit Loss (ECL) model for
the financial assets which are not fair valued
through profit or loss. Loss allowance for trade
receivables with no significant financing
component is measured at an amount equal
to lifetime ECL. For all other financial assets,
expected credit losses are measured at an
amount equal to the 12-month ECL, unless
there has been a significant increase in credit
risk from initial recognition, in which case
those financial assets are measured at lifetime
ECL. The changes (incremental or reversal) in
loss allowance computed using ECL model, are
recognised as an impairment gain or loss in the
standalone statement of profit and loss.
Impairment of non-financial assets
The Company’s non-financial assets are
reviewed at each reporting date to determine
if there is indication of any impairment. If
any indication exists, the asset’s recoverable
amount is estimated. Assets that do not
generate independent cash flows are grouped
together into cash generating units (CGU).
An impairment loss is recognised whenever
the carrying amount of an asset or its cash
generating unit exceeds its recoverable
amount. Recoverable amount is determined:
i. in case of an individual asset, at the
higher of the net selling price and the
value in use; and
ii. in case of a cash generating unit (a
group of assets that generates identified,
independent cash flows), at the higher of
the cash generating unit’s net selling price
and the value in use.
(The amount of value in use is determined as
the present value of estimated future cash
flows from the continuing use of an asset and
from its disposal at the end of its useful life.
For this purpose, the discount rate (pre-tax) is
determined based on the weighted average
cost of capital of the respective company
suitably adjusted for risks specified to the
estimated cash flows of the asset). For this
purpose, a cash generating unit is ascertained
as the smallest identifiable group of assets
that generates cash inflows that are largely
independent of the cash inflows from other
assets or groups of assets.
Impairment losses are recognised in the
standalone statement of profit and loss. An
impairment loss is reversed if there has been
a change in the estimates used to determine
the recoverable amount. An impairment loss
is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying
amount that would have been determined
net of depreciation or amortisation, if no
impairment loss had been recognised.
(k) Trade and other payables
Trade and other payables represent liabilities for
goods or services provided to the Company prior
to the end of financial year which are unpaid.
(l) Borrowings
Borrowings are initially recognised at fair value,
net of transaction costs incurred. Borrowings
are subsequently measured at amortised cost.
Any difference between the proceeds (net of
transaction costs) and the redemption amount
is recognised in profit or loss over the period of
the borrowings using the effective interest rate
method. Borrowings are de-recognised from the
balance sheet when the obligation specified in
the contract is discharged, cancelled or expired.
The difference between the carrying amount of
a financial liability that has been extinguished or
transferred to another party and the consideration
paid, including any non-cash assets transferred or
liabilities assumed, is recognised in profit or loss.
(m) Employee benefits
i) Short-term employee benefits
Employee benefits payable within twelve
months of receiving employee services are
classified as short-term employee benefits.
These benefits include salaries and wages,
bonus, etc. The undiscounted amount
of short-term employee benefits to be
paid in exchange for employee services is
recognised as an expense in standalone
statement of profit and loss as the related
service is rendered by employees.
ii) Other long-term employee benefits:
Other long-term employee benefits are
recognised as an expense in the standalone
statement of profit and loss as and when
they accrue. The Company determines the
liability using the Projected Unit Credit
Method, with actuarial valuations carried
out as at the balance sheet date. Actuarial
gains and losses in respect of such benefits
are charged to the standalone statement
of profit and loss.
iii) Post employment obligations
a. Defined Contribution Plans:
The Company makes payments to
defined contribution plans such
as provident fund and employees’
state insurance. The Company has
no further payment obligations once
the contributions have been paid.
The contributions are accounted for
as defined contribution plans and
the contributions are recognised as
employee benefit expense when they
are due. Prepaid contributions are
recognised as an asset to the extent
that a cash refund or a reduction in
the future payments is available.
b. Defined Benefit Plans:
The liability or asset recognised
in the balance sheet in respect of
defined benefit gratuity plans is the
present value of the defined benefit
obligation at the end of the reporting
period less the fair value of plan assets.
The defined benefit obligation is
calculated annually by actuaries using
the projected unit credit method.
The net interest cost is calculated
by applying the discount rate to
the balance of the defined benefit
obligation and the fair value of
plan assets. This cost is included
in employee benefit expense
in the standalone statement of
profit and loss.
Remeasurement gains and losses
arising from experience adjustments
and changes in actuarial assumptions
are recognised in the period in
which they occur, directly in other
comprehensive income. They are
included in retained earnings
in the standalone statement of
changes in equity and in the
standalone balance sheet.
Changes in the present value of the
defined benefit obligation resulting
from plan amendments or curtailments
are recognised immediately in profit
and loss as past service cost.
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