2. MATERIAL ACCOUNTING POLICIES
2.1 Statement of compliance
Standalone financial statements have been prepared in accordance with the accounting principles generally accepted in India including Indian accounting standards (Ind AS) prescribed under the section 133 of the Companies Act, 2013 read with rule 3 of the Companies (Indian accounting standards) Rules, 2015 as amended and relevant provisions of the Companies Act, 2013.
Accordingly, the Company has prepared these standalone financial statements which comprise the balance sheet as at 31st March, 2024, the statement of profit and loss for the year ended 31st March, 2024, the statement of cash flows for the year ended 31st March, 2024 and the statement of changes in equity for the year ended as on that date, and accounting policies and other explanatory information (together hereinafter referred to as ‘Standalone Financial Statements’ or ‘Financial Statements’).
These financial statements are approved for issue by the Board of Directors on 29th May, 2024.
2.2 Basis of preparation of financial statements
The financial statements have been prepared in accordance with Indian accounting standards (Ind AS), under the historical cost convention on the accrual basis as per the provisions of Companies Act, 2013, except for certain financial assets and liabilities that are measured at fair value at the end of each reporting period set out below.
The accounting policy has been applied consistently over all the periods reported in these financial statements, except where a newly issued accounting standard is initially adopted or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
The standalone financial statements have been presented in Indian Rupees (INR), which is the Company’s functional currency. All financial information presented in INR has been rounded off to the nearest two decimals of Lakhs, unless otherwise stated.
2.3 Significant accounting judgments, estimates and assumptions
In preparing these financial statements in conformity with Ind AS, the Management is required to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
This note provides an overview of the areas where there is a higher degree of judgment or complexity. Detailed information about each of these estimates and judgments is included in relevant notes together with information about the basis of calculation.
The areas involving critical estimates or judgments are
• Fair value of unlisted equity securities - Note 4
• Defined benefit obligation - Note 33
• Measurement of contingent liabilities - Note 32
• Current tax expense and current tax payable - Note 7
• Deferred tax assets - Note 7
Estimates and underlying assumptions are reviewed on an ongoing basis. Estimates are based on historical experience and other factors, including futuristic reasonable information that may have a financial impact on the company. Any change in these estimates and assumptions will generally be reflected in the financial statements in current period or prospectively, unless they are required to be treated retrospectively under relevant accounting standards.
2.4 Classification of current/non-current assets and liabilities
All assets and liabilities are presented as Current or Non-Current as per the Company’s normal operating cycle and the other criteria set out in Schedule III of the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets for processing and their realization, the Company has ascertained its operating cycle as 12 months for the purpose of Current/Non-Current classification of assets/liabilities.
2.5 Standards issued but not effective (based on exposure drafts available as on date)
Ministry of Corporate Affairs (“MCA”) notifies new standards or amendments to the existing standards under Companies (Indian Accounting Standards) Rules as issued from time to time.
2.6 Property, plant and equipment
Property, plant and equipment except freehold land is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any.
The cost of property, plant and equipment comprises its purchase price net of any trade discounts and rebates, any import duties and other taxes (other than those subsequently recoverable from the tax authorities), any directly attributable expenditure on making the asset ready for its intended use, including relevant borrowing costs for qualifying assets and any expected costs of decommissioning. Expenditure incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are charged to the statement of profit and loss in the year in which the costs are incurred. It includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Company’s accounting policy based on Ind AS 23 - Borrowing costs. Such properties are classified to the appropriate categories of PPE when completed and ready for intended use. Items such as spare parts, standby equipment and service equipment that meet definition of PPE are capitalized at cost.
The cost and related accumulated depreciation are eliminated from the financial statements upon sale or retirement of the asset and the resultant gains or losses are recognized in the statement of profit and loss. Assets to be disposed off are reported at the lower of the carrying value or the fair value less cost to sell.
Capital work-in-progress
Assets in the course of construction are capitalised in the Capital Work in Progress account. 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 and depreciation commences.
2.7 Intangible assets
Intangible assets with finite useful life that are acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment loss, if any.
2.8 Depreciation/amortization
Depreciation is calculated on a straight-line basis or written down value as per the specified life of the assets as provided in schedule II of the Companies Act, 2013. The useful life of item of PPE are mentioned below.
The management, based on internal technical evaluation, believes that the useful lives as given above best represent the period over which the assets are expected to be used.
Depreciation methods, useful lives and residual values are reviewed periodically, including at each financial year end.
2.9 Impairment of assets
The carrying amounts of assets are reviewed at balance sheet date to check if there is any indication of impairment based on internal or external factors. An asset is treated as impaired when the carrying cost of assets exceeds its recoverable value. An impairment loss is charged to the statement of profit and loss in the year in which an asset is identified as impaired. The impairment loss, if any, recognized in prior accounting period is reversed if there has been a change in the estimate of recoverable amount.
2.10 Leases
The Company as a lessee
The Company’s lease asset classes primarily consist of leases for land and buildings. The Company assesses whether a contract contains a lease, at inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a 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 date of commencement of the lease, the Company recognizes a right-of-use asset (“ROU”) and a corresponding lease liability for all lease arrangements in which it is a lessee, except for leases with a term of twelve months or less (short-term leases) and low value leases. For these short-term and low value leases, the Company recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease.
Certain lease arrangements includes the options to extend or terminate the lease before the end of the lease term. ROU assets and lease liabilities includes these options when it is reasonably certain that they will be exercised.
The right-of-use assets are initially recognized at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any lease incentives. They are subsequently measured at cost less accumulated depreciation and impairment losses.
Right-of-use assets are depreciated from the commencement date on a straight-line basis over the shorter of the lease term and useful life of the underlying asset. Right-of-use assets are evaluated for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the asset belongs.
The lease liability is initially measured at amortized cost at the present value of the future lease payments. The lease payments are discounted using the interest rate implicit in the lease or, if not readily determinable, using the incremental borrowing rates in the country of domicile of these leases. Lease liabilities are remeasured with a corresponding adjustment to the related right-of-use asset if the Company changes its assessment if whether it will exercise an extension or a termination option.
Lease liability and ROU asset have been separately presented in the balance sheet and lease payments have been classified as financing cash flows.
The lease liability is already discharged and therefore no lease liability remains to be disclosed. Transition
Effective 1st April, 2019, the Company adopted Ind AS 116 “Leases” and applied the standard to all lease contracts existing on 1st April, 2019. Accordingly, the Company has re-classified leasehold land from property, plant & equipment to right-of-use asset. The leasehold land is already fully paid and hence already stated at its present value. The same is being amortized over the period of lease (including the period renewable at the option of the Company.)
All other lease contracts of the Company are for lease tenure below 12 months and the Company has accordingly applied the exemption not to recognize right-of-use assets for such leases.
The Company as a lessor
Lease income from operating leases where the Company is a lessor is recognised in income on a straightline basis over the lease term. The respective leased assets are included in the balance sheet based on their nature.
Arrangements in the nature of lease
The Company enters into agreements, comprising a transaction or series of related transactions that does not take the legal form of a lease but conveys the right of use the asset in return for a payment or series of payments. In case of such arrangements, the Company applies the requirements of Ind AS 116 - Leases to the lease element of the arrangement. For the purpose of applying the requirements under Ind AS 116 -Leases, payments and other consideration required by the arrangement are separated at the inception of the arrangement into those for lease and those for other elements.
2.11 Revenue recognition
Revenue is measured based on the consideration specified in a contract with a customer.
Sale of goods
The principal activity from which the Company generates revenue is the supply of products to customers from its various manufacturing sites and warehouses. Products are supplied under a variety of standard terms and conditions, and in each case, revenue is recognized when contractual performance obligations between the Company and the customer are satisfied and control of product has been transferred to the Customer. This will typically be on dispatch or delivery. When sales discount and rebate arrangements result in variable consideration, appropriate provisions are recognized as a deduction from revenue at the point of sale (to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue will not be required). The Company typically uses the expected value method for estimating variable consideration, reflecting that such contracts have similar characteristics and a range of possible outcomes.
Sale of services
Revenues for services are recognised when the service rendered has been completed.
Royalties and profit-sharing arrangements
Revenues are recognized when performance obligations between the Company and the customer are satisfied in accordance with the substance of the underlying contract.
Interest and dividend income
Interest income is recognized on a time-proportion basis using the effective interest method. Dividend income is recognized when the right to receive payment is established.
2.12 Inventories
(i) Raw materials, stores and spares, packing materials, work-in-process and finished goods are valued at lower of cost and net realizable value. Damaged, unserviceable and inert stocks are suitably depreciated.
(ii) In determining cost of raw materials, stores and spares (except machinery spares which meet the definition of PPE ) and packing materials, weighted average cost method is used. Cost of inventory comprises all costs of purchase, duties and taxes (other than those subsequently recoverable from tax authorities) and all other costs incurred in bringing the inventory to their present location and condition.
(iii) Cost of finished products and work-in-process include the cost of raw materials, packing materials, and an appropriate share of fixed and variable production overheads and other costs incurred in bringing the inventories to their present location and condition.
2.13 Financial instruments
The Company recognizes financial assets and financial liabilities when it becomes a party to the contractual provisions of the instrument.
(a) Financial assets
(i) Initial recognition and measurement
The Company recognizes financial assets when it becomes a party to the contractual provisions of the instrument. All financial assets are recognized at fair value on initial recognition, except for trade receivables which are initially measured at transaction price. Transaction costs that are directly attributable to the acquisition of financial assets, which are not at fair value through profit or loss, are added to the fair value on initial recognition. Regular way trade of financial assets a re accounted for at trade date.
(ii) Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
Financial assets at amortised cost
A financial asset is subsequently 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.
After initial measurement, debt instruments at amortised cost are subsequently measured at amortised cost using the effective interest rate method, less impairment, if any.
Financial assets at fair value through other comprehensive income
A financial asset is subsequently measured at fair value through other comprehensive income 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.
The Company has made an irrevocable election for its investments which are classified as equity instruments to present the subsequent changes in fair value in other comprehensive income based on its business model.
Financial assets at fair value through profit or loss
Financial assets which are not classified in any of the above categories are subsequently fair valued through profit or loss.
Investment in subsidiaries
Investment in subsidiaries is carried at cost in the financial statements.
(iii) Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized (i.e. removed from the Company’s balance sheet) when any of the following occurs
• The contractual rights to cash flows from the financial asset expires;
• The Company transfers its contractual rights to receive cash flows of the financial asset and has substantially transferred all the risks and rewards of ownership of the financial asset;
• The Company retains the contractual rights to receive cash flows but assumes a contractual obligation to pay the cash flows without material delay to one or more recipients under a ‘pass-through’ arrangement (thereby substantially transferring all the risks and rewards of ownership of the financial asset);
• The Company neither transfers nor retains substantially all risk and rewards of ownership and does not retain control over the financial asset;
(b) Financial liabilities
(i) Initial recognition and measurement
The Company’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts. Financial liabilities are classified, at initial recognition, at fair value through profit and loss or as those measured at amortised cost.
(ii) Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as follows
Financial liabilities at fair value through profit and loss
Financial liabilities at fair value through profit and loss include financial liabilities held for trading.
The Company has not designated any financial liabilities upon initial recognition at fair value through profit and loss.
Financial liabilities measured at amortised cost
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
(c) Fair value
The Company measures financial instruments at fair value in accordance with the accounting policies mentioned above. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either.
• In the principal market for asset or liability or
• In the absence of principal market, in the most advantageous market for the assets or liability
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy that categorizes into three levels, described as follows, the inputs to valuation techniques used to measure value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
Level 1 - quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3 - inputs that are unobservable for the asset or liability
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period and discloses the same.
2.14 Foreign exchange transactions
The functional currency of the Company is Indian Rupees which represents the currency of the primary economic environment in which it operates.
Transactions in foreign currencies are initially recorded by the Company at the rate of exchange prevailing on the date of the transaction. Monetary assets and monetary liabilities denominated in foreign currencies remaining unsettled at the end of the year are converted at the exchange rate prevailing on the reporting date.
Differences arising on settlement or conversion of monetary items are recognised in statement of profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are recorded using the exchange rates at the date of the transaction.
2.15 Trade receivables
Trade Receivables are stated after writing off debts considered as bad. Adequate provision is made for Expected Credit Losses. Discounts due yet to be quantified at the customer level are netted of from Trade Receivables.
2.16 Borrowing costs
(i) Borrowing cost includes interest, amortization of ancillary costs incurred in connection with the arrangement of borrowings and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost.
(ii) Borrowing costs, if any, directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized. All other borrowing costs are expensed in the period they occur.
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