3.6 Significant Accounting Policies
a) Revenue Recognition
Revenue is recognized to the extent that it is possible that the economic
benefits will flow the Company and the revenue can be reliably measured,
regardless of when the payment is being made. Revenue is measured at the
fair value of the consideration received or receivable, taking into account
contractually defined terms of payment and excluding taxes or duties collected
on behalf of the government.
i. The company recognizes revenue from contracts with
customers based on a five step model as set out in Ind AS 115:
Step 1: Identify contract(s) with a customer: A contract is defined as an
agreement between two or more parties that creates enforceable rights and
obligations and sets out the criteria for every contract that must be met.
Step 2: Identify performance obligations in the contract: A performance
obligation is a promise in a contract with a customer to transfer a good or
service to the customer.
Step 3: Determine the transaction price: The transaction price is the amount
of consideration to which the company expects to be entitled in exchange for
transferring promised goods or services to a customer, excluding amounts
collected on behalf of the third parties.
Step 4: Allocate the transaction price to the performance obligations in the
contract: For a contract that has more than one performance obligation, the
Company allocates the transaction price to each performance obligation in an
amount that depicts the amount of consideration to which the company expects
to be entitled in exchange for satisfying each performance obligation.
Step 5: Recognize revenue when (or as) the Company satisfies a performance
obligation.
ii. Interest Income
Interest income from a financial asset is recognized when it is probable that
the economic benefits will flow the Company and the amount of income can
be measured reliably. Interest income is accrued on a timely basis, by reference
to the principal outstanding and at the effective interest rate applicable, which
is the rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset to the asset's net carrying amount on initial
recognition.
iii. Dividend
Dividend income is recognized when the right to receive dividend is established.
b) Government Grant
Government Grant are recognized where there is a reasonable assurance that
the grant will be received and all the attached condition will be complied with.
When the grant relates to an expenses item, it is recognized as income on a
systematic basis over the periods that the related costs, for which it is intended
to compensate, are expensed.
Grants related to specified fixed assets are deducted from the gross value of
the concerned assets in arriving at their book values.
c) Taxation
Income Tax represents the sum of current and deferred tax (including MAT).
Current income tax assets and liabilities are measured at the amount to be
recovered from or paid to taxation authorities. The tax rates and tax laws used
to compute the amount are those that are enacted or substantively enacted at
the reporting date.
Income tax expenses is recognized in the Statement of Profit & Loss, except to
the extent that it relates to items recognized directly in equity or other
comprehensive income, in such cases the tax is also recognized directly in
equity or in other comprehensive income.
Deferred tax is recognized on differences between the carrying amounts of
assets and liabilities in the Balance Sheet and the tax bases used in the
computation of taxable profit.
Deferred tax liabilities are generally recognized for all taxable temporary
differences, and deferred tax assets are generally recognized for all deductible
temporary differences. Deferred tax assets are recognized to the extent that it
is probable that future tax payable profits will be available against which those
deductible temporary differences and the carry forward to unused tax credits
and unused tax losses can be utilized. Deferred tax assets and Deferred tax
liabilities are set off, and presented as net.
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 against which the temporary differences can be
utilized.
Minimum Alternative Tax (MAT) is applicable to the Company. Credit of MAT is
recognized as an asset only when and to the extent there is convincing
evidence that the company will pay normal income tax during the specified
period, i.e, the period for which MAT credit is allowed to the carried forward.
In the year in which the MAT credit becomes eligible to be recognized as an
asset, the said asset is credited by way of a credit to the Profit & Loss Account
and shown as MAT credit entitlement. The company reviews the same at each
Balance Sheet date and writes down the carrying amount of MAT credit
entitlement to the extent there is no longer convincing evidence to the effect
that the Company will pay normal income tax during the specified period.
d) Property, Plant & Equipment
The company considers the previous GAAP carrying value for all its Property,
Plant & Equipment as deemed cost at the transition date, viz. 1st April'2016.
Property, Plant & Equipment are stated at cost less accumulated depreciation
and accumulated impairment of loss, if any.
Cost of any item of property, plant & equipment comprises its purchase price
including import duties and non- refundable purchase taxes, after deducting
trade discounts and rebated, any directly attributable cost of bringing the item
to its working condition.
Depreciation is provided on the straight line method by depreciating carrying
amount of Property, Plant & Equipment over remaining useful life of the
assets.
Depreciation methods, useful life and residual values are reviewed at each
financial year end.
The useful life and residual value as per such review is normally in accordance
with schedule II of the Companies Act,2013.
The gain or loss arising on the disposal or retirement of an item of Property,
Plant & Equipment is determined as the difference between the sales proceeds
and the carrying amount of the assets and is recognition in the Statement of
Profit & Loss on the date of disposal or retirement.
e) Intangible Assets
Intangible Assets are stated at cost less accumulated amortization and
impairment. Intangible Assets are amortized over their respective individual
estimated useful life on a straight line method.
Gains or losses arising from de-recognition of an intangible asset are measured
as the difference between the net disposal proceeds and the carrying amount
of the asset and are recognized in the statement of profit or loss when the
asset is derecognized.
f) Impairment of Assets
The Company assesses at each Balance Sheet date whether there is any
indication that a Property, plant & equipment May have been impaired. If any
such indication exists, the Company estimates the recoverable amount of the
Property, plant & equipment. If such recoverable amount of the Property, plant
& equipment or the recoverable amount of the cash generating unit to which
the Property, plant & equipment belongs is less than its carrying amount, the
carrying amount is reduced to its recoverable amount. The reduction is treated
as an impairment loss and its recognized in the profit & loss. If at the Balance
Sheet date there is an indication that if a previously assessed impairment loss
no longer exists, the recoverable amount is reassessed and the asset is
reflected at the recoverable amount subject to a maximum of depreciated
historical cost.
g) Inventories
Inventories are stated at lower of cost and net realizable value. The cost is
calculated on First in First Out (FIFO) method except work in progress which is
valued at raw material cost plus conversion costs depending upon the stages
of completion. Cost comprises expenditure incurred in the normal course of
business in bringing such inventories to its present location and condition and
includes, where applicable, appropriate overheads based on normal level of
activity. Net realizable value is the estimated selling price less estimated cost
for completion and sale.
h) Borrowing Costs
Interest and other costs connected with the borrowing for the acquisition/
construction of qualifying fixed assets are capitalized up to the date when such
assets are ready for their intended use and other borrowing cost are charged
to Statement of Profit & Loss. Borrowing cost includes exchange difference to
the extent regarded as an adjustment to the borrowing cost.
i) Lease
The Company evaluates if an arrangement qualifies to be a lease as per the
requirements of IND AS 116. Identification of a lease requires significant
judgement. The Company uses significant judgement in assessing the lease
term (including anticipated renewals) and the applicable discount rate.
The company determines the lease term as the non- cancellable period of a
lease, together with both periods covered by an option to extended the lease
if the Company is reasonably certain to exercise that option; and periods
covered by an option to terminated the lease if the company is reasonably
certain to exercise that option. In assessing whether the Company is
reasonably certain to exercise an option to extend a lease, or not to exercise
an option to terminate a lease, it considers all relevant facts and circumstances
that create an economic incentive for the company to exercise the option to
extend the lease, or not to exercise the option to terminate the lease. The
Company revises the lease term if there is a change in the non- cancellable
period of a lease.
The discount rate is generally based on the incremental borrowing rate
specified to the lease being evaluated or for a portfolio of leases with similar
characteristics.
Company as a lessee
The Company accounts for such lease component within the contract as a lease
separately from non- lease components of the contract and allocates the
consideration in the contract to each lease component based on the relative
stand- alone price of the lease component and the aggregate stand- alone price
of the non- lease components.
The Company recognizes right-of-use asset representing its right to use the
underlying asset for the lease term at the lease commencement date. The cost
of the right-of-use asset measured at inception shall comprise of the amount
of the initial measurement of the lease liability adjusted for any lease payments
made at or before the commencement date less any lease incentives received,
plus any initial direct costs incurred and an estimate of costs to be incurred by
the lessee in dismantling and removing the underlying asset or restoring the
underlying asset or site on which it is located. The right of use assets is
subsequently measured at cost less any accumulated depreciation,
accumulated impairment losses, if any and adjusted for any re- measurement
of the lease liability. The right-of-use asset are depreciated using the straight
line method from the commencement date over the shorter of lease term or
useful life of right-of-use asset. The estimated useful lives of right-of-use assets
are determined on the same basis as those of property, plant & equipment.
Right-of-use assets are tested for impairment whenever there is any indicate
loss, if any, is recognized in the Statement of Profit & Loss.
The Company measures the lease liability at the present value of the lease
payments that are not paid at the commencement date of the lease. The lease
payments are discontinued using the interest rate implicit in the lease, if that
rate can be readily determined. If that rate cannot be readily determined, the
Company can use incremental borrowing rate. For leases with reasonably
similar Characteristics, the Company, on a lease-by-lease basis, may adopt
either the incremental borrowing rate specified the lease or the incremental
borrowing rate for the portfolio as a whole. The lease payments shall include
fixed payments, variable lease payments, residual value guarantees, exercise
price of a purchase option where the Company is reasonably certain to exercise
that option and payments of penalties for terminating the lease. The lease
liability is subsequently re- measured by increasing the carrying amount to
reflect interest on the lease liability, reducing the carrying amount to reflect
the lease payments made and re-measuring the carrying amount to reflect any
re-assessment or lease modifications or to reflect revised in-substance fixed
lease payments. The Company recognizes the amount of the re- measurement
of lease liability due to modification as on adjustment to the right-of-use asset
and Statement of Profit & Loss depending upon the nature of modification.
Where the carrying amount of the right-of-use asset is reduced to zero and
there is a further reduction in the measurement of the lease liability, the
Company recognizes any remaining amount of the re- measurement in
Statement of Profit & Loss.
Company as a lessor
At the inception of the lease the company classifies each of its leases as either
an operating lease or a finance lease. The Company recognizes lease payments
received under operating leases as income on a straight line basis over the
lease term. In case of a finance lease, finance income is recognized over the
lease term based on a pattern reflecting a constant periodic rate of the return
on the lessor's net investment in the lease. When the company is an
intermediate lessor it accounts for its interests in the head lease and the sub
lease separately. It assesses the lease classification of a sub- lease with
reference to the right of use asset arising from the head lease, not with
reference to the underlying asset. If a head lease is a short term lease to which
the Company applies the exemption described above, then it classifies the sub¬
lease as an operating lease.
The Company has elected not to apply the requirements of Ind AS 116 leases
to short term leases of all assets that have a lease term of 12 months or less
and leases for which the underlying assets is of low value. The lease payments
associated with these leases are recognized as an expenses on a straight- line
basis over the lease term.
j) Foreign Currencies Translations
Transactions in foreign currencies are initially recorded in reporting currency
by the company at spot rates at the date the transaction first qualifies for
recognition.
Monetary assets are liabilities denominated in are translated at functional
currency spot rates of exchange at the reporting date. Exchange differences
arising on settlement or translation of monetary items are recognized in
statement of profit and loss.
Non- monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates at the dates of the initial
transactions. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value is
determined. The gain or loss arising on translation of non-monetary items
measured at fair value is treated in line with the recognized of the gain or loss
on the change in fair value of the item (i.e., translation differences on items
whose fair value gain or loss is recognized in OCI or statement profit or loss
are also recognized in OCI or statement profit & loss, respectively).
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