3. MATERIAL ACCOUNTING POLICIES
A summary of the material accounting policies
applied in the preparation of the standalone financial
statements are as given below. These accounting
policies have been applied consistently to all the
periods presented in the financial statements.
3.1 Inventories
Inventories are valued at Cost or Net Realizable
Value, whichever is lower. Cost comprise of all
costs of purchase (Net of Input Tax Credit), costs of
conversion and other costs incurred in bringing the
inventories to their present location and condition.
Cost is determined on moving weighted average
basis. Net Realizable Value is the estimated selling
price in the ordinary course of business less
estimated cost of completion and the estimated
cost necessary to make the sale. However, materials
and other items held for use in the production of
inventories are not written down below cost if the
finished products in which they will be incorporated
are expected to be sold at or above cost.
3.2 Cash and Cash Equivalents
Cash and cash equivalents in the Balance Sheet
comprise cash in hand, balance with Banks and
short term deposits with an original maturity
of three months or less, which are subject to an
insignificant risk of change in value. However, for
the purpose of the Cash Flow Statement the same
is net of outstanding bank overdrafts.
3.3 Income Tax
Income Tax comprises current and deferred tax.
It is recognized in the Statement of Profit and
Loss except to the extent that it relates to an
item recognized directly in equity or in other
comprehensive income.
3.3.1. Current Tax
Current tax liabilities (or assets) for the current
and prior periods are measured at the amount
expected to be paid to (recovered from) the taxation
authorities using the tax rates (and tax laws) that
have been enacted or substantively enacted, at
the end of the reporting period. Current tax assets
and current tax liabilities are offset when there is a
legally enforceable right to set off the recognized
amounts and there is an intention to settle the asset
and the liability on a net basis.
3.3.2. Deferred Tax
• Deferred tax assets and liabilities shall be
measured at the tax rates that are expected to
apply to the period when the asset is realized or
the liability is settled based on tax rates (and tax
laws) that have been enacted or substantively
enacted by the end of the reporting period.
• Deferred tax is recognized in respect of temporary
differences between the carrying amounts
of assets and liabilities for financial reporting
purposes and the corresponding amounts used
for taxation purposes (i.e., tax base). Deferred tax
is also recognized for carry forward of unused tax
losses and unused tax credits.
• Deferred tax assets are recognized to the extent
that it is probable that taxable profit will be
available against which the deductible temporary
differences, and the carry forward of unused tax
credits and unused tax losses can be utilized.
• The carrying amount of deferred tax assets is
reviewed at the end of each reporting period.
The Company reduces the carrying amount of
a deferred tax asset to the extent that it is no
longer probable that sufficient taxable profit
will be available to allow the benefit of part or
that entire deferred tax asset to be utilized. Any
such reduction is reversed to the extent that it
becomes probable that sufficient taxable profit
will be available.
• Deferred tax relating to items recognized outside
the Statement of Profit and Loss is recognized
either in other comprehensive income or in
equity. Deferred tax items are recognized in
correlation to the underlying transaction either in
other comprehensive income or directly in equity.
• 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.
• The Government of India, on September 20,
2019, vide the Taxation Laws (Amendment)
Ordinance 2019, inserted a new Section 115BAA
in the Income Tax Act, 1961, which provides an
option to the Company for paying Income Tax
at reduced rates as per the provisions/conditions
defined in the said section. The Company is
continuing with higher income tax rate option,
based on the available outstanding MAT credit
entitlement and different exemptions and
deduction enjoyed by the Company. However,
the Company has estimated and applied the
lower income tax rate on the deferred tax assets
/ liabilities to the extent these are expected to be
realized or settled in the future period when the
Company would be subjected to lower tax rate.
3.4 Property, Plant and Equipment
3.4.1. Recognition and Measurement
• Property, plant and equipment held for use in the
production or/ and supply of goods or services,
or for administrative purposes, are stated in
the Balance Sheet at cost, less accumulated
depreciation and accumulated impairment losses
(if any) except freehold land where the Company
had opted revaluation model, and the same is
stated in the Balance Sheet at revalued amount
less accumulated depreciation and accumulated
impairment losses (if any). (Refer Note No.5.2).
• Cost of an item of property, plant and equipment
acquired comprises its purchase price including
import duties and non-refundable purchase
taxes, directly attributable borrowing costs, any
other directly attributable costs of bringing the
assets to its working condition and location for its
intended use and present value of any estimated
cost of dismantling and removing the item and
restoring the site on which it is located.
• In case of self-constructed assets, cost includes
the costs of all materials used in construction,
direct labour, allocation of directly attributable
overheads, directly attributable borrowing
costs incurred in bringing the item to working
condition for its intended use and estimated
cost of dismantling and removing the item and
restoring the site on which it is located. The
costs of testing whether the asset is functioning
properly, after deducting the net proceeds from
selling items produced are also added to the cost
of self-constructed assets.
• 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.
• Material items such as spare parts, stand-by
equipment and service equipment are classified
as property, plant and equipment when they meet
the definition of property, plant and equipment.
3.4.2. Subsequent Expenditure
• Subsequent costs are included in the asset’s
carrying amount, only when it is probable that
future economic benefits associated with the cost
incurred will flow to the Company and the cost of
the item can be measured reliably. The carrying
amount of any component accounted for as a
separate asset is derecognized when replaced.
• Major Inspection/ Repairs/ Overhauling expenses
are recognized in the carrying amount of
the item of property, plant and equipment
as a replacement if the recognition criteria
are satisfied. Any unamortized part of the
previously recognized expenses of similar nature
is derecognized.
3.4.3. Depreciation and Amortization
• Depreciation is the systematic allocation of
the depreciable amount of property, plant and
equipment over its useful lives and is provided
on straight line basis at the rates determined
based on the useful lives of respective assets as
prescribed in the Schedule II of the Act, though
these lives in certain cases are different from the
lives prescribed in Schedule II.
• In case the cost of part of property, plant and
equipment is significant to the total cost of the
assets and useful life of that part is different
from the remaining useful life of the asset,
depreciation has been provided on straight
line method based on internal assessment and
independent technical evaluation carried out
by external valuers, which the management
believes that the useful lives of the component
best represent the period over which it expects
to use those components.
• Such classes of assets and their estimated useful
lives are as under:
• Depreciation on additions (disposals) during
the year is provided on a pro-rata basis i.e. from
(up to) the date on which asset is ready for use
(disposed off).
• Depreciation method, useful lives and residual
values are reviewed at each financial year-end
and adjusted, if appropriate.
3.4.4. Disposal of Assets
An item of property, plant and equipment is
derecognized upon disposal or when no future
economic benefits are expected to arise from
the continued use of the asset. Any gain or loss
arising on the disposal or retirement of an item of
property, plant and equipment is determined as the
difference between net disposal proceeds and the
carrying amount of the asset and is recognized in
the Statement of Profit and loss.
3.4.5. Reclassification to Investment Property
When the use of a property changes from owner-
occupied to investment property, the property is
reclassified as investment property at its carrying
amount on the date of reclassification. In case of
such property was fair valued, the amount of gain
/ (loss) on account of such fair valuation is adjusted
with revaluation reserve.
3.4.6. Capital Work in Progress and Capital
Advance
Capital work-in-progress is stated at cost less
accumulated impairment loss, if any, which
includes expenses incurred during construction
period, interest on amount borrowed for
acquisition of qualifying assets and other
expenses incurred in connection with project
implementation in so far as such expenses relate
to the period prior to the commencement of
commercial production.
3.5 Leases
3.5.1. Determining whether an arrangement
contains a lease
The determination of whether an arrangement
is (or contains) a lease is based on the substance
of the arrangement at the inception of the
lease. The arrangement is, or contains, a lease
if fulfillment of the arrangement is dependent
on the use of a specific asset or assets and the
arrangement conveys a right to use the asset or
assets, even if that right is not explicitly specified
in an arrangement.
3.5.2. Company as lessor
• Finance Lease
Leases which effectively transfer to the lessee
substantially all the risks and benefits incidental
to ownership of the leased item are classified and
accounted for as finance lease. Lease rental receipts
are apportioned between the finance income and
capital repayment based on the implicit rate of
return. Contingent rents are recognized as revenue
in the period in which they are earned.
• Operating Lease
Leases in which the Company does not transfer
substantially all the risks and rewards of ownership
of an asset are classified as operating leases.
Rental income from operating leases is recognized
on a straight-line basis over the term of the
relevant lease except where scheduled increase
in rent compensates the Company with expected
inflationary costs.
3.5.3. Company as Lessee
The Company’s lease asset classes primarily
comprise of lease for land, building and Plant
& Machinery. 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.
The Company applies a single recognition and
measurement approach for all leases, except for
short-term leases and leases of low-value assets.
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. The Company recognises lease
liabilities to make lease payments and right-of-use
assets representing the right to use the underlying
assets as below:
• Right of Use Assets
The Company recognizes right of use assets at
the commencement date of the lease (i.e., the
date the underlying asset is available for use).
Right of use assets are measured at cost, less any
accumulated depreciation and impairment loss, if
any, and adjusted for any remeasurement of lease
liabilities. The cost of right of use assets includes
the amount of lease liabilities recognized, initial
direct costs incurred, and lease payments made
at or before the commencement date less any
lease incentives received. Right of use assets are
depreciated on a straight-line basis over the shorter
of the lease term and the estimated useful lives of
the underlying assets.
If ownership of the leased asset transfers to the
Company at the end of the lease term or the
cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated
useful life of the asset. The right of use assets are
also subject to impairment. Refer to the accounting
policies in section ‘Impairment of Non-Financial
Assets’.
• Lease Liabilities
At the commencement date of the lease, the
Company recognizes lease liabilities measured at
the present value of lease payments to be made
over the lease term. The lease payments include
fixed payments (including in substance fixed
payments) less any lease incentives receivable,
variable lease payments that depend on an index
or a rate, and amounts expected to be paid under
residual value guarantees. The lease payments
also include the exercise price of a purchase option
reasonably certain to be exercized by the Company
and payments of penalties for terminating the
lease, If any.
In calculating the present value of lease payments,
the Company uses its incremental borrowing
rate at the lease commencement date. After
the commencement date, the amount of lease
liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made.
In addition, the carrying amount of lease liabilities
is re-measured if there is a modification, a change
in the lease term, a change in the lease payments
(e.g., changes to future payments resulting from a
change in an index or rate used to determine such
lease payments) or a change in the assessment of
an option to purchase the underlying asset.
The Company’s lease liabilities are included in other
current and non-current financial liabilities.
• Short-term leases and leases of low-value assets
The Company applies the short-term lease
recognition exemption to its short-term leases (i.e.,
those leases that have a lease term of 12 months
or less from the commencement date and do not
contain a purchase option). It also applies the lease
of low-value assets recognition exemption to leases
that are considered to be low value. Lease payments
on short-term leases and leases of low-value assets
are recognized as expense on a straight-line basis
over the lease term.
“Lease liabilities” have been separately presented in
the Balance Sheet, “Right of Use Assets” have been
shown as part of the Property, Plant and Equipment
in the Balance Sheet and lease payments have been
classified as financing cash flows.
3.6 Revenue Recognition
The Company follows Ind AS 115 “Revenue from
Contracts with Customers” in respect of recognition
of revenue from contracts with customers which
provides a control-based revenue recognition
model and a five-step application approach for
revenue recognition as under:
• Identification of the contract(s) with customers;
• Identification of the performance obligations;
• Determination of the transaction price;
• Allocation of the transaction price to the
performance obligations;
• Recognition of the revenue when or as the
Company satisfies performance obligation.
Revenue from contracts with customers is
recognized when control of the goods or services
are transferred to the customer at an amount that
reflects the consideration to which the Company
expects to be entitled in exchange for those goods
or services. Revenue excludes amounts collected on
behalf of third parties.
3.6.1. Sale of Goods
Revenue from the sale of goods is recognized when
the Company satisfies a performance obligation at a
point in time by transferring the goods to customers,
i.e., when customers obtain control of the goods.
Revenue towards satisfaction of a performance
obligation is measured at the amount of transaction
price (net of variable consideration) allocated to that
performance obligation. The transaction price of
goods sold and services rendered is net of variable
consideration i.e. discounts, rebates, sales claim etc.
offered by the Company as part of the contract.
3.6.2. Variable Consideration
If the consideration in a contract includes a variable
amount, the Company estimates the amount
of consideration to which it will be entitled in
exchange for transferring the goods to customer.
The variable consideration is estimated at contract
inception and constrained until it is highly probable
that a significant revenue reversal in the amount
of cumulative revenue recognized will not occur
when the associated uncertainty with the variable
consideration is subsequently resolved.
The Company provides volume rebates to certain
customers once the quantity of products purchased
during the period exceeds a threshold specified in
the contract. Rebates are offset against amounts
payable by the customer. The volume rebates/
cash discount give rise to variable consideration.
To estimate the variable consideration for the
expected future rebates/ cash discount, the
Company applies the most likely amount method
for contracts with a single volume threshold and
the expected value method for contracts with more
than one volume threshold that best predicts the
amount of variable consideration.
3.6.3. Interest Income
For all debt instruments measured either at
amortized cost or at fair value through other
comprehensive income (FVTOCI), interest income
is recorded using the effective interest rate (EIR).
EIR is the rate that exactly discounts the estimated
future cash receipts over the expected life of the
financial instrument or a shorter period, where
appropriate, to the gross carrying amount of the
financial asset.
3.6.4. Dividend Income
Dividend Income from investments is recognized
when the Company’s right to receive payment has
been established.
3.7 Employee Benefits
3.7.1. Short Term Benefits
Short term employee benefit obligations are
measured on an undiscounted basis and are
expensed as the related services are provided.
Liabilities for wages and salaries, including non¬
monetary benefits that are expected to be settled
wholly within twelve months after the end of the
period in which the employees render the related
service are recognized in respect of employee’s
services up to the end of the reporting period.
3.7.2. Other Long Term Employee Benefits
The liabilities for earned leaves and sick leaves that
are not expected to be settled wholly within twelve
months are measured as the present value of the
expected future payments to be made in respect
of services provided by employees up to the end of
the reporting period using the projected unit credit
method. The benefits are discounted using the
government securities (G-Sec) rates at the end of
the reporting period that have terms approximating
to the terms of related obligation. Remeasurements
as the result of experience adjustment and changes
in actuarial assumptions are recognized in the
Statement of Profit and Loss.
3.7.3. Post Employment Benefits
The Company operates the following post
employment schemes:
• Defined Benefit Plans
The liability or asset recognized in the Balance
Sheet in respect of defined benefit 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 Company’s net obligation in
respect of defined benefit plans is calculated
separately for each plan by estimating the amount
of future benefit that employees have earned in
the current and prior periods. The defined benefit
obligation is calculated annually by Actuaries using
the projected unit credit method.
The liability recognized for defined benefit plans is
the present value of the defined benefit obligation
at the reporting date less the fair value of plan
assets, together with adjustments for unrecognized
actuarial gains or losses and past service costs.
The net interest cost is calculated by applying the
discount rate to the net balance of the defined
benefit obligation and the fair value of plan assets.
The benefits are discounted using the government
securities (G-Sec) rates at the end of the reporting
period that have terms approximating to the terms
of related obligation.
Remeasurements of the net defined benefit
obligation, which comprise actuarial gains and
losses, the return on plan assets (excluding interest)
and the effect of the asset ceiling, are recognized
in other comprehensive income. Remeasurement
recognized in other comprehensive income is
reflected immediately in retained earnings and
will not be reclassified to the Statement of Profit
and Loss.
• Defined Contribution Plan
Contributions to defined contribution plans such
as provident fund contribution to government
administered fund in respect of certain employees
are charged to the Statement of Profit and Loss as
and when incurred. Such benefits are classified as
defined contribution plans as the Company does
not carry any further obligations, apart from the
contributions made on monthly basis.
Further in respect of other employees, provident
fund contributions are made to various non
government administered trusts. The interest
rates payable to the members of the trust cannot
be lower than the statutory rate of interest notified
by the government. The Company has an obligation
to make good the shortfall in the interest amount,
if any. In view of the Company’s obligation to meet
the shortfall, the same has been considered as the
defined benefit plan. The expenses on account
of provident fund maintained by the trusts are
based on actuarial valuation using projected unit
credit method.
3.7.4. Termination Benefit
Expenditure incurred on Voluntary Retirement
Scheme is charged to the Statement of Profit and
Loss immediately.
3.8 Government Grants
• Government grants are recognized at their fair
values when there is reasonable assurance that
the grants will be received and the Company
will comply with all the attached conditions.
When the grant relates to an expense 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 purchase of property, plant
and equipment are included in current/ non¬
current liabilities as deferred income and are
credited to the Statement of Profit and Loss on
a straight line basis over the expected useful life
of the related asset and presented within other
operating revenue or netted off against the
related expenses.
• When loans or similar assistance are provided
by governments or related institutions, without
interest or with an interest rate below the
current applicable market rate, the effect of this
favourable interest is regarded as a government
grant. The loan or assistance is initially recognised
and measured at fair value and the government
grant is measured as the difference between the
initial carrying value of the loan and the proceeds
received. The loan is subsequently measured
as per the accounting policy applicable to
financial liabilities.
3.9 Foreign Currency Transactions
• Foreign currency transactions are translated
into the functional currency using the spot rates
of exchanges at the dates of the transactions.
Monetary assets and liabilities denominated
in foreign currencies are translated at the
functional currency spot rate of exchanges at the
reporting date.
• Foreign exchange gains and losses resulting from
the settlement of such transactions and from the
translation of monetary assets and liabilities are
generally recognized in the Statement of Profit
and Loss in the year in which they 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 qualifying assets when they are
regarded as an adjustment to interest costs on
those foreign currency borrowings, the balance
is presented in the Statement of Profit and Loss
within finance costs.
• Non monetary items are not retranslated at
period end and are measured at historical cost
(translated using the exchange rate at the
transaction date).
3.10 Borrowing Cost
• Borrowing Costs consists of interest and other
costs that an entity incurs in connection with
the borrowings of funds. Borrowing costs also
includes exchange difference to the extent
regarded as an adjustment to the borrowing costs.
• Borrowing costs directly attributable to the
acquisition or construction of a qualifying asset
are capitalized as a part of the cost of that asset
that necessarily takes a substantial period of
time to complete and prepare the asset for its
intended use or sale. The Company considers a
period of twelve months or more as a substantial
period of time.
• Transaction costs in respect of long term
borrowing are amortized over the tenure of
respective loans using Effective Interest Rate
(EIR) method. All other borrowing costs are
recognized in the Statement of Profit and Loss
in the period in which they are incurred.
3.11 Interest in Subsidiaries
The Company regardless of the nature of its
involvement with an entity (the investee),
determines whether it is a parent by assessing
whether it controls the investee. The Company
controls an investee when it is exposed, or has
rights, to variable returns from its involvement
with the investee and has the ability to affect those
returns through its power over the investee. Thus,
the Company controls an investee if and only if it
has all the following:
(a) power over the investee;
(b) exposure, or rights, to variable returns from its
involvement with the investee and
(c) the ability to use its power over the investee to
affect the amount of the returns.
Investments in subsidiaries are carried at cost (as
per Ind AS 27) less accumulated impairment losses,
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 are recognized in the
Statement of Profit and Loss.
3.12 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.
3.12.1. Financial Assets
• Recognition and Initial Measurement:
All financial assets are initially recognized when
the Company becomes a party to the contractual
provisions of the instruments. A financial asset
is initially measured at fair value plus, in the
case of financial assets not recorded at fair value
through profit or loss, transaction costs that are
attributable to the acquisition of the financial asset.
However, trade receivables that do not contain a
significant financing component are measured at
transaction price.
• Classification and Subsequent Measurement:
For purposes of subsequent measurement, financial
assets are classified in four categories:
o Measured at Amortized Cost;
o Measured at Fair Value Through Other
Comprehensive Income (FVTOCI);
o Measured at Fair Value Through Profit or Loss
(FVTPL); and
o Equity Instruments measured at Fair Value
Through Other Comprehensive Income
(FVTOCI).
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.
o Measured at Amortized Cost: A debt instrument
is measured at the amortized cost if both the
following conditions are met:
• The asset is held within a business model
whose objective is achieved by both
collecting 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
(SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are
subsequently measured at amortized cost using
the effective interest rate (EIR) method.
o Measured at FVTOCI: A debt instrument is
measured at the FVTOCI if both the following
conditions are met:
• The objective of the business model is
achieved by both collecting contractual cash
flows and selling the financial assets; and
• The asset’s contractual cash flows
represent SPPI.
Debt instruments meeting these criteria are
measured initially at fair value plus transaction
costs. They are subsequently measured at
fair value with any gains or losses arising
on remeasurement recognized in other
comprehensive income, except for impairment
gains or losses and foreign exchange gains or
losses. Interest calculated using the effective
interest method is recognized in the Statement
of Profit and Loss in investment income.
o Measured at FVTPL: FVTPL is a residual
category for debt instruments. Any debt
instrument, which does not meet the criteria
for categorization as at amortized cost or as
FVTOCI, is classified as FVTPL. In addition,
the Company may elect to designate a debt
instrument, which otherwise meets amortized
cost or FVTOCI criteria, as at FVTPL. Debt
instruments included within the FVTPL
category are measured at fair value with all
changes recognized in the Statement of Profit
and Loss.
o Equity Instruments measured at FVTOCI: All
equity investments in scope of Ind AS 109 are
measured at fair value. Equity instruments
which are, held for trading are classified as
at FVTPL. For all other equity instruments,
the Company may make an irrevocable
election to present in other comprehensive
income subsequent changes in the fair
value. The Company makes such election
on an instrument-by-instrument basis. The
classification is made on initial recognition and
is irrevocable. In case the Company decides to
classify an equity instrument as at FVTOCI,
then all fair value changes on the instrument,
excluding dividends, are recognized in the other
comprehensive income. There is no recycling
of the amounts from other comprehensive
income to the Statement of Profit and Loss,
even on sale of investment.
• Derecognition
The Company derecognizes a financial asset on
trade date only when the contractual rights to the
cash flows from the asset expire, or when it transfers
the financial asset and substantially all the risks and
rewards of ownership of the asset to another entity.
• Impairment of Financial Assets
The Company assesses at each date of Balance
Sheet whether a financial asset or a group of
financial assets is impaired. Ind AS 109 requires
expected credit losses to be measured through a
loss allowance. The Company recognizes lifetime
expected credit losses for all contract assets and/
or all trade receivables that do not constitute a
financing transaction. For all other financial assets,
expected credit losses are measured at an amount
equal to the 12 month expected credit losses or at
an amount equal to the life time expected credit
losses if the credit risk on the financial asset has
increased significantly since initial recognition.
3.12.2. Financial Liabilities
• Recognition and Initial Measurement:
Financial liabilities are classified, at initial
recognition, as at fair value through profit or loss,
loans and borrowings, payables or as derivatives, as
appropriate. All financial liabilities are recognized
initially at fair value and, in the case of loans and
borrowings and payables, net of directly attributable
transaction costs.
• Subsequent Measurement:
Financial liabilities are measured subsequently
at amortized cost or FVTPL. A financial liability is
classified as 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 recognized in
the Statement of Profit and Loss. Other financial
liabilities including borrowings and payables are
subsequently measured at amortized cost using the
effective interest rate method. Interest expense and
foreign exchange gains and losses are recognized in
the Statement of Profit and Loss. Any gain or loss on
derecognition is also recognized in the Statement
of Profit and Loss.
• Financial Guarantee Contracts:
Financial guarantee contracts issued by the
Company are those contracts that require a
payment to be made to reimburse the holder for
a loss it incurs because the specified debtor fails
to make a payment when due in accordance with
the terms of a debt instrument. Financial guarantee
contracts are recognized initially as a liability at fair
value, adjusted for transaction costs that are directly
attributable to the issuance of the guarantee.
Subsequently, the liability is measured at the higher
of the amount of loss allowance determined as per
impairment requirement of Ind AS 109 and the
amount recognized less cumulative amortization.
• Derecognition:
A financial liability is derecognized when the
obligation under the liability is discharged or
cancelled or expires.
• Offsetting financial instruments:
Financial assets and liabilities are offset and the net
amount reported in the Balance Sheet when there
is a legally enforceable right to offset the recognized
amounts and there is an intention to settle on a
net basis or realize 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 counter party.
3.12.3. Derivative financial instruments Hedge
Accounting:
• The Company enters into derivative financial
instruments viz. foreign exchange forward
contracts, interest rate swaps and cross currency
swaps to manage its exposure to interest rate
and foreign exchange rate risks. The Company
does not hold derivative financial instruments for
speculative purposes.
• Derivatives are initially recognized at fair value
at the date the derivative contracts are entered
into and are subsequently remeasured to their
fair value at the end of each reporting period. The
resulting gain or loss is recognized in profit or
loss immediately except for the effective portion
of cash flow hedges which is taken in the other
comprehensive income (net of tax).
• The Company designates certain hedging
instruments in respect of certain foreign currency
risk and interest rate risk as cash flow hedges. The
Cash flow hedge are initially recognized at fair
value on the date when a derivative contract is
entered into and are subsequently remeasured
to their fair value at the end of each reporting
period. The accounting for subsequent changes
in fair value depends on whether the derivative
is designated as a hedging instrument, and if
so, the nature of the item being hedged. The
Company designates certain derivatives as either:
• hedges of the fair value of recognized assets
or liabilities or a firm commitment (fair value
hedges); or
• hedges of a particular risk associated with the
cash flows of recognized assets and liabilities
and highly probable forecast transactions (cash
flow hedges).
• The Company documents at the inception of the
hedging transaction the relationship between
hedging instruments and hedged items, as well
as its risk management objective and strategy
for undertaking various hedge transactions. The
Company also documents its assessment, both
at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging
transactions have been and will continue to be
highly effective in offsetting changes in fair
values or cash flows of hedged items.
• The full fair value of a hedging derivative is
classified as a non-current asset or liability when
the remaining maturity of the hedged item is
more than 12 months; it is classified as a current
asset or liability when the remaining maturity of
the hedged item is less than 12 months.
• The effective portion of changes in the fair value
of derivatives that are designated and qualify
as cash flow hedges is recognized in the other
comprehensive income in cash flow hedging
reserve within equity, limited to the cumulative
change in fair value of the hedged item on a
present value basis from the inception of the
hedge. The gain or loss relating to the ineffective
portion is recognized immediately in profit or loss.
• Amounts accumulated in equity are reclassified
to profit or loss in the periods when the hedged
item affects profit or loss.
• When a hedging instrument expires, or is sold or
terminated, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative
deferred gain or loss and deferred costs of
hedging in equity at that time remains in equity
until the forecast transaction occurs. When the
forecast transaction is no longer expected to
occur, the cumulative gain or loss and deferred
costs of hedging that were reported in equity are
immediately reclassified to profit or loss.
3.13 Impairment of Non-Financial Assets
• The Company assesses, at each reporting date,
whether there is an indication that an asset may
be impaired. If any such indication exists, the
recoverable amount of the asset is estimated in
order to determine the extent of the impairment
loss (if any). An asset is treated as impaired
when the carrying cost of the asset exceeds its
recoverable value being higher of value in use
and net selling price. Value in use is computed
at net present value of cash flow expected over
the balance useful lives of the assets. For the
purpose of assessing impairment, assets are
grouped at the lowest levels for which there are
separately identifiable cash inflows which are
largely independent of the cash inflows from
other assets or group of assets (Cash Generating
Units - CGU).
• An impairment loss is recognized as an expense
in the Statement of Profit and Loss in the year
in which an asset is identified as impaired.
The impairment loss recognized in earlier
accounting period is reversed if there has been
an improvement in recoverable amount.
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