Significant Accounting Policies
2.01 Basis of Preparation
The financial statements have been prepared in
accordance with Indian Accounting Standards as
defined in Rule 2(1)(a) of the Companies (Indian
Accounting Standards) Rules, 2015 and relevant
amendment rules issued thereafter, prescribed under
Section 133 of the Companies Act, 2013 ("Ind AS").
2.02 Overall Consideration
These financial statements have been prepared on
going concern basis using the significant accounting
policies and measurement basis summarised below:
These accounting policies have been used throughout
all periods presented in financial statements.
2.03 Basis of Measurement
The financial statements are prepared on Historical
Cost basis except financial assets and liabilities that are
measured at fair value (Refer accounting policy
regarding Financial Instruments). The accounting
policies not specifically referred to otherwise, are
consistent and in consonance with generally
accepted accounting principles. All income and
expenditure are being accounted for on accrual basis.
Historical cost is generally based on the fair value of the
consideration given in exchange for goods and
services.
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.
2.04 Functional and Presentation Currency
These financial statements are presented in Indian
Rupees (INR), which is the Company’s functional
currency. All financial information presented in INR have
been shown in lakhs and rounded off to the nearest
thousand and have been expressed in terms of
decimals of thousands.
2.05 Use of Estimates
In preparing Company's financial statements in
conformity with Ind AS, management is required to
make estimates and assumptions that affect the
reported amount of assets and liabilities and the
disclosure of contingent liabilities at the date of the
financial statements and reported amount of revenues
and expenses during the reporting period. Actual
results could differ from those estimates. Estimates and
underlying assumption are renewed at each balance
sheet date. Any revision to accounting estimates is
recognized in the period in which the same is
determined.
2.06 Significant Accounting Judgements, Estimates and
Assumptions.
The preparation of the Company's financial statements
requires management to make judgments, estimates
and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities and the
related disclosures and the disclosure of contingent
liabilities. Uncertainty about these assumptions and
estimates could result in outcomes that require a
material adjustment to the carrying amount of assets or
liabilities affected in future periods.
Estimates and assumptions
The key assumptions concerning the future and other
key sources of estimation uncertainty at the reporting
date, that have a significant risk of causing a material
adjustment to the carrying amounts of assets and
liabilities within the next financial year, are described
below. The Company based its assumptions and
estimates on parameters available when these financial
statements were prepared. Existing circumstances and
assumptions about future developments, however, may
change due to market changes or circumstances arising
that are beyond the control of the Company. Such
changes are reflected in the assumptions as and when
they occur.
(i) Estimation of defined benefit obligation
The cost of the defined benefit plan and other post¬
employment benefits and the present value of
such obligation are determined using actuarial
valuations. An actuarial valuation involves making
various assumptions that may differ from actual
developments in the future. These include the
determination of the discount rate, future salary
increases, mortality rates and attrition rate. Due to
the complexities involved in the valuation and its
long-term nature, a defined benefit obligation is
highly sensitive to changes in these assumptions.
All assumptions are reviewed at each reporting
date.
(ii) Estimation of current tax and deferred tax
Management judgment is required for the
calculation of provision for income - taxes and
deferred tax assets and liabilities. The Company
reviews at each balance sheet date the carrying
amount of deferred tax assets. The factors used in
estimates may differ from actual outcome which
could lead to adjustment to the amounts reported
in these financial statements.
(iii) Useful lives of depreciable/amortizable assets
Management reviews its estimate of the useful
lives of depreciable/amortizable assets at each
reporting date, based on the expected utility of the
assets. Uncertainties in these estimates relate to
technical and economic obsolescence that may
change the utility of certain property, plant and
equipment.
(iv) Impairment of trade receivables
Trade receivables do not carry any interest and are
stated at their normal value as reduced by
appropriate allowances for estimated
irrecoverable amounts. Individual trade
receivables are written off when management
deems them not to be collectible. Impairment is
recognised based on the expected credit losses,
which are the present value of the cash shortfall
over the expected life of the financial assets.
(v) Fair value measurement
Management applies valuation techniques to
determine the fair value of financial instruments
(where active market quotes are not available) and
non-financial assets. This involves developing
estimates and assumptions consistent with how
market participants would price the instrument.
Management bases its assumptions on
observable data as far as possible but this is not
always available. In that case management uses
the best information available. Estimated fair
values may vary from the actual prices that would
be achieved in an arm’s length transaction at the
reporting date.
(vi) Evaluation of indicators for impairment of assets
The evaluation of applicability of indicators of
impairment of assets is based on assessment of
several external and internal factors which could
result in deterioration of recoverable amount of the
assets.
2.07 Current and Non-Current Classification
The Company presents assets and liabilities in the
balance sheet based on current/non-current
classification.
An asset is current when it is:
• Expected to be realized or intended to be sold or
consumed in normal operating cycle;
• Held primarily for the purpose of trading;
• Expected to be realized within twelve months after
the reporting period; or
• Cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least
twelve months after the reporting period.
• Current assets include current portion of non-current
financial assets.
All other assets are classified as non-current.
A liability is current when it is:
• Expected to be settled in normal operating cycle;
• It is held primarily for the purpose of trading;
• Due to be settled within twelve months after the
reporting period; or
• There is no unconditional right to defer settlement of
the liability for at least twelve months after the
reporting period.
• Current Liabilities include current portion of non¬
current financial liabilities.
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non¬
current assets and liabilities.
2.08 Operating Expenses
Operating expenses are recognised in statement of
profit or loss upon utilisation of the service or as
incurred.
2.09 Equity, Reserves and Dividend Payment
Equity shares are classified as equity. Incremental costs
directly attributable to the issue of new shares are
shown in equity as a deduction, net of tax, from the
proceeds. Retained earnings include current and prior
period retained profits. All transactions with owners of
the Company are recorded separately within equity.
2.10 Property Plant & Equipment
i) Initial Recognition and Measurement
An item of property, plant and equipments
recognized as an asset if and only if it is probable
that future economic benefits associated with the
item will flow to the company and the cost of the
item can be measured reliably.
Items of Property, Plant and Equipment are
measured at cost less accumulated depreciation/
amortization and accumulated impairment losses.
Cost includes expenditure that is directly
attributable to bringing the asset, inclusive of non¬
refundable taxes & duties, to the location and
condition necessary for it to be capable of
operating in the manner intended by management.
When parts of an item of property, plant and
equipment have different useful life, they are
recognized separately.
Items of spare parts, stand-by equipment and
servicing equipment which meet the definition of
Property, Plant and Equipment are capitalized.
Property, Plant and Equipments which are not
ready for intended use as on the date of Balance
Sheet are disclosed as ' Capital Work-In-Progress'.
ii) Subsequent costs
Subsequent expenditure is recognized as an
increase in the carrying amount of the asset when it
is probable that future economic benefits deriving
from the cost incurred will flow to the enterprise and
the cost of the item can be measured reliably.
The cost of replacing part of an item of property,
plant and equipment is recognized in the carrying
amount of the item if it is probable that the future
economic benefits embodied within the part will
flow to the Company and its cost can be measured
reliably. The carrying amount of the replaced part is
derecognized. The costs of the day-to-day
servicing of Property, Plant and Equipment are
recognized in profit or loss as incurred.
iii) De-recognition
Property, Plant and Equipment are derecognized
when no future economic benefits are expected
from their use or upon their disposal. Gains and
losses on disposal of an item of property, plant and
equipment are determined by comparing the
proceeds from disposal with the carrying amount of
property, plant and equipment, and are recognized
in the statement of profit and loss.
iv) Depreciation/amortization
Depreciation is recognized in profit or loss on a
written down value over the estimated useful life of
each item of Property, Plant and Equipment.
Depreciation on additions to/deductions from
property, plant and equipment during the year is
charged on pro-rata basis from/up to the date on
which the asset is available for use/disposed.
Depreciation on property, plant and equipment is
provided on their estimated useful life as
prescribed by Schedule II of The Companies Act,
2.11 Capital Work-in-Progress
These are assets which includes the cost of materials &
direct labour, borrowing costs, any other costs directly
attributable to bring the assets to the location and
condition necessary for it to be capable of operating in
the manner intended by management but not put to use
as on reporting date.
2.12 Other Intangible Assets
i) Initial Recognition and Measurement
An intangible asset is recognized if and only if it is
probable that the expected future economic benefits
that are attributable to the asset will flow to the
company and the cost of the asset can be measured
reliably.
Intangible assets that are acquired by the Company,
which have definite useful lives, are recognized at
cost less accumulated amortization and
accumulated impairment losses, if any. Cost includes
any directly attributable incidental expenses
necessary to make the assets ready for its intended
use.
ii) Subsequent Costs
Subsequent expenditure is recognized as an increase
in the carrying amount of the asset when it is probable
that future economic benefits deriving from the cost
incurred will flow to the enterprise and the cost of the
item can be measured reliably.
iii) De-Recognition
An intangible asset is derecognized when no future
economic benefits are expected from their use or
upon their disposal. Gains and losses on disposal of
an item of intangible assets are determined by
comparing the proceeds from disposal with the
carrying amount of intangible assets and are
recognized in the statement of profit and loss.
iv) Amortization
Intangible assets having definite life are amortized on
straight line method in their useful life.
2.13 Impairment of Property, Plant and Equipment, Other
Intangible Assets
Assets are tested for impairment whenever events or
changes in circumstances indicate that the carrying
amount may not be recoverable and impairment loss is
recognised for the amount by which the asset's carrying
amount exceeds its recoverable amount. The
recoverable amount is higher of an asset's fair value less
costs of disposal and value in use. 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 Company of assets (cash
generating units). If at the balance sheet date, there is an
indication that 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 and
the same is accordingly reversed in the statement of
profit and loss.
2.14 Investment Property
Investment properties are measured at cost less
accumulated depreciation and impairment losses, if
any. Depreciation on building is provided over the
estimated useful lives as specified in Schedule II to the
Companies Act, 2013.
2.15 Inventories
Inventories of Raw material, Work-in-progress, Finished
goods and Consumable Spares are valued at the lower
of cost and net realisable value.The cost of inventories
of items that are not ordinarily interchangeable shall be
assigned by using specific identification of their
individual costs and other items shall be assigned by
using first in first out (FIFO) cost formula .
Costs incurred in bringing each product to its present
location and condition are accounted for as follows:
• Raw materials: cost includes cost of purchase and
other costs incurred in bringing the inventories to their
present location and condition.
• Work in progress: cost includes raw material costs
plus conversion costs depending upon the stage of
completion.
• Finished goods: cost includes cost of direct materials
and labour and a proportion of manufacturing
overheads based on the normal operating capacity.
All other inntories of stores, consumables, packing
material at site are valued at cost. The stock of waste
is valued at estimated net realisable value.
The Company considers the age and nature of the
product to which inventory pertains for determining the
net realisable value for slow moving and obsolete
inventories. Such inventories are thereafter marked
down to their estimated net realisable value, i.e. what
the Company expects to realise from sale of such
inventory. The Company makes provisions for slow
moving and/ or obsolete stock, based on the analysis of
inventories, past experience, current trend and future
expectations, depending upon the category of goods.
2.16 Cash and Cash Equivalents
Cash and cash equivalent in the balance sheet
comprise cash at banks and cash in hand and short¬
term deposits with an original maturity of three months
or less, which are subject to insignificant risk of change
in value.
2.17 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) Financial Assets: Financial assets are recognised
when the Company becomes a party to the
contractual provisions of the instrument.
a) Initial Recognition and Measurement
All financial assets are recognized initially at fair
value plus, in 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.
b) Subsequent Measurement
Financial assets are subsequently classified and
measured at:
• Financial assets at amortised cost
• Financial assets at fair value through profit and
loss (FVTPL)
• Financial assets at fair value through other
comprehensive income (FVTOCI).
c) Equity Instruments:
All investments in equity instruments in entities
other than subsidiaries and joint ventures are
measured at fair value. Equity instruments if held
for trading are classified as at FVTPL. For all other
equity instruments, the Company decides to
classify the same either at FVTOCI or FVTPL. The
Company makes such election on an instrument
by instrument basis. The classification is made
on initial recognition and is irrevocable.
If the company decides to classify an equity
instrument as at FVTOCI, then all fair value
changes on the instruments, excluding
dividends, are recognized in the OCI. There is no
recycling of the amounts from OCI to P&L, even
on sale of investment as the company transfers
cumulative gain or loss within the equity.
Equity instruments if classified as FVTPL
category are measured at fair value with all
changes recognized in the profit and loss.
d) De-Recognition
A financial asset (or, where applicable, a part of a
financial asset or part of a Company of similar
financial assets) is primarily derecognized (i.e.
removed from the Company’s balance sheet)
when:
• The contractual rights to receive cash flows
from the asset have expired, or
• The Company has transferred its
contractual rights to receive cash flows from
the asset.
e) Impairment of Financial Asset
Expected credit losses are recognized for all
financial assets subsequent to initial recognition
in Statement of Profit and loss.
For recognition of impairment loss on financial
assets other than Trade receivables, the
company determines whether there has been a
significant increase in the credit risk since initial
recognition. If credit risk has not increased
significantly, 12-month ECL is used to provide
impairment loss. However, If credit risk is
increased significantly, lifetime ECL is used.
If, in a subsequent period, credit quality of the
instrument improves to such extent that there is
no longer a significant increase in credit risk
since initial recognition, then the entity reverts to
recognising impairment loss allowance based on
12- Month ECL.
For trade receivables Company applies
‘simplified approach’ which requires expected
lifetime losses to be recognised from initial
recognition of the receivables. The Company
uses historical default rates to determine
impairment loss on the portfolio of trade
receivables. At every reporting date these
historical default rates are reviewed and changes
in the forward looking estimates are analysed.
ii) Financial Liabilities
a) Initial Recognition and Measurement
All financial liabilities are recognized at fair value
and in case of loans, net of directly attributable
cost. Fees of recurring nature are directly
recognised in the Statement of Profit and Loss as
finance cost.
b) Subsequent Measurement
Financial liabilities are carried at amortized cost
using the effective interest method. Amortized
cost is calculated by taking into account any
discount or premium on acquisition and any
material transaction that are any integral part of
the EIR. Trade and other payables maturing
within one year from the balance sheet date are
carried at transaction value and the carrying
amounts approximate fair value due to the short
maturity of these instruments.
Financial liabilities carried at fair value through
profit or loss are measured at fair value with all
changes in fair value recognised in the Statement
of Profit and Loss.
c) De-Recognition
A financial liability is derecognized when the
obligation under the liability is discharged or
cancelled or expires. When an existing financial
liability is replaced by another from the same
lender on substantially different terms, or the
terms of an existing liability are substantially
modified, such an exchange or modification is
treated as the de-recognition of the original
liability and the recognition of a new liability. The
difference in the respective carrying amounts is
recognized in the statement of profit or loss.
2.18 Offsetting of Financial Instruments
Financial assets and financial liabilities are offset and
the net amount is reported in the balance sheet if there is
a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle
on a net basis 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.
2.19 Fair Value Measurement
The Company measures financial instruments, such as,
derivatives at fair value at each balance sheet date. 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 the asset or liability, or
• In the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must be
accessible by the company. The fair value of an asset or
a liability is measured using the assumptions that
market participants would use when pricing the asset or
liability, assuming that market participants act in their
economic best interest. A fair value measurement of a
non-financial asset takes into account a market
participant’s ability to generate economic benefits by
using the asset in its highest and best use or by selling it
to another market participant that would use the asset in
its highest and best use. The company uses valuation
techniques that are appropriate in the circumstances
and for which sufficient data are available to measure
fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorized
within the fair value hierarchy, described as follows,
based on the lowest level input that is significant to the
fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active
markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
directly or Indirectly observable
Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
For assets and liabilities that are recognized in the
financial statements on a recurring basis, the company
determines whether transfers have occurred between
levels in the hierarchy by re-assessing categorization
(based on the lowest level input that is signify cant to the
fair value measurement as a whole) at the end of each
reporting period. The Company determines the policies
and procedures for both recurring fair value
measurement, such as derivative instruments and
unquoted financial assets measured at fair value, and
for non-recurring measurement, such as assets held for
distribution in discontinued operations.
2.20 Impairment of Financial Assets
All financial assets except for those at FVTPL are
subject to review for impairment at least at each
reporting date to identify whether there is any objective
evidence that a financial asset or a company of financial
assets is impaired. Different criteria to determine
impairment are applied for each category of financial
assets.
In accordance with Ind-AS 109, the company applies
expected credit loss (ECL) model for measurement and
recognition of impairment loss for financial assets
carried at amortised cost.
ECL is the weighted average of difference between all
contractual cash flows that are due to the company in
accordance with the contract and all the cash flows that
the company expects to receive, discounted at the
original effective interest rate, with the respective risks
of default occurring as the weights. When estimating the
cash flows, the company is required to consider -
- All contractual terms of the financial assets (including
prepayment and extension) over the expected life of
the assets.
- Cash flows from the sale of collateral held or other
credit enhancements that are integral to the
contractual terms.
|