2 Summary of material accounting policy
information
2.01 Basis of preparation
The financial statements of the Company have been
prepared in accordance with Indian Accounting
Standards (Ind AS) as defined in Rule 2(1)(a) of the
Companies (Indian Accounting Standards) Rules, 2015
and as amended from time to time and presentation
requirements of division II of schedule III of the
Companies Act, 2013 (Ind AS compliant schedule III)
and relevant amendment rules issued thereafter,
prescribed under Section 133 of the Companies Act,
2013 (Ind AS compliant schedule III).
2.02 Overall consideration
These financial statements have been prepared on
going concern basis using the material accounting
policy information 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 rounded off to nearest lakhs as per requirements
of schedule III of Companies Act, 2013 except when
otherwise indicated.
2.05 Use of estimates and judgements
The preparation of financial statements in conformity
with Ind AS, management is required to make
estimates, judgements 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 Critical accounting judgements, estimates and
assumptions
The preparation of the Company's financial statements
under IND AS 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.
Judgements :-
In the process of applying the Company’s accounting
policies, management has made the following
judgements, which have the most significant effect on
the amounts recognised in the financial statements:
(i) Leases
The Company determines the lease term as the non¬
cancellable term of the lease, together with any
periods covered by an option to extend the lease if it
is reasonably certain to be exercised, or any periods
covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Company has several lease contracts that
include extension and termination options. The
Company applies judgement in evaluating whether it
is reasonably certain whether or not to exercise the
option to renew or terminate the lease. That is, it
considers all relevant factors that create an
economic incentive for it to exercise either the
renewal or termination. After the commencement
date, the Company reassesses the lease term if there
is a significant event or change in circumstances that
is within its control and affects its ability to exercise
or not to exercise the option to renew or to terminate
(e.g., leasehold improvements or costs relating to
the termination of the lease, and the importance of
the underlying asset to Company’s operations taking
into account the location of the underlying asset and
the availability of suitable alternatives).Further, the
Company has exercised its judgement in using a
single discount rate to a portfolio of leases with
reasonably similar characteristics.
(ii) Contingencies
Contingent liabilities may arise from the ordinary
course of business in relation to claims against the
Company, including legal, contractor, land access
and other claims. By their nature, contingencies will
be resolved only when one or more uncertain future
events occur or fail to occur. The assessment of the
existence, and potential quantum, of contingencies
inherently involves the exercise of significant
judgments and the use of estimates regarding the
outcome of future events.
(iii) Recognition of deferred tax assets
The extent to which deferred tax assets can be
recognised is based on an assessment of the
probability that future taxable income will be
available against which the deductible temporary
differences can be utilised. In addition, significant
judgement is required in assessing the impact of any
legal or economic limits or uncertainties in various
tax jurisdictions.
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) 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.
(iii) 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.
(iv) Fair value measurement of financial instruments
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.
(v) Impairment of non-financial assets
Impairment of non-financial assets is based on
assessment of several external and internal factors
which could result in deterioration of recoverable
amount of the assets.
(vi) Assessment of potential markdown of
inventories
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.
(vii) Right to recover returned goods and refund
liabilities:
The methodology and assumptions used to estimate
expected sales return involves significant judgments
by the Management. Such estimates are monitored
and adjusted regularly in the light of contractual and
legal obligations, historical trend and past
experience. Once the uncertainty associated with the
expected sales returns is resolved, revenue is
adjusted accordingly.
(viii) Incremental borrowing rate for leases
The Company cannot readily determine the interest
rate implicit in the lease, therefore, it uses its
incremental borrowing rate (IBR) to measure lease
liabilities. The IBR is the rate of interest that the
Company would have to pay to borrow over a similar
term, and with a similar security, the funds necessary
to obtain an asset of a similar value to the right-of-use
asset in a similar economic environment. The IBR
therefore reflects what the Company ‘would have to
pay’, which requires estimation when no observable
rates are available or when they need to be adjusted
to reflect the terms and conditions of the lease. The
Company estimates the IBR using observable inputs
(such as market interest rates) when available and is
required to make certain entity-specific estimates.
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 Deferred tax liabilities are
classified as non-current assets and non-current
liabilities respectively.
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 and equipment
i) Initial measurement at recognition
An item of property, plant and equipment's
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.
The present value of the expected cost for the
decommissioning of an asset after its use is included
in the cost of the respective asset if the recognition
criteria for a provision are met.
Property, Plant and Equipment's 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
An item of 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 methods, estimated
useful life's and residual value :-
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 other
than Freehold Land which has unlimited useful life
and therefore no depreciation is charged on Land.
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, 2013 as
follows:
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and, if expectations
differ from previous estimates, the changes are
accounted for as a change in an accounting estimate
and adjusted prospectively.
2.11 Capital work-in-progress
These are assets which includes the cost of materials
and 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
1) Trade Mark and Brand Name 5 years
2) Computer Software (ERP) 10 years
3) Computer Software (Others) 5 years
2.13 Impairment of non-financial 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 property are measured at cost less
accumulated depreciation and impairment losses, if
any. Depreciation on building is calculated using the
written down value method to allocate their cost, net of
their residual values, over the estimated useful lives (i.e.
60 years) as prescribed in Schedule II to the Companies
Act, 2013.Though the Company measures investment
property using cost based measurement, the fair value
of investment property is disclosed in the notes. Fair
values are determined based on an annual evaluation
performed by an accredited external independent
valuer applying valuation model acceptable
internationally.
2.15 Inventories
Inventories of raw materials, work-in-progress, finished
goods, stock-in-trade are valued at the lower of cost
and net realisable value. However, the inventories of raw
materials are considered to be realisable at cost if the
finished products, in which they will be used, are
expected to be sold at or above cost. 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.
• Stock in trade: Cost includes cost of purchase and
other costs incurred in bringing the inventories to their
present location and condition.
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.
2.16 Cash and cash equivalents
Cash and cash equivalents 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, it also which are subject to insignificant risk of
change in value. Further, it includes amount receivable
with respect to credit card receivable, electronic wallet,
UPI, etc. which are normally received within one day
from the date of transaction and are subject to
insignificant risk of changes 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
Financial instruments are measured initially at fair
value adjusted for transaction costs, except for
those carried at fair value through profit or loss
which are measured initially at fair value.
However, trade receivables that do not contain a
significant financing component are initially
measured at transaction price.
If the Company determines that the fair value at
initial recognition differs from the transaction
price, the Company accounts for that instrument
at that date as follows:
a. At the measurement basis mentioned above
if that fair value is evidenced by a quoted
price in an active market for an identical
asset or liability (i.e. a Level 1 input) or based
on a valuation technique that uses only data
from observable markets. The Company
recognises the difference between the fair
value at initial recognition and the
transaction price as a gain or loss.
b. In all other cases, at the measurement basis
mentioned above, adjusted to defer the
difference between the fair value at initial
recognition and the transaction price. After
initial recognition, the Company recognises
that deferred difference as a gain or loss
only to the extent that it arises from a change
in a factor (including time) that market
participants would take into account when
pricing the asset or liability.
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) 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.
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 effective interest rate. 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 l iabilities
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.
External valuers are involved for valuation of significant
assets and liabilities. The management select external
valuer on various criteria such as market knowledge,
reputation, independence and whether professional
standard are maintained by valuer. The management
decides, after discussion with external valuers, which
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