2. Material accounting policies
2.1. Basis of preparation and measurement
a) Basis of Preparation
These financial statements have been prepared in accordance with the Indian Accounting Standards (Ind
AS), notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time
to time) and presentation requirements of Division II of Schedule III to the Companies Act, 2013, (Act) as
applicable to the financial statements
The preparation of the financial statements requires the use of certain critical accounting judgements,
estimates and assumptions. It also requires the management to exercise judgment in the process
of applying the Company's accounting policies. The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the financial statements are
disclosed in note 3.
b) Basis of measurement
The financial statements have been prepared on a historical cost convention except for the following:
- Certain financial assets and liabilities (including derivative instruments) are measured at fair value
- Defined benefit plans - plan assets measured at fair value.
2.2. Summary of significant accounting policies
(a) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current
classification. An asset is treated as 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
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
- It is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after
the reporting period
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realization in cash
and cash equivalents. The Company has identified twelve months as its operating cycle for the purpose of
current and non-current classification of assets and liabilities.
(b) Cash flow statement
The Cash Flow Statement is prepared by the indirect method set out in Ind AS 7 on Cash Flow Statements
and presents cash flows by operating, investing and financing activities of the Company.
(c) Foreign Currencies
- Functional and presentation currency
The functional and presentation currency of the Company is Indian rupee.
- Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates at
the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation of monetary assets and liabilities denominated in foreign currencies
at year end exchange rates are generally recognised in statement of profit or loss unless they are relating
to qualifying cash flow hedges in which case they are deferred in equity.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined.
(d) 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:
Ý in the principal market for the asset or liability, or
Ý 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:
Ý Level 1 -Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Ý Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
Ý Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
External valuers are involved for valuation of significant assets and significant liabilities. Involvement
of external valuers is decided upon annually by the management. Selection criteria include market
knowledge, reputation, independence and whether professional standards are maintained.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities
on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value
hierarchy as explained above.
This note summarizes accounting policy for fair value. Other fair value related disclosures are given in the
relevant notes.
Ý Disclosures for significant judgements, estimates and assumptions
Ý Quantitative disclosures of fair value measurement hierarchy
Ý Financial instruments (including those carried at amortized cost)
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Company
determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation
(based on the lowest level input that is significant to the fair value measurement as a whole) at the end of
each reporting period.
(e) Property, Plant and Equipment
Property, plant and equipment (PPE) and capital work in progress are stated at cost of acquisition or
construction net of accumulated depreciation and impairment loss, if any. All significant costs relating to
the acquisition and installation of PPE are capitalised. Subsequent costs/replacement costs are included
in the asset's carrying amount or recognised as a separate asset, as appropriate, only when 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. The carrying amount of the replaced part is derecognised. All other repairs
and maintenance are charged to the Statement of profit and loss during the financial year in which they
are incurred.
The Company identifies and determines cost of each component/ part of the asset separately, if the
component/ part has a cost which is significant to the total cost of the asset and has useful life that is
materially different from that of the remaining asset.
Depreciation on PPE is calculated on a straight-line basis using the rates arrived at based on the useful lives
estimated by the management. The identified components are depreciated separately over their useful
lives; the remaining components are depreciated over the life of the principal asset.
Certain assets which are internally developed, all the incidental costs directly attributable to such machinery
are capitalized.
Freehold land is carried at historical cost. All other items of property, plant and equipment are stated at
historical cost less depreciation.
The management has estimated, supported by independent assessment by professionals, the useful lives
of certain classes of assets. The following useful lives are adopted by the management:
(f) Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible
assets acquired in a business combination is their fair value at the date of acquisition. Following initial
recognition, intangible assets are carried at cost less any accumulated amortization and accumulated
impairment losses. Internally generated intangibles, excluding capitalized development costs, are not
capitalized and the related expenditure is reflected in the Statement of profit and loss in the period in
which the expenditure is incurred.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be impaired. The amortization period and
the amortization method for an intangible asset with a finite useful life are reviewed at least at the end
of each reporting period. Changes in the expected useful life or the expected pattern of consumption
of future economic benefits embodied in the asset are considered to modify the amortization period or
method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on
intangible assets with finite lives is recognized in the Statement of profit and loss unless such expenditure
forms part of carrying value of another asset.
Gains or losses arising from derecognition 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 and loss when the asset is derecognized. A summary of amortization rates applied to the Company's
Intangible assets is as below: -
Research and development costs
Research expenditure is recognised as an expense as incurred. The cost incurred in development
projects (associated with the design and testing of new products or product upgrades) are recognised
as an intangible asset when the success of the development is deemed probable taking into account its
technical and financial resources to do so, has the ability to use or sell the asset and generate potential
economic benefits and the costs involved may be reliably estimated. Other development expenditures are
recognised as an expense as incurred. Development costs previously recognised as an expense are not
recognised as an asset in a subsequent period. Development cost with a finite useful life that have been
capitalised are amortised from the start of commercial production of the product on a straight-line basis
over the period in which it is expected to generate economic benefits, which does not exceed ten years.
(g) Equity investments
All equity instruments 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 an election on an instrument-by¬
instrument basis, at initial recognition and is irrevocable.
If the Company decides to classify an equity instrument at FVTOCI, then all fair value changes on the
instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI
to Statement of profit and loss, even on the sale of the investment. However, the Company may transfer
the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes
recognized in Statement of profit and loss.
(h) Inventories
Inventories are stated at lower of cost and net realisable value. Cost is determined using the first-in, first-out
(FIFO) method. The cost of finished goods and work in progress comprises material cost, direct labour and
manufacturing expenses which is determined using absorption costing method. Net realisable value is the
estimated selling price in the ordinary course of business, less the estimated costs of completion and the
estimated costs necessary to make the sale.
Write down of inventories are calculated based on an analysis of foreseeable changes in demand,
technology, market conditions and ageing of inventories.
(i) Revenue recognition
Initial Recognition
Under Ind AS 115, revenue is recognised at an amount that reflects the consideration to which an entity
expects to be entitled in exchange for transferring goods or services to a customer.
The Company recognizes revenue when the amount of revenue can be reliably measured, it is probable
that future economic benefits will flow to the entity and specific criteria have been met for each of the
Company's activities as described below.
Revenue from operation excludes Goods & Service Tax
Sale of goods
Timing of recognition:
Sales are recognised when control parameters as laid down in Ind AS 115 are satisfied. Control means
customer has accepted the product, legal title has been transferred, transfer of significant risk and rewards,
right to receive the payment and transfer of physical possession.
Measurement of revenue:
Revenue is measured based on the consideration specified in a contract with a customer and excludes
amounts collected on behalf of third parties. The Company recognises revenue when it transfers control of
a product or service to a customer. Any change resulting in increase or decrease in estimated revenue or
cost are reflected in the profit or loss in the period in which the circumstances that give rise to the revision
become known by Management.
Transaction price is the amount of consideration expected to be entitled to in exchange for transferring of
goods and services excluding the amount collected from third party.
Revenue from sales is based on the price specified in the sales contracts, net of the estimated volume
discounts and returns at the time of sale. The volume discounts are assessed based on anticipated
annual purchases.
No element of financing is deemed present as the sales are made with an average credit term of 45-60
days, which is consistent with market practice.
Interest income
Interest income from a financial asset is recognised when it is probable that the economic benefits will
flow to the Company and the amount of income can be measured reliably. Interest income is accrued on
a time 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 that asset's net carrying amount on initial recognition.
Other Operating Income
Government grants are recognized where there is reasonable assurance that the grant will be received
and all attached conditions will be complied with. 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. When the grant relates to an asset, it is recognized as income in proportion
to the depreciation charged over the expected useful life of the related asset. The Company recognize for
export incentives for export of goods only after establishment of reasonable assurance and conditions
precedent to claim are fulfilled.
(j) 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. Financial assets and liabilities are recognised when the Company
becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are initially
measured at fair value.
Cash and cash equivalents
The Company considers all highly liquid financial instruments, which are readily convertible into known
amounts of cash that are subject to an insignificant risk of change in value and having original maturities of
three months or less from the date of purchase, to be cash equivalents. Cash and cash equivalents includes
balances with banks which are unrestricted for withdrawal and usage.
Financial Assets
Classification
On initial recognition the Company classifies financial assets as subsequently measured at amortised
cost, fair value through other comprehensive income or fair value through profit or loss on the basis of
its business model for managing the financial assets and the contractual cash flow characteristics of the
financial asset
Initial Recognition & Measurement
All financial assets (not measured subsequently at fair value through profit or loss) are recognised initially
at fair value plus 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.
Purchases or sales of financial assets that require delivery of assets within a time frame established by
regulation or convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the
date that the Company commits to purchase or sell the asset .
Financial Assets at amortised cost:
Financial assets are subsequently measured at amortised cost if these financial assets are held within a
business whose objective is to hold these assets are held to collect (HTC Business Model) contractual cash
flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the
effective interest rate (EIR) method. Amortized cost is calculated by taking into account any discount or
premium on acquisition and fees or costs that are an integral part of EIR. The EIR amortization is included in
finance costs/income in the Statement of Profit or Loss. The losses arising from impairment are recognized
in the profit or loss. This category generally applies to trade and other receivables.
Financial assets at fair value through other comprehensive income (FVTOCI)
Financial assets are measured at fair value through other comprehensive income if these financial assets
are held within a business whose objective is achieved by both collecting contractual cash flows and
selling financial assets and the contractual terms of the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest on the principal amount outstanding.
Financial assets at fair value through profit or loss (FVTPL)
Financial assets are measured at fair value through profit or loss unless it is measured at amortised cost
or at fair value through other comprehensive income on initial recognition. The transaction costs directly
attributable to the acquisition of assets and liabilities at fair value through profit and loss are immediately
recognised in the statement of Profit and Loss.
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:
a) The rights to receive cash flows from the asset have expired, or
b) The Company has transferred its rights to receive cash flows from the asset or
c) The Company has neither transferred nor retained substantially all the risks and rewards of the asset
but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset, it evaluates if and to what
extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained
substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company
continues to recognize the transferred asset to the extent of the Company's continuing involvement. In
that case, the Company also recognizes an associated liability. The transferred asset and the associated
liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of financial assets (Other than Fair Value)
The Company assesses at each date of balance sheet whether a financial asset or a Company of financial
assets is impaired.
Ind AS 109 requires expected credit losses to be measured through a loss allowance. For trade receivables
only, Company performs credit assessment for customers on an annual basis. Company recognizes credit
risk, on the basis of lifetime expected losses and where receivables are due for more than twelve months.
Equity investments
All equity instruments 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 an election on an instrument-by-instrument basis, at initial recognition and
is irrevocable.
If the Company decides to classify an equity instrument at FVTOCI, then all fair value changes on the
instrument, excluding dividends, are recognized in the OCI. There is no recycling of the amounts from OCI
to Statement of profit and loss, even on the sale of the investment. However, the Company may transfer
the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all changes
recognized in Statement of profit and loss.
Financial liabilities
Classification
The Company classifies all financial liabilities as subsequently measured at amortised cost, except for
financial liabilities measured at fair value through profit or loss. Such liabilities, including derivatives that
are liabilities, shall be subsequently measured at fair value with changes in fair value being recognised in
the Statement of Profit and Loss
Initial Recognition
Financial Liabilities at amortised cost
Financial liabilities are measured at amortised cost using the effective interest method.
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or
loss, loans and borrowings, payables, 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.
Terms of trade payables i.e. non-interest bearing and generally settled in 30 to 60 days to be included.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss (FVTPL)
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are
classified as held for trading if they are incurred for the purpose of repurchasing in the near term. Gains or
losses on liabilities held for trading are recognized in the Statement of Profit and Loss.
(k) Offsetting of financial instruments
Financial assets and liabilities are offset, and the net amount is reported in the balance sheet where there
is a legally enforceable right to offset the recognised 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 Company or the counterparty.
(l) Share capital
Equity shares issued to shareholders are classified as equity. Incremental costs directly attributable to the
issue of new equity shares are recognized as a deduction from equity, net of any related income tax effects.
(m) Taxes on Income
Current tax
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the
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.
Current income tax relating to items recognized outside profit or loss is recognized either in OCI or in
equity. Current tax items are recognized in correlation to the underlying transaction either in OCI or directly
in equity. Management periodically evaluates positions taken in the tax returns with respect to situations in
which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax
credits and any unused tax losses. 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 each reporting date and reduced to the extent
that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred
tax asset to be utilised. Unrecognized deferred tax assets are re-assessed at each reporting date and are
recognized to the extent that it has become probable that future taxable profits will allow the deferred tax
asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when
the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss (either
in OCI or in equity). Deferred tax items are recognized in correlation to the underlying transaction either in
OCI or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current
tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the
same taxation authority.
(n) Leases
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 fulfilment 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.
Company as a lessee
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers
substantially all the risks and rewards incidental to ownership to the Company is classified as a finance
lease. Finance leases are capitalized at the commencement of the lease at the inception date fair value of
the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are
apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance charges are recognized as finance costs in the
Statement of Profit and Loss, unless they are directly attributable to qualifying assets in which case, they are
capitalized in accordance with principles of borrowing cost specified in Ind AS 16.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty
that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the
shorter of the estimated useful life of the asset and the lease term.
Company as a lessor
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 an operating lease is recognized on a straight¬
line basis over the term of the relevant lease. Leases are classified as finance leases when substantially all
of the risks and rewards of ownership transfer from the Company to the lessee. Amounts due from lessees
under finance leases are recorded as receivables at the Company's net investment in the leases. Finance
lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net
investment outstanding in respect of the lease.
The Company has adopted Ind AS 116-Leases, using the modified retrospective method. The Company has
applied the standard to its leases with the cumulative impact recognized on the date of initial application
(1st April 2019). Accordingly, previous period information has not been restated.
The Company's lease asset classes primarily consist of leases for Land and Buildings. The Company assesses
whether a contract is or 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:
- the contract involves the use of an identified asset
- the Company has substantially all of the economic benefits from use of the asset through the period
of the lease and
- the Company has the right to direct the use of the asset.
At the date of commencement of the lease, the Company recognises a right-of-use asset ("ROU") and a
corresponding lease liability for all lease arrangements in which it is a lessee, except for leases with a term
of twelve months or less (short-term leases) and leases of low value assets. For these short-term and leases
of low value assets, the Company recognises the lease payments as an operating expense on a straight-line
basis over the term of the lease.
The right-of-use assets are initially recognised at cost, which comprises the initial amount of the lease
liability adjusted for any lease payments made at or prior to the commencement date of the lease plus
any initial direct costs less any lease incentives. They are subsequently measured at cost less accumulated
depreciation and impairment losses, if any. Right-of-use assets are depreciated from the commencement
date on a straight-line basis over the shorter of the lease term and useful life of the underlying asset.
The lease liability is initially measured at the present value of the future lease payments. The lease
payments are discounted using the interest rate implicit in the lease or, if not readily determinable,
using the incremental borrowing rates. The lease liability is subsequently remeasured by increasing the
carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease
payments made.
A lease liability is remeasured upon the occurrence of certain events such as a change in the lease term or
a change in an index or rate used to determine lease payments. The re-measurement normally also adjusts
the leased assets.
Lease liability and ROU asset have been separately presented in the Balance Sheet and lease payments
have been classified as financing cash flows.
Lease contracts entered by the Company majorly pertains for land and buildings taken on lease to conduct
its business in the ordinary course.
(o) Impairment of assets- Non-Financial Assets
Property, plant and equipment and intangible assets with finite life are evaluated for recoverability whenever
there is any indication that their carrying amounts may not be recoverable. If any such indication exists, the
recoverable amount (i.e., higher of the fair value less cost to sell and the value-in-use) is determined on an
individual asset basis unless the asset does not generate cash flows that are largely independent of those
from other assets. In such cases, the recoverable amount is determined for the cash generating unit (CGU)
to which the asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying
amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognised in the
statement of profit and loss.
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