2. Material accounting policies
2.1 Basis of preparation
The Standalone financial statements ('financial
statements') of the Company, have been prepared
in accordance with the Indian Accounting Standard
(Ind AS) notified under section 133 of the Companies
Act, 2013 ("the Act") read with relevant rules issued
thereunder and other accounting principles
generally accepted in India.
The financial statements have been prepared on
accrual and going concern basis under historical cost
convention except for certain financial instruments
and plan assets, which are measured at fair values.
The accounting policies are applied consistently to
all the periods presented in the financial statements.
The financial statements are presented in Indian
Rupees (?) in lakh and all values are rounded
to the nearest lakh (' 00,000), except when
otherwise stated.
The material accounting policies and measurement
bases have been summarised below.
a. Current versus non-current classification
All assets and liabilities have been classified as
current or non-current as per the Company's
normal operating cycle and as per terms of
agreements wherever applicable. The company
has considered a normal operating cycle of
12 months. Deferred tax assets and liabilities
are classified as non-current assets and
non-current liabilities, as the case may be.
b. Revenue recognition
Sale ofgoods
Sales are recognized, at transaction price as
per terms of agreements with the customers,
net of returns and other variable consideration
on account of discounts, if any, on satisfaction
of performance obligation by transfer of
effective control of the promised goods to
the customers, which generally coincides with
dispatch/ delivery to customers, as applicable.
Sales excludes goods and services tax.
The Company recognises revenue when the
amount of revenue and its related cost can be
reliably measured and it is probable that future
economic benefits will flow to the entity and
degree of managerial involvement associated
with ownership or effective control have been
met for each of the Company's activities.
The Company bases its estimates on historical
results, taking into consideration the type of
customer, the type of transactions and the
specifics of each arrangement.
Revenue is recognized for domestic and export
sales of goods on satisfaction of performance
obligation by transfer of effective control of the
promised goods to the customers as per terms
of agreements with the customers.
Contract modification:
Contract modification is a change in the
scope or price (or both) of a contract that
is approved by the parties to the contract.
Contract modification are accounted based
on the prospective accounting and cumulative
catch up. The Company accounts for a
modification as a separate contract, if both the
scope increases due to the addition of 'distinct'
goods or services and the price increase
reflects the goods' or services' stand-alone
selling prices under the circumstances of the
modified contract.
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.
c. Government grants
Government grants are recognised at their fair
value where there is reasonable assurance
that the grant will be received and all attached
conditions will be complied with.
Government grants relating to income are
deferred and recognised in profit or loss over
the period necessary to match them with
costs that they are intended to compensate
and presented with other income/ other
operating revenue.
Government grants relating to the purchase of
property, plant and equipment are included in
non-current liabilities as deferred income and
are credited to profit or loss over the periods
and in the proportions necessary to match then
with the depreciation expense on the related
assets and presented within other income.
d. Inventories
Inventories of raw materials, components,
stores and spares are valued at the lower of
cost and net realisable value. Costs incurred in
bringing each product to its present location
and conditions are accounted for as follows:
• Raw materials and components: cost
includes cost of purchase and other costs
incurred in bringing the inventories to
their present location and condition such
as non-refundable duties, freight etc.
Costs of Raw materials and components
are computed using the weighted
average cost formula.
• Finished goods and work in progress:
cost includes cost of direct materials and
labour and a proportion of manufacturing
overheads based on the normal operating
capacity, but excluding borrowing costs.
Costs of finished goods and work in
progress are computed using the weighted
average cost formula.
Provision for obsolescence and slow-moving
inventory is made based on management's
best estimates of net realisable value of
such inventories.
Net realisable value is the estimated selling
price in the ordinary course of business,
less estimated costs of completion and the
estimated costs necessary to make the sale.
e. Income Taxes
Tax expense recognized in the statement
of profit and loss comprises the sum of
deferred tax and current tax not recognized
in Other Comprehensive Income (OCI) or
directly in equity.
Current tax is measured at the amount
expected to be paid to the tax authorities in
accordance with the Income-tax Act, 1961.
Current tax relating to items recognized outside
statement of profit and loss is recognized
outside statement of profit and loss (i.e. in OCI
or equity depending upon the treatment of
underlying item).
Deferred tax liabilities are generally recognized
in full for all taxable temporary differences.
Deferred tax assets are recognized to the
extent that it is probable that the deductible
temporary difference will be utilized against
future taxable income. This is assessed based
on the Company's forecast of future operating
results, adjusted for significant non-taxable
income and expenses. 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 realized 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 the statement of
profit and loss is recognized outside statement
of profit and loss (in OCI or equity depending
upon the treatment of underlying item).
f. Cash and cash equivalents
Cash and cash equivalent in the balance sheet
comprise cash at banks and on hand and
short-term deposits with an original maturity
of three months or less, which are subject to
an insignificant risk of changes in value. For the
purpose of the statement of cash flows, cash
and cash equivalents consist of cash and
short-term deposits, as defined above, net
of outstanding bank overdrafts as they are
considered an integral part of the Company's
cash management.
g. Foreign currency transactions
Functional and Presentation currencies
The Company's financial statements are
presented in Indian Rupees (?) which is also the
Company's functional currency.
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
recognized in profit or loss.
Foreign exchange differences regarded as an
adjustment to borrowing costs are presented in
the statement of profit and loss, within finance
costs. All other foreign exchange gains and
losses are presented in the statement of profit
and loss on a net basis within other income/
expenses, as the case maybe.
h. Financial instruments
Initial recognition and measurement
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
Initial recognition and measurement
All financial assets are recognised initially 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.
Subsequent measurement
For the purpose of subsequent measurement,
financial assets are classified into the following
categories upon initial recognition:
Financial assets carried at amortised cost - a
financial instrument is measured at amortised
cost if both the following conditions are met:
• The asset is held within a business model
whose objective is to hold assets for
collecting contractual cash flows, and
• Contractual terms of the 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 amortised cost
using the effective interest method.
Financial assets at fair value
Investments in equity instruments (other
than subsidiary) -
All equity investments in scope of Ind AS
109, "Financial Instruments" are measured
at fair value. Equity instruments which are
held for trading and contingent consideration
recognised by an acquirer in a business
combination, if any to which Ind AS 103,
Business combinations applies are classified as
at fair value through Profit or loss. Further, there
is no such equity investments measured at Fair
value through profit or loss or fair value through
other comprehensive income in the company.
I f the Company decides to classify an equity
instrument as at FVOCI, then all fair value
changes on the instrument, excluding
dividends, are recognised in the other
comprehensive income (OCI). There is no
recycling of the amounts from OCI to P&L, even
on sale of investment. However, the Company
may transfer the cumulative gain or loss within
equity. Dividends on such investments are
recognised in profit or loss unless the dividend
clearly represents a recovery of part of the cost
of the investment.
Equity instruments included within the FVTPL
category are measured at fair value with all
changes recognised in the P&L.
De-recognition of financial assets
A financial asset is primarily de-recognised
when the rights to receive cash flows from
the asset have expired or the Company has
transferred its rights to receive cash flows
from the asset.
Financial liabilities and equity
Classification as debt or equity
Debt and equity instruments are classified
as either financial liabilities or as equity
in accordance with the substance of the
contractual arrangements and the definitions
of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that
evidences a residual interest in the assets of
an entity after deducting all of its liabilities.
Equity instruments issued by the company are
recognised at the proceeds received, net of
direct issue costs.
Initial recognition and measurement
All financial liabilities are recognised initially at
fair value plus, in the case of financial liabilities
not recorded at fair value through profit or
loss, transaction costs that are attributable
to the acquisition of the financial liabilities.
Transaction costs directly attributable to
the acquisition of financial liabilities at fair
value through profit or loss are recognised
immediately in finance costs in the statement
of profit and loss.
Subsequent measurement
All financial liabilities are measured
subsequently at amortised cost using the
effective interest method or at FVTPL.
Amortised cost is calculated after considering
any discount or premium on acquisition and
fees or costs that are an integral part of the EIR.
The effect of EIR amortisation is included as
finance costs in the statement of profit and loss.
De-recognition of financial liabilities
A financial liability is de-recognised 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 recognised in the statement of
profit and loss.
Derivative financial instruments
Initial and subsequent measurement
Derivatives are initially recognised at fair value
on the date a derivative contract is entered into
and are subsequently re-measured to their fair
value at the end of each reporting period.
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,
to realise the assets and settle the liabilities
simultaneously.
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 group 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
Trade receivables
The Company applies simplified approach
permitted by Ind AS 109 Financial Instruments,
which requires lifetime expected credit losses
to be recognised upon initial recognition of
receivables. Lifetime ECL are the expected credit
losses resulting from all possible default events
over the expected life of a financial instrument.
Other financial assets
For recognition of impairment loss on other
financial assets and risk exposure, the
Company determines whether there has been
a significant increase in the credit risk since
initial recognition. If the credit risk has not
increased significantly since initial recognition,
the Company measures the loss allowance at
an amount equal to 12-month expected credit
losses, else at an amount equal to the lifetime
expected credit losses
When making this assessment, the Company
uses the change in the risk of a default
occurring over the expected life of the financial
asset. To make that assessment, the Company
compares the risk of a default occurring on the
financial asset as at the balance sheet date with
the risk of a default occurring on the financial
asset as at the date of initial recognition
and considers reasonable and supportable
information, that is available without undue
cost or effort, that is indicative of significant
increases in credit risk since initial recognition.
The Company assumes that the credit risk on
a financial asset has not increased significantly
since initial recognition if the financial asset
is determined to have low credit risk at the
balance sheet date.
i. Impairment of non-financial assets
For impairment assessment purposes, assets
are grouped at the lowest levels for which there
are largely independent cash inflows (cash
generating units). As a result, some assets are
tested individually for impairment and some
are tested at cash-generating unit level.
At each reporting date, the Company assesses
whether there is any indication based on
internal/ external factors, that an asset may
be impaired. If any such indication exists, the
Company estimates the recoverable amount
of the asset. If such recoverable amount
of the asset or the recoverable amount of
the cash generating unit to which the asset
belongs is less than its carrying amount, the
carrying amount is reduced to its recoverable
amount and the reduction is treated as an
impairment loss and is recognised in the
statement of profit and loss. If, at the reporting
date there is an indication that a previously
assessed impairment loss no longer exists, the
recoverable amount is reassessed which is the
higher of fair value less costs of disposal and
value-in-use and the asset is reflected at the
recoverable amount subject to a maximum of
depreciated historical cost. Impairment losses
previously recognised are accordingly reversed
in the statement of profit and loss.
To determine value-in-use, management
estimates expected future cash flows from
each cash generating unit and determines a
suitable discount rate in order to calculate the
present value of those cash flows. The data
used for impairment testing procedures are
directly linked to the Company's latest approved
budget, adjusted as necessary to exclude the
effects of future re-organisations and asset
enhancements.Discountfactorsare determined
individually for each cash-generating unit and
reflect current market assessment of the time
value of money and asset-specific risk factors.
j. 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 recognised 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 significant to the fair
value measurement as a whole) at the end of
each reporting period.
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.
k. Investments in subsidiary and associate/
joint venture
The Company has measured its investment
in subsidiaries and associate/joint venture at
cost in its financial statements in accordance
with Ind AS 27, Separate Financial Statements.
Profit/loss on sale of investments is recognized
on the date of sale and is computed
with reference to the original cost of the
investment sold.
l. Property, plant and equipment (PPE)
The Company has elected to continue with
the carrying value for all its property, plant
and equipment as recognized in the financial
statements as at the date of transition to Ind-AS
and use the same as its deemed cost as at the
date of transition.
Recognition and initial measurement
Property, plant and equipment are stated at
their cost of acquisition. The cost comprises
purchase price, borrowing cost if capitalisation
criteria are met and directly attributable cost of
bringing the asset to its working condition for the
intended use. Any trade discount and rebates
are deducted in arriving at the purchase price.
Subsequent costs are included in the asset's
carrying amount or recognized 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 definition
of asset is met. All other repair and maintenance
costs are recognized in the statement of profit
or loss as incurred.
Subsequent measurement (depreciation
and useful lives)
Depreciation on property, plant and equipment
is provided on straight line method based
on life prescribed as per Schedule II of the
Companies Act, 2013.
De-recognition
An item of property, plant and equipment
and any significant part initially recognized
is de-recognized upon disposal or when no
future economic benefits are expected from
its use or disposal. Any gain or loss arising on
de-recognition of the asset (calculated as the
difference between the net disposal proceeds
and the carrying amount of the asset) is
included in the statement of profit and loss
when the asset is derecognized.
m. Intangible assets
Recognition, initial measurement and
subsequent measurement Intangible assets
acquired separately are measured on initial
recognition at cost. Following initial recognition,
intangible assets are carried at cost less any
accumulated amortisation and accumulated
impairment losses. Internally generated
intangibles, excluding capitalized development
costs, are not capitalized and the related
expenditure is reflected in profit or loss in the
period in which the expenditure is incurred
n. Capital work-in progress
Cost of material consumed and erection charges
thereon along with other direct cost incurred
by the Company for the projects are shown as
capital work-in-progress until capitalisation
o. Leases
The Company as a lessee
Classification of leases
The Company enters into leasing arrangements
for various assets. The assessment of the lease
is based on several factors, including, but not
limited to, transfer of ownership of leased
asset at end of lease term, lessee's option to
extend/purchase etc.
Recognition and initial measurement
At lease commencement date, the Company
recognizes a right-of-use asset and a lease
liability on the balance sheet. The right-of-
use asset is measured at cost, which is made
up of the initial measurement of the lease
liability, any initial direct costs incurred by the
Company, an estimate of any costs to dismantle
and remove the asset at the end of the lease (if
any), and any lease payments made in advance
of the lease commencement date (net of any
incentives received).
Subsequent measurement
The Company depreciates the right-of-use
assets on a straight-line basis from the lease
commencement date to the earlier of the end
of the useful life of the right-of-use asset or
the end of the lease term. The Company also
assesses the right-of-use asset for impairment
when such indicators exist.
At lease commencement date, the Company
measures the lease liability at the present
value of the lease payments unpaid at that
date, discounted using the interest rate
implicit in the lease if that rate is readily
available or the Company's incremental
borrowing rate. Lease payments included in the
measurement of the lease liability are made
up of fixed payments (including in substance
fixed payments) and variable payments based
on an index or rate. Subsequent to initial
measurement, the liability will be reduced for
payments made and increased for interest.
It is re-measured to reflect any reassessment
or modification, or if there are changes in
in-substance fixed payments. When the lease
liability is re-measured, the corresponding
adjustment is reflected in the right-of-use asset.
The Company has elected to account for
short-term leases and leases of low-value
assets using the practical expedients.
Instead of recognizing a right-of-use asset and
lease liability, the payments in relation to these
are recognized as an expense in standalone
statement of profit and loss on a straight-line
basis over the lease term.
p. Borrowing costs
Borrowing costs directly attributable to the
acquisition, construction or production of an
asset that necessarily takes a substantial period
of time to get ready for its intended use or sale
are capitalised as part of the cost of the asset.
All other borrowing costs are expensed in the
period in which they occur. Borrowing costs
consist of interest and other costs that an entity
incurs in connection with the borrowing of
funds. Borrowing cost also includes exchange
differences to the extent regarded as an
adjustment to the borrowing costs.
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