3. MATERIAL ACCOUNTING POLICIES.
a. Foreign currency transaction
Transactions in foreign currencies are translated into the respective functional currencies of
the Company at the exchange rates at the date of the transaction or at an average rate if the
average rate approximates the actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into the
functional currency at the exchange rate at the reporting date. Non-monetary assets and
liabilities that are measured at fair value in a foreign currency are translated into the functional
currency at the exchange rate when the fair value was determined. Non-monetary assets and
liabilities that are measured based on historical cost in a foreign currency are translated at the
exchange rate at the date of the transaction. Exchange differences are recognised in profit or
loss.
The financial statements are presented in Indian Rupees (C) which is the Company’s
presentation currency. All financial information presented in Indian Rupees has been rounded
up to the nearest Lakhs except where otherwise indicated.
b. Current and 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 realised or intended to be sold or consumed in normal operating cycle,
- held primarily for the purpose of trading,
- expected to be realised 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.
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.
c. Revenue from contracts with customers
Revenue from contracts with customers is recognised when control of the goods or services
are transferred to the customer at an amount that reflects the consideration to which the
Company expects to be entitled in exchange for those goods or services. The Company assesses
promises in the contract that are separate performance obligations to which a portion of
transaction price is allocated.
Revenue is measured based on the transaction price as specified in the contract with the
customer, ft excludes taxes or other amounts collected from customers in its capacity as an
agent. In determining the transaction price, the Company considers below, if any:
a) Variable consideration - This includes bonus, incentives, discounts etc. It is estimated at
contract inception and constrained until it is highly probable that a material revenue
reversal in the amount of cumulative revenue recognised will not occur when the associated
uncertainty with the variable consideration is subsequently resolved. It is reassessed at end
of each reporting period.
b) Material financing component - Generally, the Company receives short-term advances
from its customers. Using the practical expedient in Ind AS 115, the Company does not
adjust the promised amount of consideration for the effects of a material financing
component if it expects, at contract inception, that the period between the transfer of the
promised good or service to the customer and when the customer pays for that good or
service will be one year or less.
c) Consideration payable to a customer - Such amounts are accounted as reduction of
transaction price and therefore, of revenue unless the payment to the customer is in
exchange for a distinct good or service that the customer transfers to the Company.
In accordance with Ind AS 37, the Company recognizes a provision for onerous contract when
the unavoidable costs of meeting the obligations under a contract exceed the economic
benefits to be received.
Contract modifications
Contract modifications are accounted for when additions, deletions or changes are approved
either to the contract scope or contract price. The accounting for modifications of contracts
involves assessing whether the services added to the existing contract are distinct and whether
the pricing is at the standalone selling price. Services added that are not distinct are accounted
for on a cumulative catch up basis, while those that are distinct are accounted for
prospectively, either as a separate contract, if additional services are priced at the standalone
selling price, or as a termination of existing contract and creation of a new contract if not
priced at the standalone selling price.
Contract assets
A contract asset is the right to consideration in exchange for goods or services transferred to
the customer e.g. unbilled revenue. If the Company performs its obligations by transferring
goods or services to a customer before the customer pays consideration or before payment is
due, a contract asset i.e. unbilled revenue is recognised for the earned consideration that is
conditional. The contract assets are transferred to receivables when the rights become
unconditional. This usually occurs when the Company issues an invoice to the Customer.
Trade receivables
A receivable represents the Company’s right to an amount of consideration that is
unconditional i.e. only the passage of time is required before payment of consideration is due.
Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the
Company has received consideration (or an amount of consideration is due) from the
customer. Contract liabilities are recognized as revenue when the Company performs under
the contract.
The accounting policies for the specific revenue streams of the Company as summarized
below:
Sale of goods
Revenue from sale of goods is recognized when control of the goods is transferred to the
customer which usually is on delivery of the goods under the terms of contract at an amount
that reflects the consideration to which the Company expects to be entitled in exchange for
those goods. Sales are inclusive of excise duty but are net of sales returns, sales tax, goods
and service tax and rate difference adjustments if any.
Service income
Revenues from services is recognized based on the services rendered in accordance with the
terms of the contract and there are no uncertainties involved to its ultimate realization.
Others
Export incentives are accrued in the year when the right to receive credit is established in
respect of exports made and are accounted to the extent there is no significant uncertainty
about the measurability and ultimate realization/ utilization of such benefits/ duty credit.
Revenue from scrap sales and other ancillary sales is recognized when the control over the goods is
transferred to the customers.
d. Recognition of interest income or expense
Interest on investments is booked on a time proportion basis taking into account the amounts
invested and the rate of interest.
Commission income is recognised on accrual basis.
e. Property, plant and equipment and Depreciation
Recognition and measurement
Property, Plant & Equipment’s (PPE) comprises of Tangible assets and Capital Work in
progress. PPE are stated at cost, net of tax/duty credit availed, if any, after reducing
accumulated depreciation until the date of the Balance Sheet.
The Cost of PPE comprises of its purchase price or its constmction costs (net of applicable
tax credit, if any), any cost directly attributable to bring the asset into the location and
condition necessary for it to be capable of operating in the manner intended by the
management. It includes professional fees and, for qualifying PPE, borrowing costs
capitalised in accordance with the Company’s accounting policy. Such properties are
classified to the appropriate categories of PPE when completed and ready for intended use.
Parts of an item of PPE having different useful lives and material value and subsequent
expenditure on PPE arising on account of capital improvement or other factors are accounted
for as separate components. Critical spares of PPE having life of more than one year are
capitalized as a separate component in PPE. Capital work in progress includes the cost of PPE
that are not yet ready for the intended use.
Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the future economic benefits
associated with the expenditure will flow to the Company.
Pre-Operative Expenses
Expenses incurred relating to project, net of income earned during the project development
stage prior to its intended use, are considered as pre-operative expenses and disclosed under
Capital Work-in-Progress. Cost of assets not ready for intended use, as on balance sheet date
is shown as capital work in progress. Advances given towards acquisition of property, plant
and equipment outstanding at each balance sheet date are disclosed as other non-current assets.
Depreciation
In respect of Property, Plant and Equipment, depreciation is charged on a straight line basis
so as to write off the cost of the assets over the useful lives as prescribed under Part C of
Schedule II to the Companies Act 2013.
Derecognition
An item of property, plant and equipment is derecognized upon disposal or when no future
economic benefits are expected to arise from the continued use of the asset. Any gain or loss
arising on the disposal or retirement of an item of property, plant and equipment is determined
as the difference between the sales proceeds and the carrying amount of the asset and is
recognised in the statement of profit and loss.
f. Intangible assets
Intangible assets with finite useful lives that are acquired separately are carried at cost less
accumulated amortisation and accumulated impairment losses.
Intangible assets with indefinite useful lives that are acquired separately are carried at cost
less accumulated impairment losses.
g. Impairment of Assets
Property, Plant and Equipment or Intangible asset is evaluated for recoverability whenever
events or changes in circumstances indicate that their carrying amounts may not be
recoverable. For the purpose of impairment testing, the recoverable amount (i.e. the 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 CGU to which the asset
belongs. If such assets are considered to be impaired, the impairment has to be recognised in
the Statement of Profit and Loss.
An impairment loss is reversed in the Statement of Profit and Loss if there has been a change
in the estimates used to determine the recoverable amount. The carrying amount of the asset is
increased to its revised recoverable amount, provided that this amount does not exceed the
carrying amount that would have been determined (net of any accumulated amortisation) had
no impairment loss been recognised for the asset in prior years.
h. Impairment Financial instruments
The Company recognises loss allowances for expected credit losses on financial assets
measured at amortised cost.
At each reporting date, the Company assesses whether financial assets carried at amortised cost
are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a
detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
— material financial difficulty of the borrower or issuer;
— a breach of contract such as a default or being past due for 180 days or more;
— the restructuring of a loan or advance by the Company on terms that the Company would
not consider otherwise;
— it is probable that the borrower will enter bankruptcy or other financial reorganization; or
— the disappearance of an active market for a security because of financial difficulties.
The Company measures loss allowances at an amount equal to lifetime expected credit losses,
except for bank balances for which credit risk (i.e. the risk of default occurring over the
expected life of the financial instrument) has not increased significantly since initial
recognition, which are measured as 12 month expected credit losses.
Loss allowances for trade receivables are always measured at an amount equal to lifetime
expected credit losses. Lifetime expected credit losses are the expected credit losses that result
from all possible default events over the expected life of a financial instrument. Twelve months
expected credit losses are the portion of expected credit losses that result from default events
that are possible within 12 months after the reporting date (or a shorter period if the expected
life of the instrument is less than 12 months).
In all cases, the maximum period considered when estimating expected credit losses is the
maximum contractual period over which the Company is exposed to credit risk. When
determining whether the credit risk of a financial asset has increased significantly since initial
recognition and when estimating expected credit losses, the Company considers reasonable
and supportable information that is relevant and available without undue cost or effort. This
includes both quantitative and qualitative information and analysis, based on the Company’s
historical experience and informed credit assessment and including forward-looking
information.
Measurement of expected credit losses
Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are
measured as the present value of all cash shortfalls (i.e. the difference between the cash flows
due to the Company in accordance with the contract and the cash flows that the Company
expects to receive).
Presentation of allowance for expected credit losses in the balance sheet
Loss allowances for financial assets measured at amortised cost are deducted from the gross
carrying amount of the assets.
Impairment of non-financial instruments
The Company’s non-financial assets, other than inventories and deferred tax assets, are
reviewed at each reporting date to determine whether there is any indication of impairment. If
any such indication exists, then the asset’s recoverable amount is estimated.
For impairment testing, assets that do not generate independent cash inflows are grouped
together into cash-generating units (CGUs). Each CGU represents the smallest group of assets
that generates cash inflows that are largely independent of the cash inflows of other assets or
CGUs.
The recoverable amount of a CGU (or an individual asset) is the higher of its value in use and
its fair value less costs to sell. Value in use is based on the estimated future cash flows,
discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the CGU (or the asset).
The Company’s corporate assets (e.g., central office building for providing support to various
CGUs) do not generate independent cash inflows. To determine impairment of a corporate
asset, recoverable amount is determined for the CGUs to which the corporate asset belongs.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its
estimated recoverable amount. Impairment losses are recognised in the statement of profit and
loss. Impairment loss recognised in respect of a CGU is allocated first to reduce the carrying
amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the
other assets of the CGU (or group of CGUs) on a pro rata basis.
In respect of other assets for which impairment loss has been recognised in prior periods, the
Company reviews at each reporting date whether there is any indication that the loss has
decreased or no longer exists. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. Such a reversal is made only to the extent
that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortisation, if no impairment loss had been recognised.
i. Financial instruments
Recognition and initial measurement
Trade receivables and debt securities issued are initially recognised when they are originated.
All other financial assets and financial liabilities are initially recognised when the Company
becomes a party to the contractual provisions of the instrument.
A financial asset or financial liability is initially measured at fair value plus, for an item not at
fair value through profit and loss (FVTPL), transaction costs that are directly attributable to its
acquisition or issue.
Classification and subsequent measurement
Financial assets on initial recognition, a financial asset is classified as measured at
— amortised cost;
— FVOCI - debt investment;
— FVOCI - equity investment; or
— FVTPL
A financial asset is measured at amortised cost if it meets both of the following conditions and
is not designated as at FVTPL:
a) the asset is held within a business model whose objective is to hold assets to collect
contractual cash flows; and
b) 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.
A debt investment is measured at FVOCI if it meets both of the following conditions and is
not designated as at FVTPL:
a) the asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets; and
b) 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.
At present, the Company does not have investments in any debt securities classified as FVOCI.
j. Financial guarantee contracts
A financial guarantee contract is a contract that requires the issuer to make specified payments
to reimburse the holder for a loss it incurs because a specified debtor fails to make payments
when due in accordance with the terms of a debt instrument.
Financial guarantee contracts issued by a Company entity are initially measured at their fair
values and, if not designated as at FVTPL, are subsequently measured at the higher of:
• the amount of loss allowance determined in accordance with impairment requirements of
Ind AS 109; and
• the amount initially recognised less, when appropriate, the cumulative amount of income
recognised in accordance with the principles of Ind AS 18.
k. Financial assets: Business model assessment
The Company makes an assessment of the objective of the business model in which a financial
asset is held at a portfolio level because this best reflects the way the business is managed and
information is provided to management. The information considered includes:
• the stated policies and objectives for the portfolio and the operation of those policies in
practice. These include whether management’s strategy focuses on earning contractual
interest income, maintaining a particular interest rate profile, matching the duration of the
financial assets to the duration of any related liabilities or expected cash outflows or
realising cash flows through the sale of the assets;
• how the performance of the portfolio is evaluated and reported to the Company’s
management;
• the risks that affect the performance of the business model (and the financial assets held
within that business model) and how those risks are managed;
• how managers of the business are compensated - e.g. whether compensation is based on
the fair value of the assets managed or the contractual cash flows collected; and
• the frequency, volume and timing of sales of financial assets in prior periods, the reasons
for such sales and expectations about future sales activity.
Transfers of financial assets to third parties in transactions that do not qualify for derecognition
are not considered sales for this purpose, consistent with the Company’s continuing recognition
of the assets.
Assessment whether contractual cash flows are solely payments of principal and interest.
For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset
on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for
the credit risk associated with the principal amount outstanding during a particular period of
time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs),as
well as a profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest,
the Company considers the contractual terms of the instrument. This includes assessing
whether the financial asset contains a contractual term that could change the timing or amount
of contractual cash flows such that it would not meet this condition. In making this assessment,
the Company considers:
• contingent events that would change the amount or timing of cash flows;
• terms that may adjust the contractual coupon rate, including variable interest rate features;
• prepayment and extension features; and
• terms that limit the Company’s claim to cash flows from specified assets (e.g. non-recourse
features).
A prepayment feature is consistent with the solely payments of principal and interest criterion
if the prepayment amount substantially represents unpaid amounts of principal and interest on
the principal amount outstanding, which may include reasonable additional compensation for
early termination of the contract. Additionally, for a financial asset acquired at a material
discount or premium to its contractual paramount, a feature that permits or requires prepayment
at an amount that substantially represents the contractual par amount plus accrued (but unpaid)
contractual interest (which may also include reasonable additional compensation for early
termination) is treated as consistent with this criterion if the fair value of the prepayment
feature is insignificant at initial recognition.
Financial liabilities are classified as measured at amortised cost or FVTPL. A financial
liability is classified as at FVTPL if it is classified as held-for-trading, or it is a derivative or
it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at
fair value and net gains and losses, including any interest expense, are recognised in profit or
loss. Other financial liabilities are subsequently measured at amortised cost using the effective
interest method. Interest expense and foreign exchange gains and losses are recognised in
profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.
Derecognition
Financial assets
The Company derecognizes a financial asset when the contractual rights to the cash flows
from the financial asset expire, or it transfers the rights to receive the contractual cash flows
in a transaction in which substantially all of the risks and rewards of ownership of the financial
asset are transferred or in which the Company neither transfers nor retains substantially all of
the risks and rewards of ownership and does not retain control of the financial asset. If the
Company enters into transactions whereby it transfers assets recognised on its balance sheet,
but retains either all or substantially all of the risks and rewards of the transferred assets, the
transferred assets are not derecognized.
Financial liabilities
The Company derecognizes a financial liability when its contractual obligations are
discharged or cancelled or expire. The Company also derecognizes a financial liability when
its terms are modified and the cash flows under the modified terms are substantially different.
In this case, a new financial liability based on the modified terms is recognised at fair value.
The difference between the carrying amount of the financial liability extinguished and the new
financial liability with modified terms is recognised in profit or loss.
Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the balance
sheet when, and only when, the Company currently has a legally enforceable right to set off
the amounts and it intends either to settle them on a net basis or to realise the asset and settle
the liability simultaneously.
l. Borrowing costs
Borrowing cost includes interest expense as per Effective Interest Rate (EIR), other costs
incurred in connection with the borrowing of funds and exchange differences arising from
foreign currency borrowings to the extent they are regarded as an adjustment to the interest
cost. Borrowing costs directly relating to the acquisition, construction or production of a
qualifying capital project under construction are capitalised and added to the project cost
during construction until such time that the assets are substantially ready for their intended use
i.e. when they are capable of commercial production. Where funds are borrowed specifically
to finance a project, the amount capitalised represents the actual borrowing costs incurred.
Where surplus funds are available out of money borrowed specifically to finance a project, the
income generated from such current investments is deducted from the total capitalized
borrowing cost. Capitalisation of borrowing costs is suspended and charged to profit and loss
during the extended periods when the active development on the qualifying assets is
interrupted. EIR is the rate that exactly discounts the estimated future cash payments or receipts
over the expected life of the financial liability or a shorter period, where appropriate, to the
amortised cost of a financial liability. When calculating the effective interest rate, the Company
estimates the expected cash flows by considering all the contractual terms of the financial
instrument (for example, prepayment, extension, call and similar options).
m. Inventories
The inventories are valued at cost or net realizable value whichever is lower. The provision for
inventory obsolescence is assessed at regular intervals and is provided as considered necessary.
The basis of determining the value of each class of inventory is as follows:
n. Taxation
Tax expense comprises of current and deferred tax. It is recognised in the Statement of Profit
and Loss except to the extent that it relates to a business combination, or items recognised
directly in equity or in other comprehensive income
Current tax
Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and
laws that have been enacted or substantively enacted by the reporting date and includes any
adjustment to tax payable in respect of previous years. The amount of current tax reflects the
best estimate of the tax amount expected to be paid or received after considering the uncertainty,
if any, related to income taxes. It is measured using tax rates (and tax laws) enacted or
substantively enacted by the reporting date.
Deferred Taxes
Deferred tax is provided, using the balance sheet method, on all deductible temporary
differences at the reporting date between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes and on carry forward of unused tax credits and unused
tax loss.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to 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. Tax relating to items
recognized outside profit or loss is recognised outside profit or loss (either in other
comprehensive income or equity).
Deferred tax assets are recognized only to the extent that there is reasonable certainty that
sufficient future taxable income will be available against which such deferred tax assets can be
realised. In situations where the Company has unabsorbed depreciation or carry forward tax
losses, deferred tax assets are recognised only if there is virtual certainty supported by
convincing evidence that they can be realised against future taxable profits.
At each balance sheet date the Company reassesses unrecognized deferred tax assets. It
recognises unrecognised deferred tax assets to the extent that it has become reasonably certain
or virtually certain, as the case may be that sufficient future taxable income will be available
against which such deferred tax assets can be realized.
The measurement of deferred tax reflects the tax consequences that would follow from the
manner in which the Company expects, at the reporting date, to recover or settle the carrying
amount of its assets and liabilities.
Minimum Alternative Tax ("MAT") credit is recognised an item in deferred tax asset only when
and to the extent there is convincing evidence that the Company will pay normal income tax
during the specified period. Such asset is reviewed at each Balance Sheet date and the carrying
amount of the MAT credit asset is written down to the extent there is no longer a convincing
evidence to the effect that the Company will pay normal income tax during the specified period.
Presentation of current and deferred tax:
Current and deferred tax are recognized as income or an expense in the Statement of Profit and
Loss or Equity, except when they relate to items that are recognized in Other Comprehensive
Income, in which case, the current and deferred tax income/expense are recognized in Other
Comprehensive Income or Equity.
The Company offsets current tax assets and current tax liabilities, where it has a legally
enforceable right to set off the recognized amounts and where it intends either to settle on a net
basis, or to realize the asset and settle the liability simultaneously. In case of deferred tax assets
and deferred tax liabilities, the same are offset if the Company has a legally enforceable right
to set off corresponding current tax assets against current tax liabilities and the deferred tax
assets and deferred tax liabilities relate to income taxes levied by the same tax authority on the
Company.
|