2. MATERIAL ACCOUNTING POLICIES
This note provides a list of the Material Accounting Policies adopted in the preparation of these Standalone Financial Statements. These policies have been consistently applied to all the periods presented, unless otherwise stated.
2.1 Compliance with Ind AS
The Standalone Financial Statements of the Company have been prepared in accordance with 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, (Ind AS Compliant Schedule III), as applicable to Standalone Financial Statement.
The Financial Statements are presented in Indian Rupees, which is the functional currency of the Company and the currency of the primary economic environment in which the Company operates, and all values are rounded to the nearest lakhs (00,000.00), except as otherwise indicated.
The Company has prepared the Financial Statements on the basis that it will continue to operate as a going concern.
2.2 Basis of Preparation
These Standalone Financial Statements have been prepared on a Historical Cost basis except certain Financial Assets and Liabilities (refer Accounting Policy regarding Financial Instruments).
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, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the Fair Value of an Asset or a Liability, the Company takes into account the characteristics of the Asset or Liability if market participants would take those characteristics into account when pricing the Asset or Liability at the measurement date. Fair Value for measurement and/or disclosure purposes in these Financial Statements is determined on such a basis, except leasing transactions that are within the scope of Ind AS 116-Leases that have some similarities to Fair Value but are not Fair Value, such as Net Realisable Value in Ind AS 2-Inventories or Value in Use in Ind AS 36-Impairment of Assets.
2.3 Current versus Non-Current Classification
All Current/Non-Current Assets and Liabilities have been classified as Current/Non-Current as per the Company's normal operating cycle and other criteria set out in the Schedule III to the Companies Act, 2013 and Ind AS 1-Presentation of Financial Statements based on the nature of asset and liabilities and the time between the acquisition of assets for processing and their realisation in Cash and Cash Equivalents, the Company has ascertained its operating cycle as 12 months for the purpose of Current/Non-Current classification of Assets and Liabilities.
2.4 Property, Plant and Equipment - Tangible Assets
Freehold Land is carried at Historical Cost. Property, Plant and Equipment are stated at cost of acquisition or construction less accumulated depreciation and impairment loss, if any. The cost of an item of Property, Plant and Equipment comprises of its cost of acquisition inclusive of inward freight, import duties and other non-refundable taxes or levies and any other cost directly attributable to the acquisition/construction of those items. Expenses capitalised also include applicable Borrowing Costs for long
term construction projects if the recognition criteria are met. Subsequent 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 Value of any component accounted for as a separate asset is derecognised when replaced.
All other repairs and maintenance are charged to the Standalone Statement of Profit and Loss when incurred. An item of Property, Plant and Equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of 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 Standalone Statement of Profit and Loss.
Capital Work-in-Progress is stated at cost (including Borrowing Cost, where applicable and adjustment for Exchange Difference), incurred during construction/installation/preoperative periods relating to items or project in progress net of accumulated impairment loss, if any.
2.5 Intangible Assets (Including Goodwill)
Intangible Assets are recognised at the cost incurred for its acquisition and are carried at cost less accumulated amortisation and accumulated impairment loss, if any. Cost of Intangible Asset is capitalised where it is expected to provide future economic benefits and the cost can be measured reliably. Capitalisation Costs include License Fees and costs of implementation/system integration services. The costs are capitalised in the year in which the related Intangible Asset is put to use.
Subsequent expenditure is capitalised only when it increases the future economic benefits from the specific asset to which it relates.
An item of Intangible Asset is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of asset. Any gain or loss arising on the disposal or retirement of an item of Intangible Asset is determined as the difference between the Sales Proceeds and the Carrying Amount of the asset and is recognised in the Standalone Statement of Profit and Loss.
Goodwill arising on Amalgamation has been recognised in accordance with the approved Scheme as detailed in Note 38. Said Goodwill is being amortised in accordance with the scheme for which the Company has estimated useful life of 10 years. Such Goodwill will be tested for impairment at every reporting period and wherever there is an indication that the Recoverable Amount is less than its Carrying Amount based on a number of factor including business plan, operating results, future cash flows and economic conditions. The recoverable amount is determined based on higher of Value in Use and Fair Value less Cost to Sell. The Company uses Discounted Cash Flow Method to determine the Recoverable Amount. Cash Flow Projections take into account past experience and represent Management's best estimate about future developments.
As per Ind AS 38, the expenditure on Research and Development is classified into the expenditure on Research Phase and Development Phase. As per Paragraph 54 of Ind AS 38, any expenditure on Research Phase should be recognised as an Expense immediately. Any expenditure on Development Phase should be recognised as an Intangible Asset, if the recognition criteria given in Paragraph 57 of Ind AS 38 are satisfied.
2.6 Depreciation and Amortisation
Depreciation/Amortisation of Property, Plant and Equipment and Intangible Assets is calculated using Straight Line Method to allocate their costs, net of their residual values, over their estimated useful lives.
The useful lives considered is as prescribed in Schedule II to the Companies Act, 2013 except for certain items of Plant and Machinery (Machinery Spares) which are depreciated over a period of 1-5 years. The asset's residual values and useful lives are reviewed and adjusted if necessary, at the end of each reporting period.
Pro-rata Depreciation/Amortisation is charged on assets from/upto the date on which such assets are ready for intended use/are discarded or sold.
Computer Software is classified as Intangible Asset and amortised on a Straight Line basis over a period of 2 years.
Vehicles are depreciated over the period of 5 years.
2.7 Impairment of Non Financial Assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the Asset's Recoverable Amount. An Asset's Recoverable Amount is the higher of an Asset's or Cash-Generating Unit's (CGU) Fair Value less Costs of Disposal and its Value in Use. Recoverable Amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the Carrying Amount of an Asset or CGU exceeds its Recoverable Amount, the Asset is considered Impaired and is written down to its Recoverable Amount.
When an Impairment Loss subsequently reverses, the Carrying Amount of the Asset (or Cash Generating Unit) is increased to the revised estimate of its Recoverable Amount, but so that the increased Carrying Amount does not exceed the Carrying Amount that would have been determined had no Impairment Loss been recognised for the Asset (or Cash Generating Unit) in prior years. A reversal of an Impairment Loss is recognised immediately in Standalone Statement of Profit and Loss.
The Company assesses where climate risks could have a significant impact, such as the introduction of emission reduction legislation that may increase manufacturing costs. These risks in relation to climate related matters are included as key assumptions where they materially impact the measure of Recoverable Amount. These assumptions have been included in the cash flow forecasts in assessing Value-in-Use amounts.
2.8 Inventories
Inventories are stated at the lower of cost and net realizable value.
Raw materials, Trading Goods and Stores and Spares : Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Cost is determined on Weighted Average Basis.
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.
Net Realisable Value is the estimated selling price less estimated costs for completion and sale. Obsolete, slow moving and defective inventories are identified periodically and, where necessary, a provision is made for such inventories.
2.9 Foreign Currency Transactions
The functional and presentation currency of the Company is Indian Rupee. At the end of each reporting period, Foreign Currency monetary items are translated using the functional currency spot rates prevailing at the reporting date. Exchange differences on monetary items are recognised in Standalone Statement of Profit and Loss in the period in which they arise except for exchange differences on transactions entered into in order to hedge certain Foreign Currency Risks. Non-monetary items that are measured in terms of Historical Cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the Fair Value is determined. The gain or loss arising on translation of non-monetary items measured at Fair Value is treated in line with the recognition of the Gain or Loss on the change in Fair Value of the item (i.e., translation differences on items whose Fair Value Gain or Loss is recognised in Other Comprehensive Income or Profit or Loss are also recognised in Other Comprehensive Income or Profit or Loss, respectively)
2.10 Investment in Subsidiaries
Investment in Subsidiaries are carried at cost in accordance with Ind AS 27. Investments in Subsidiaries are carried at cost less provision for impairment, if any. Investments in subsidiaries are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of investments exceeds its recoverable amount.
2.11 Financial Instruments, Financial Assets, Financial Liabilities and Equity Instruments
2.11.1 Financial Assets
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.
Recognition : Financial Assets include Investments, Trade Receivables, Cash and Cash Equivalents, other Bank balances and Other Financial Assets etc. Such assets are initially recognised at transaction price when the Company becomes party to contractual obligations. All the Financial Assets are initially measured at Fair Value. Transaction Costs that are directly attributable to the acquisition of Financial Asset (other than Financial Assets carried at Fair Value through Profit or Loss) are added to or deducted from the Fair Value measured on initial recognition of the Financial Assets.
Classification : Management determines the classification of an Asset at initial recognition depending on the purpose for which the Assets were acquired. The subsequent measurement of Financial Assets depends on such classification.
Financial Assets are classified as those measured at :
a) Amortised Cost, where the Financial Assets are held solely for collection of cash flows arising from payments of principal and/or interest.
b) Fair Value through Other Comprehensive Income (FVTOCI), where the Financial Assets are held not only for collection of cash flows arising from payments of principal and interest but also from the sale of such assets. Such assets are subsequently measured at Fair Value, with Unrealised Gains and Losses arising from changes in the Fair Value being recognised in Other Comprehensive Income.
c) Fair Value through Profit or Loss (FVTPL), where the assets are managed in accordance with an approved investment strategy that triggers purchase and sale decisions based on the Fair Value of such assets. Such assets are subsequently measured at Fair Value, with Unrealised Gains and Losses arising from changes in the Fair Value being recognised in the Standalone Statement of Profit and Loss in the period in which Trade Receivables, Cash and Cash Equivalents, other Bank Balances and Other Financial Assets etc are classified for measurement at Amortised Cost while Investments may fall under any of the aforesaid classes.
Impairment : The Company assesses at each reporting date whether a Financial Asset (or a group of Financial Assets) such as Investments, Trade Receivables, other Bank balances and Other Financial Assets held at Amortised Cost and Financial Assets that are measured at Fair Value through Other Comprehensive Income are tested for impairment based on evidence or information that is available without undue cost or effort. Expected Credit Losses (ECL) are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original Effective Interest Rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12 month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a Lifetime ECL).
For Trade Receivables, the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
Reclassification : When and only when the business model is changed, the Company shall reclassify all affected Financial Assets prospectively from the reclassification date as subsequently measured at amortised cost, Fair Value through Other Comprehensive Income, Fair Value through Profit or Loss without restating the previously recognised gains, losses or interest and in terms of the reclassification principles laid down in the Ind AS relating to Financial Instruments.
De-recognition : Financial Assets are derecognised when the right to receive cash flows from the assets has expired, or has been transferred and the Company has transferred substantially all of the risks and rewards of ownership.
Concurrently, if the asset is one that is measured at :
a) Amortised Cost, the Gain or Loss is recognised in the Standalone Statement of Profit and Loss,
b) Fair Value through Other Comprehensive Income, the cumulative Fair Value adjustments previously taken to Reserves are reclassified to the Standalone Statement of Profit and Loss unless the asset represents an Equity Investment in which case the cumulative Fair Value adjustments previously taken to reserves is reclassified within Equity.
Income Recognition : Interest Income is recognised in the Standalone Statement of Profit and Loss using the Effective Interest Method. The Effective Interest Rate is the rate that exactly discounts estimated future cash receipts through the expected life of the Financial Asset to the Gross Carrying Amount of the Financial Asset. Dividend Income is recognised in the Standalone Statement of Profit and Loss when the right to receive Dividend is established and the amount can be measured reliably.
2.11.2 Financial Liabilities
Borrowings, Trade Payables and Other Financial Liabilities are initially recognised at the value of the respective contractual obligations. They are subsequently measured at amortised cost. Any discount or premium on redemption/settlement is recognised in the Standalone Statement of Profit and Loss as Finance Cost over the life of the liability using the Effective Interest Method and adjusted to the liability figure disclosed in the Balance Sheet. Financial Liabilities are derecognised when the liability is extinguished, that is, when the contractual obligation is discharged, cancelled and on expiry.
De-recognition
A Financial Liability is derecognised 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 derecognition of the original liability and the recognition of a new liability. The difference in the respective Carrying Amounts is recognised in the Standalone Statement of Profit and Loss.
Offsetting Financial Instruments
Financial Assets and Liabilities are offset and the net amount is included 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 realise the asset and settle the liability simultaneously.
2.11.3 Equity Instruments
Equity Instruments are recognised at the value of the proceeds, net of direct costs of the capital issue.
2.12 Revenue
Revenue from contract with customers is recognised when 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. Company satisfies performance obligation by transferring promised goods and services to the customer. Performance obligations may be satisfied at a point of time or over a period of time. Performance obligations satisfied over a period of time are recognised as per the terms of relevant contractual agreements/arrangements. Performance obligations are said to be satisfied at a point of time when the customer obtains controls of the asset.
Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price (net of variable consideration) allocated to that performance obligation. The Transaction Price of goods sold and services rendered is net of variable consideration on account of various discounts and schemes offered by the Company as part of the contract, excluding amounts collected on behalf of third parties.
Trade Receivables that do not contain a significant financing component are measured at Transaction Price.
Interest Income is recognised in the Standalone Statement of Profit and Loss using the Effective Interest Method. The Effective Interest Rate is the rate that exactly discounts estimated future cash receipts through the expected life of the Financial Asset to the Gross Carrying Amount of the Financial Asset.
Export Incentives in the form of Duty Drawbacks and Remission of Duties and Taxes on Export Products (RODTEP) are recognised on accrual basis against goods exported.
2.13 Government Grant
The Company may receive Government Grants that require compliance with certain conditions related to the Company's operating activities or are provided to the Company by way of financial assistance on the basis of certain qualifying criteria.
Government Grants are recognised when there is reasonable assurance that the grant will be received and the Company will comply with the conditions attached to the grant.
Accordingly, Export Benefits are accounted for as Government Grants in the year of exports based on eligibility and when there is no uncertainty in receiving the same.
2.14 Employee Benefits
Short Term Obligations
Liabilities for wages and salaries, including non monetary benefits that are expected to be settled wholly within 12 months after the end of the reporting period in which the employees render the related services are measured at the amounts expected to be paid. The Liabilities are presented as current Employee Benefit Obligations in the Standalone Financial Statements. Cost of non accumulating Compensated Absences are recognised when the absences occur.
Post Employment Obligations
The Company makes contributions to both Defined Benefit and Defined Contribution Schemes.
i) Contributions towards Provident Fund are recognised as Expense. Provident Fund contributions in respect of employees upto August 2017 of erstwhile IFGL Refractories Limited are made to a Trustee managed exempted Fund and interest paid to members thereof is not lower than that declared annually by the Central Government. Shortfall, if any, is made good by the Company. Membership to said Fund has been closed on and from September 1,2017, subject to necessary approvals and/or permissions. Provident Fund in respect of remaining employees are made to Statutory Provident Fund established by the Central Government. The Company's contribution is recognised as an Expense in the Standalone Statement of Profit and Loss for the period in which the employees render related service.
ii) Contribution under Statutory Employees'Pension Scheme is made as per statutory requirements and charged as expenses for the year.
iii) Certain employees who joined before April 1, 2004 in erstwhile IFGL Refractories Limited are members of a Trustee managed Superannuation Fund. Said Fund provides for Superannuation Benefit on retirement/death/incapacitation/ termination and was amended from the Defined Benefit to Defined Contribution Plan effective April 1, 2004. Defined Benefits were frozen on March 31, 2004. Necessary formalities and approvals have been complied with and obtained. Contribution to Superannuation Fund (Defined Contribution Plan) for certain employees is charged as expenses for the year.
iv) The Company also contributes to the Central Government administered Employees' State Insurance Scheme for its eligible employees which is a Defined Contribution Plan.
v) The Company provides Gratuity benefit to its employees through a Trustee managed Fund. Gratuity entitlement of the employees is as per provisions of the Payment of Gratuity Act, 1972. However, in case of employees joining before April 1,2003 of erstwhile IFGL Refractories Limited, they are entitled to Gratuity as per Scheme framed by that Company or as per the Payment of Gratuity Act, 1972, whichever is higher. Liability towards Gratuity, Superannuation (Defined Benefit Plan) covering eligible employees, is provided and funded on the basis of year end Actuarial Valuation. The Liability or Asset recognised in the Balance Sheet in respect of Gratuity Plans is the Present Value of Defined Benefit Obligations at the end of the reporting period less the Fair Value of Plan Assets. The Defined Benefit Obligation is calculated annually by actuary using the Projected Unit Credit Method. The Present Value of the Defined Benefit Obligations is determined by discounting the estimated future cash outflows by reference to market yields at the end of the reporting period on Government Bonds that have terms approximating to the terms of the related obligation. The Net Interest Cost is calculated by applying the discount rate to the net balance of the Defined Benefit Obligation and the Fair Value of Plan Assets. This cost is included in the Employee Benefit Expense in the Standalone Statement of Profit and Loss.
Re-measurement, comprising of actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in Other Comprehensive Income. They are included in Retained Earnings in the Statement of Changes in Equity and in the Balance Sheet.
vi) Accrued Liability towards Compensated Absence, covering eligible employees, evaluated on the basis of year end Actuarial Valuation is recognised as a charge.
2.15 Leases
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Company as a Lessee
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognises Lease Liabilities to make Lease Payments and Right-of-Use Assets representing the Right of Use the underlying Assets.
Right-of-Use Assets
The Company recognises Right-of-Use Assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right of Use Assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of Lease Liabilities.
Right-of-Use Assets are depreciated on a straight-line basis over the lease term or estimated useful life of asset, whichever is less.
If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The Right-of-Use Assets are also subject to impairment. Refer to the Accounting Policies under Section 2.7: Impairment of Non Financial Assets.
Lease Liabilities
At the commencement date of the lease, the Company recognises lease liabilities measured at the Present Value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.
In calculating the Present Value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.
Short-Term Leases and Leases of Low-Value Assets
The Company applies the Short-Term Lease Recognition exemption to its Short-Term Leases of Office, Machinery and Equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the Lease of Low-Value Assets recognition exemption to Leases of Offices, Equipment, etc. that are of low value. Lease payments on short term leases and leases of low-value assets are recognised as expense on a Straight-Line basis over the Lease Term.
2.16 Taxes on Income
Taxes on Income comprises of Current Taxes and Deferred Taxes. Current Tax in the Standalone Statement of Profit and Loss is provided as the amount of tax payable in respect of taxable income for the period using tax rates and tax laws enacted at the end of the reporting period, together with any adjustment to tax payable in respect of previous years. Current Income Tax relating to items recognised outside Profit or Loss is recognised outside Profit or Loss (either in Other Comprehensive Income or in Equity). Current Tax items are recognised in correlation to the underlying transaction either in Other Comprehensive Income or directly in Equity. The Company periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the Tax Authorities.
Deferred Tax is recognised on temporary differences between the Carrying Amounts of Assets and Liabilities and the amounts used for taxation purposes (tax base), at the tax rates and tax laws enacted or substantively enacted by the end of the reporting period. Deferred Tax Assets are recognised 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 utilised, except:
(a) When the Deferred Tax Asset relating to the deductible temporary difference arises from the initial recognition of an Asset or Liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable Profit or Loss and does not give rise to equal taxable and deductible temporary differences;
(b) In respect of deductible temporary differences associated with Investments in Subsidiaries, Associates and Interests in Joint Ventures, Deferred Tax Assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
Deferred Tax Assets and Liabilities are offset when there is legally enforceable right to offset Current Tax Assets and Liabilities and when the Deferred Tax balances related to the same taxation authority. Current Tax Assets and Tax Liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on net basis or to realise the Asset and settle the Liability simultaneously.
In assessing the recoverability of Deferred Tax Assets, the Company relies on the same forecast assumptions used elsewhere in the financial statements and in other management reports, which, among other things, reflect the potential impact of climate related development on the business, such as increased cost of production as a result of measures to reduce carbon emission.
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