3.(I) MATERIAL ACCOUNTING POLICIES
a) 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 best economic interest.
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.
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.
b) Current and non-current classification
The assets and liabilities are classified as current/ non-current based on the operating cycle,
which has been identified as 12 months.
c) Functional and presentation currency
The financial statements are prepared in Indian Rupees (?), which is the Company’s functional
currency. All financial information presented in Indian Rupees (?) has been rounded to the
nearest lakhs. Amounts less than ? 0.50 Crore have been presented as “0”.
d) Revenue recognition
(i) Sale of Services
Revenue from the transportation business is recognized by reference to the stage of completion.
When the contract outcome cannot be measured reliable, revenue is recognised only to the
extent that the expenses incurred are eligible to be recovered.
(ii) Interest income
Interest income from a financial asset is recognized 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.
(v) Others
Other income is recognized on an accrual basis only when there is certainty of collection.
e) Property, Plant and Equipment
(i) Property, Plant and Equipment
Items of property, plant and equipment stated at historical cost less accumulated depreciation.
Historical cost includes expenditure that is directly attributable to the acquisition of the items.
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
amount of any component accounted for as a separate asset is derecognized when replaced. All
other repairs and maintenance are charged to profit or loss during the reporting period in which
they are incurred.
(ii) Depreciation
Depreciation is charged on the assets as per Written Down Value method at rates worked out
based on the useful lives and in the manner prescribed in the Schedule II to the Companies
Act, 2013.The depreciation method, useful lives and residual value are reviewed at each of the
reporting date.Depreciation on additions (disposals) is provided on a pro-rata basis i.e. from
(upto) the date on which the asset is ready for use (disposed off). The residual values and useful
life are reviewed, and adjusted if appropriate, at the end of each reporting period.An asset's
carrying amount is written down immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount
The residual values, useful lives and methods of depreciation of property, plant and equipment
are reviewed at each financial year end and adjusted prospectively, if appropriate.
(iii) 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 consists of interest and other costs that an entity incurs
in connection with the borrowings of the funds.
f) Intangible assets
Intangible assets are recognized, when it is probable that the expected future economic benefits
that are attributable to the asset will flow to the Company and the cost of the asset can be
measured reliably. An intangible asset shall be measured initially at cost. Intangible assets are
subsequently measured at cost less accumulated amortization and any accumulated impairment
losses. Intangible does not include any software which is integral part of the related hardware.
The Company should assess whether the useful life of an intangible asset is finite or infinite. A
useful life is infinite, when based on all relevant factor analysis, there is no foreseeable limit
to the period over which the asset is expected to generate net cash inflows. An intangible asset
with a finite useful life is amortised and those with an infinite useful life are not amortised.
The amortisation period and the amortisation method for intangible assets are reviewed at
financial year end.
g) 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 - recognition and subsequent measurement
All financial assets are recognized initially at fair value plus, in the case of financial assets not
recorded at fair value through profit and loss, transaction costs that are attributable to the
acquisition of the financial asset. Purchases or sales of financial assets except treasury
investment that require delivery of assets within a time frame established by regulation or
convention in the market place (regular way trades) are recognized on the trade date, i.e., the
date that the Company commits to purchase or sell the asset. For purposes of subsequent
measurement, financial assets are classified in three categories:
• Financial assets at amortized cost
A ‘financial asset’ is measured at the amortized cost if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting
contractual cash flows, and
b) 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 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
the EIR. The EIR amortization is included in finance income in the Statement of Profit and
Loss. The losses arising from impairment are recognized in the Statement of Profit and Loss.
This category generally applies to trade and other receivables.
Financial assets - derecognition
When the Company has transferred its rights to receive cash flows from an asset or has entered
into a pass-through arrangement, 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.
Financial liabilities - recognition and subsequent measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value
through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, 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.
The Company’s financial liabilities include trade and other payables, loans and borrowings
including bank overdrafts and derivative financial instruments.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
• Financial Liabilities at amortized cost (Loans, Borrowings and Trade and Other
payables)
After initial recognition, interest-bearing loans, borrowings and Trade and Other payables are
subsequently measured at amortized cost using the EIR method. Gains and losses are
recognized in profit or loss when the liabilities are derecognized as well as through the EIR
amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and
fees or costs that are an integral part of the EIR. The EIR amortization is included as finance
costs in the Statement of Profit and Loss.
Financial liabilities - derecognition
A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or expires. When an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as the derecognition of the original
liability and the recognition of a new liability. The difference in the respective carrying
amounts is recognized in the Statement of Profit and Loss.
h) Taxation
Current tax
Current income 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 outside profit
or loss (either in other comprehensive income 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 balance sheet method, on all temporary differences at the
reporting date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes at the reporting date.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
• When the deferred tax liability arises from the initial recognition of goodwill or 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
• In respect of taxable temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, when the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary differences will not reverse
in the foreseeable future
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,
except:
• In respect of taxable temporary differences associated with investments in subsidiaries,
associates and interests in joint ventures, when the timing of the reversal of the temporary
differences can be controlled and it is probable that the temporary differences will not reverse
in the foreseeable future.
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,
except:
• 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 to equal taxable and deductible taxable differences.
• In respect of deductible temporary differences associated with investments in subsidiaries
and interests in joint ventures, deferred tax assets are recognized 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 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 utilized. 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 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.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or
loss (either in other comprehensive income or in equity). Deferred tax items are recognised 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.
Minimum Alternate Tax ('MAT') paid in a year is charged to the Statement of Profit and Loss
as current tax. MAT paid in accordance with the tax laws, which gives future economic benefits
in the form of adjustment to future income tax liability, is considered as an asset if there is
convincing evidence that the Company will pay normal income tax. Accordingly, MAT is
recognized as an asset in the Balance Sheet when it is probable that future economic benefit
associated with it will flow to the Company.
I) Retirement and other Employee benefit schemes
i. Short-term employee benefits
Employee benefits payable wholly within twelve months of receiving employee services are
classified as short-term employee benefits. These benefits include salaries and wages,
performance incentives and compensated absences which are expected to occur in next twelve
months. The undiscounted amount of short-term employee benefits to be paid in exchange for
employee services is recognized as an expense as the related service is rendered by employees.
ii. Post-Employment Benefits
Gratuity
In accordance with the Payment of Gratuity Act of 1972, the Company contributes to a defined
benefit plan (the “Gratuity Plan”). The Gratuity Plan provides a lump sum payment to
employees who have completed at least 5 years of service; at retirement, disability or
termination of employment being an amount equal to 15 days' salary (based on the respective
employee’s last drawn salary) for every completed year of service.
Based on actuarial valuations conducted as at year end, a provision is recognized in full for the
benefit obligation over and above the funds held in the Gratuity Plan.
In respect of defined benefit schemes, the assets are held in separately administered funds. In
respect of defined benefit schemes, the cost of providing benefits under the plans is determined
by actuarial valuation separately each year using the projected unit credit method by
independent qualified actuary as at the year end.
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling,
excluding amounts included in net interest on the net defined benefit liability and the return on
plan assets (excluding amounts included in net interest on the net defined benefit liability), are
recognized immediately in the balance sheet with a corresponding debit or credit to retained
earnings through OCI in the period in which they occur. Re-measurements are not reclassified
to the Statement of Profit and Loss in subsequent periods.
The Company recognizes the following changes in the net defined benefit obligation as an
expense in the Statement of Profit and Loss:
• Service costs comprising current service costs, past-service costs, gains and losses on
curtailments and non-routine settlements; and
• Net interest expense or income
Provident Fund
The Company offers retirement benefits to its employees, under provident fund scheme which
is a defined benefit plan. The Company and employees contribute at predetermined rates to
‘Hindustan Zinc Limited Employee’s Contributory Provident Fund' ('Trust') accounted on
accrual basis and the conditions for grant of exemption stipulate that the employer shall make
good the deficiency, if any, between the return guaranteed by the statute and actual earning of
the Trust. The contribution towards provident fund is recognized as an expense in the
Statement of Profit and Loss.
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