3. MATERIAL ACCOUNTING POLICIES FOLLOWED BY
THE COMPANY
(a) Property, Plant and Equipment (PPE) (including
Capital Work-in-Progress)
Free hold land is stated at historical cost. Items
of property, plant and equipment are measured at
cost, which includes capitalised borrowing costs,
less accumulated depreciation and accumulated
impairment losses, if any. Cost of an item of
property, plant and equipment comprises:
- Purchase price, including import duties and
non-refundable taxes on purchase (goods
and service tax, value added tax), after
deducting trade discounts and rebates.
- Any directly attributable cost of bringing the
item to its working condition for its intended
use, estimated costs of dismantling and
removing the item and restoring the site on
which it is located.
- The cost of a self-constructed item of
property, plant and equipment comprises
the cost of materials and direct labour, any
other costs directly attributable to bringing
the item to working condition for its intended
use, and estimated costs of dismantling and
removing the item and restoring the site on
which it is located.
Costs in nature of repairs and maintenance are
recognised in the Statement of Profit and Loss as
and when incurred.
Capital work in progress
Property, plant and equipment which are not ready
for intended use as on the date of balance sheet
are disclosed as "Capital work-in-progress".
Capital Advances
Advances paid towards the acquisition of
property, plant and equipment outstanding at
each balance sheet date is classified as capital
advances under "Other Non-Current Assets".
Depreciation and amortisation methods,
estimated useful lives and residual value
Depreciation is provided on straight line basis
on the original cost/ acquisition cost of assets
or other amounts substituted for cost of fixed
assets as per the useful life specified in Part 'C of
Schedule II of the Act, read with notification dated
August 29, 2014 of the Ministry of Corporate
Affairs.
The useful life is as follows:
The residual value for all the above assets are
retained at 5% of the cost.
Depreciation in respect of additions to assets has
been charged on pro rata basis with reference to
the period when the assets are ready for use. The
provision for depreciation for multiple shifts has
been made in respect of eligible assets on the
basis of operation of respective units.
De-recognition
The carrying amount of an item of property, plant
and equipment is derecognised on disposal or
when no future economic benefits are expected
from its use or disposal. The gain or loss arising
from the de-recognition of an item of property,
plant and equipment is measured as the
difference between the net disposal proceeds
and the carrying amount of the item and is
recognised in the Statement of Profit and Loss
when the item is derecognised.
(b) Intangibles
Intangible Assets are recognised, if the future
economic benefits attributable to the assets
are expected to flow to the Company and cost
of the asset can be measured reliably. All other
expenditure is expensed as incurred. The same
are amortised over the expected duration of
benefits. Such intangible assets are measured
at cost less any accumulated amortisation and
impairment losses, if any.
Intangible Assets are amortised on a Straight
Line basis over the estimated useful economic
life. The estimated useful lives of intangible
assets are assessed as 10 years.
(c) Financial assets designated at fair value through
OCI (equity instruments)
I n the case of equity instruments which are not
held for trading and where the Company has taken
irrevocable election to present the subsequent
changes in fair value in other comprehensive
income, these elected investments are initially
measured at fair value plus transaction costs
and subsequently, they are measured at fair value
with gains and losses arising from changes in fair
value recognised in other comprehensive income
and accumulated in the 'Equity instruments
through other comprehensive income’ under the
head 'Other Equity’.
A financial asset is held for trading if:
- it has been acquired principally for the
purpose of selling it in the near term; or
- on initial recognition it is part of a portfolio
of identified financial instruments that the
Company manages together and has a
recent actual pattern of short-term profit
taking.
Dividends are recognised as other income in
the statement of profit and loss when the right
of payment has been established, except when
the Company benefits from such proceeds as a
recovery of part of the cost of the financial asset,
in which case, such gains are recorded in OCI.
(d) Investments in Subsidiaries
Investments in subsidiaries are carried at cost less
accumulated impairment losses, if any. Where
an indication of impairment exists, the carrying
amount of investment is assessed and written
down immediately to its recoverable amount.
On disposal of investments in subsidiaries, the
difference between net disposal proceeds and
carrying amounts are recognised in statement of
profit and loss.
(e) Inventories
I nventories are valued at lower of cost and net
realisable value including necessary provision
for obsolescence. Net realisable value is the
estimated selling price in the ordinary course of
business, less the estimated cost of completion
and selling expenses. The cost of raw materials,
components, consumable stores and spare
parts are determined using the weighted average
method and includes freight, taxes and duties,
net of duty credits wherever applicable. Finished
goods, including stock in trade and work-in¬
progress are valued at lower of cost and net
realisable value. Cost includes all direct costs and
applicable manufacturing overheads incurred
in bringing them to their present location and
condition.
Raw materials
Raw materials are valued at cost of purchase net
of duties and includes all expenses incurred in
bringing such materials to the location of its use.
Work-in-progress and finished goods
Work-in-progress and finished goods include
conversion costs in addition to the landed cost of
raw materials.
Stores, spares and tools
Stores, spares and tools cost includes cost of
purchase and other costs incurred in bringing
the inventories to their present location and
condition.
(f) 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
- Initial Recognition and measurement
All financial assets are recognised at fair
value.
- Cash and cash equivalents
• Cash and cash equivalent 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. These balances with
banks are unrestricted for withdrawal
and usage.
• Other bank balances include balances
and deposits with banks that are
restricted for withdrawal and usage.
- Recoverability of trade receivable
Judgments are required in assessing the
recoverability of overdue trade receivables
and determining whether a provision
against those receivables is required.
Factors considered include the worth of
the counterparty, the amount and timing
of anticipated future payments and any
possible actions that can be taken to
mitigate the risk of non-payment.
- Derivative financial instruments and Hedge
Accounting
The Company uses various derivative
financial instruments such as forwards
contracts to mitigate the risk of changes
in exchange rates. Such derivative financial
instruments are initially recognised at fair
value on the date on which a derivative
contract is entered into and are also
subsequently measured at fair value.
Derivatives are carried as financial assets
when the fair value is positive and as
financial liabilities when the fair value is
negative.
Any gains or losses arising from changes in
the fair value of derivatives are taken directly
to Statement of Profit and Loss, except for
the effective portion of cash flow hedges
which is recognised in Other Comprehensive
Income and later to Statement of Profit and
Loss when the hedged item affects profit
or loss or treated as basis adjustment if a
hedged forecast transaction subsequently
results in the recognition of a non-financial
assets or non-financial liability.
- Impairment of financial assets
The impairment provisions for financial
assets are based on assumptions about risk
of default and expected cash loss rates. The
Company uses judgement in making these
assumptions and selecting the inputs to the
impairment calculation, based on company’s
past history, existing market conditions as
well as forward looking estimates at the end
of each reporting period.
Financial Liabilities
- Initial Recognition and measurement
All financial liabilities are recognised at fair
value and in case of loans, net of directly
attributable cost. Fees of recurring nature
are directly recognised in the Statement of
Profit and Loss as finance cost.
- Subsequent measurement
Financial liabilities are subsequently
measured at amortised cost using the EIR
method. Financial liabilities carried at fair
value through profit or loss are measured
at fair value with all changes in fair value
recognised in the Statement of Profit and
Loss.
- Derecognition
A financial liability is derecognised when
the obligation specified in the contract is
discharged, cancelled or expire.
(g) Impairment of non-financial assets
At each balance sheet date, the carrying amount
of fixed assets is reviewed by the management
to determine whether there is any indication that
those assets suffered an impairment loss. If any
such indication exists, the recoverable amount of
the asset is estimated in order to determine the
extent of impairment loss (recoverable amount is
the higher of an asset’s net selling price or value in
use). In assessing the value in use, the estimated
future cash flows expected from the continuing
use of the assets and from their disposal are
discounted to their present value using a pre
discounted rate that reflects the current market
assessment of time value of money and risks
specific to the asset.
Reversal of impairment loss is recognised
immediately as income in the statement of profit
and loss.
(h) Taxes on income
Income tax expense represents the sum of the
tax currently payable and deferred tax.
Current tax
The tax currently payable is based on taxable
profit for the year. Taxable profit differs from 'profit
before tax’ as reported in the statement of profit
and loss because of items of income or expense
that are taxable or deductible in other years and
items that are never taxable or deductible under
the provisions of Income-tax Act. The Company’s
current tax is calculated using tax rates that have
been enacted or substantively enacted by the end
of the reporting period.
Deferred tax
Deferred tax is recognised on temporary
differences between the carrying amounts of
assets and liabilities in the financial statements
and the corresponding tax base used in the
computation of taxable profit. Deferred tax
liabilities are generally recognised for all taxable
temporary differences. Deferred tax assets are
generally recognised for all deductible temporary
differences to the extent that it is probable that
taxable profits will be available against which
those deductible temporary differences can be
utilised. Such deferred tax assets and liabilities
are not recognised if the temporary difference
arises from the initial recognition of assets and
liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
The carrying amount of deferred tax assets is
reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to
allow all or part of the asset to be recovered.
Deferred tax liabilities and assets are measured
at the tax rates that are expected to apply in
the period in which the liability is settled or the
asset realised, based on tax rates that have been
enacted or substantively enacted by the end of
the reporting period.
The measurement of deferred tax liabilities and
assets reflects the tax consequences that would
follow from the manner in which the Company
expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets
and liabilities.
Current and deferred tax are recognised in profit
or loss, except when they relate to items that
are recognised in other comprehensive income
or directly in equity, in which case, the current
and deferred tax are also recognised in other
comprehensive income or directly in equity
respectively.
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