1.3. Material Accounting Policies
1.3.1 Property, Plant and equipment:
Property, plant and equipment are stated at original cost inclusive of incidental expenses related
to acquisition net of tax/duty credit availed, net of accumulated depreciation and accumulated
impairment losses, if any. Such Cost includes the cost of replacing part of the plant and equipment
and borrowing cost for long-term construction project if the recognition criteria are met. When
significant parts of plant and equipment are required to be replaced at intervals, the company
depreciates them separately based on their specific useful lives. Likewise, when a major inspection
is performed, its cost is recognized in the carrying amount of the plant and equipment as a
replacement if the recognition criteria are satisfied. All other repair and maintenance cost are
recognized in profit or loss account as incurred.
Capital work-in-progress includes cost of property, plant and equipment under installation/ under
development as at the balance sheet date.
Advances paid towards the acquisition of property, plant and equipment outstanding at each
balance sheet date is classified as capital advances.
Property, plant and equipment which are added/disposed off during the year, depreciation is
provided on pro-rata basis with reference to the date of addition/deletion.
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. The gain or loss
arising on the disposal or retirement of an asset is determined as the difference between the net
disposal proceeds and the carrying amount of the asset and is recognized in profit or loss
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as
follows:
The estimated useful lives and residual values are reviewed at the end of each reporting period,
with the effect of any changes in estimate accounted for on a prospective basis. Leasehold
assets are depreciated lower of lease period or life of the assets. Depreciation is not recorded on
capital work-in-progress until construction and installation are complete and the asset is ready
for its intended use.
1.3.2 Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is their fair value at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less any accumulated amortisation
and accumulated impairment losses. Internally generated intangibles, excluding capitalised
development costs, are not capitalised and the related expenditure is reflected in profit or loss in
the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised over the useful economic life and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an intangible asset with a finite useful life
are reviewed at least at the end of each reporting period. Changes in the expected useful life or
the expected pattern of consumption of future economic benefits embodied in the asset are
considered to modify the amortisation period or method, as appropriate, and are treated as
changes in accounting estimates. The amortisation expense on intangible assets with finite lives
is recognised in the statement of profit and loss unless such expenditure forms part of carrying
value of another asset.
The estimated useful life of assets are as follows
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment
annually, either individually or at the cash-generating unit level. The assessment of indefin ite life
is reviewed annually to determine whether the indefinite life continues to be supportable. If not,
the change in useful life from indefinite to finite is made on a prospective basis.
Intangible assets are de-recognised either on their disposal or where no future economic benefits
are expected from their use. Gains or losses arising from derecognition of an intangible asset are
measured as the difference between the net disposal proceeds and the carrying amount of the
asset and are recognised in the statement of profit or loss when the asset is derecognised.
Impairment of tangible and intangible assets:
The Company assesses at each reporting date whether there is an indication that an asset/cash
generating unit may be impaired. If any indication exists the Company estimates the recoverable
amount of such assets and if carrying amount exceeds the recoverable amount, impairment is
recognized. The recoverable amount is the higher of the net selling price and its value in use. In
assessing value in use, the estimated future cash flows are discounted to their present value
using an appropriate discount factor. When there is indication that previously recognized
impairment loss no longer exists or may have decreased such reversal of impairment loss is
recognized in the profit or loss.
1.3.3 Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset
that necessarily takes a substantial period of time to get ready for its intended use or sale are
capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period
in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds. Borrowing cost also includes exchange differences to
the extent regarded as an adjustment to the borrowing costs.
1.3.4 Inventories
Inventories consist of raw materials, work-in-progress, finished goods, stock-in-trade and stores
and spares. Inventories are valued at the lower of cost and net realisable value.
Costs incurred in bringing each product to its present location and condition are accounted for
as follows:
a) Raw materials: cost includes cost of purchase and other costs incurred in bringing the
inventories to their present location and condition. Cost is determined on first in, first out
basis.
b) Finished goods and work in progress: cost includes cost of direct materials and labour and
a proportion of manufacturing overheads based on the normal operating capacity, but
excluding borrowing costs. Cost is determined on standard cost basis.
c) Traded goods: cost includes cost of purchase and other costs incurred in bringing the
inventories to their present location and condition. Cost is determined on first in, first out
basis.
Initial cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges,
recognised in OCI, in respect of the purchases of raw materials.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated
costs of completion and the estimated costs necessary to make the sale.
1.3.5 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits with bank which are
short-term, highly liquid investments that are readily convertible into known amount of cash and
which are subject to insignificant risk of change in value.
1.3.6 Foreign currency transactions
The Company’s financial statements are presented in INR, which is also the company’s functional
currency.
Foreign currency transactions are recorded on initial recognition in the functional currency, using
the exchange rate at the date of the transaction. At each balance sheet date, foreign currency
monetary items are reported using the closing exchange rate. Exchange differences that arise on
settlement of monetary items or on reporting of each balance sheet date of the company’s
monetary items at the closing rate are recognized as income or expenses in the period in which
they are arise. Non-monetary items which are carried at historical cost denominated in a foreign
currency are reported using the exchange rate at the date of transaction. 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 OCI or profit or loss are also recognised in OCI or profit or loss, respectively).
1.3.7 Current versus 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 realized or intended to be sold or consumed in normal operating cycle
• Held primarily for the purpose of trading
• Expected to be realized 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. Deferred tax assets and liabilities are
classified as non-current assets and liabilities.
Based on the nature of activities of the Company and the average time between acquisition of
assets and their realization in cash or cash equivalents, the Company has determined its operating
cycle as 12 months for the purpose of classification of its assets and liabilities as current and
non-current.
1.3.8 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 measu red using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their economic
best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability
to generate economic benefits by using the asset in its highest and best use or by selling it to
another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements
are categorised within the fair value hierarchy, described as follows, based on the lowest level
input that is significant to the fair value measurement as a whole:
• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable
• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is Unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the
Company determines whether transfers have occurred between levels in the hierarchy by re¬
assessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Company has determined classes of assets and
liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level
of the fair value hierarchy as explained above.
1.3.9 Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the
Company and the revenue can be reliably measured, regardless of when the payment is being
made. Revenue is measured at the fair value of the consideration received or receivable, taking
into account contractually defined terms of payment and excluding taxes or duties collected on
behalf of the government. The Company has concluded that it is the principal in all of its revenue
arrangements since it is the primary obligor in all the revenue arrangements as it has pricing
latitude and is also exposed to inventory and credit risks.
The specific recognition criteria described below must also be met before revenue is recognised.
Sale of goods:
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 entitled in exchange for
those goods or services. Generally, control is transferred upon shipment of goods to the customer
or when the goods is made available to the customer, provided transfer of title to the customer
occurs and the Company has not retained any significant risks of ownership or future obligations
with respect to the goods shipped.
Revenue is measured at the fair value of consideration which the Company expects to be entitled
to in exchange for transferring distinct goods or services to a customer as specified in the contract,
excluding trade discounts or amounts collected on behalf of third parties (for example taxes and
duties collected on behalf of the government). Consideration is generally due upon satisfaction
of performance obligations and a receivable is recognised when it becomes unconditional.
Generally, the credit period varies between 0-90 days from the shipment or delivery of goods or
services as the case may be. The Company provides volume rebates to certain customers once
the quantity of products purchased during the period exceeds a threshold.
Rendering of services:
Revenue from sale of service is recognised as per terms of the contract with customers over time
by measuring the progress towards complete satisfaction of performance obligations at the
reporting period.
Interest Income :
For all financial instruments measured either at amortised cost or at fair value through other
comprehensive income, interest income is recorded using the effective interest rate (EIR). EIR is
the rate that exactly discounts the estimated future cash payments or receipts over the expected
life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount
of the financial asset or 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)
but does not consider the expected credit losses.
Interest income is recognised on time proportion basis.
Dividends :
Revenue is recognized when the Company right to receive the payment is established, which is
generally when shareholders approve the dividend.
Rental income :
Rental income arising from operating leases is accounted for on a straight-line basis over the
lease term.
1.3.10 Earnings per share (EPS)
The Company presents basic and diluted earnings per share (“EPS”) data for its equity shares.
Basic EPS amounts are calculated by dividing the profit for the year attributable to equity holders
of the parent by the weighted average number of Equity shares outstanding during the year.
Diluted EPS amounts are calculated by dividing the profit attributable to equity holders of the
parent (after adjusting for interest on the convertible preference shares) by the weighted average
number of Equity shares outstanding during the year plus the weighted average number of Equity
shares that would be issued on conversion of all the dilutive potential Equity shares into Equity
shares.
1.3.11 Taxes
Current income 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 in the countries where
the Company operates and generates taxable income.
Current income tax relating to items recognised 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.
The Company has opted to pay tax under section 115BAA at reduced rate of 22% plus applicable
surcharge and cess from F.Y 2021-22 and accordingly current tax provision has been made and
hence MAT is not applicable to the company and accordingly MAT credit no longer eligible is
shown under Prior Period Tax adjustment.
Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax
bases of assets and liabilities and their carrying amounts for financial reporting purposes at the
reporting date.
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 in the
year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss
(either in other comprehensive income or in equity). Deferred tax items are recognized 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.
The breakup of the major components of the deferred tax assets and liabilities as at balance
sheet date has been arrived at after setting off deferred tax assets and liabilities where the company
have a legally enforceable right to set-off assets against liabilities and where such assets and
liabilities relate to taxes on income levied by the same governing taxation laws.
1.3.12 Segment Accounting
The chief operational decision maker monitors the operating result of its business segment
separately for the purpose of making decision about resource allocation and performance
assessment. Segment performance is evaluated based on profit and loss and is measured
consistently with profit or loss in the financial statement. The operating segments have been
identified on the basis of the nature of products/services.
a) Segment revenue includes sales and other income directly identifiable with / allocable to the
segment including inter-segment revenue.
b) Expenses that are directly identifiable with/allocable to segment are considered for determining
the segment result. Expenses which relate to the company as a whole and not allocable to
segment are included under unallocable expenditure.
c) Income which relates to the company as a whole and allocable to segment is included in
unallocable income.
d) Segment result includes margin on inter-segment and sales are reduced in arriving at the
profit before tax to the company.
e) Segment assets and liabilities include those directly identifiable with respective segment.
Un-allocable assets and liabilities represent the asset and liabilities that relate to the company
as a whole and not allocable to any segment.
Inter-Segment transfer pricing
Segment revenue resulting from transaction with other business segment is accounted on the
basis of transfer price agreed between the segments. Such transfer prices are either determined
to yield a desired margin or agreed on a negotiated basis.
1.3.13 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’s lease asset classes primarily comprise of lease for land and building. The
Company assesses whether a contract contains a lease, at inception of a contract. A contract is,
or contains, a lease if the contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration. To assess whether a contract conveys the right to
control the use of an identified asset, the Company assesses whether:
(i) the contract involves the use of an identified asset
(ii) the Company has substantially all of the economic benefits from use of the asset through the
period of the lease and
(iii) the Company has the right to direct the use of the asset.
The Company applies a single recognition and measurement approach for all leases, except for
short-term leases and leases of low-value assets. For these short-term and low value leases, the
Company recognizes the lease payments as an operating expense on a straight-line basis over
the term of the lease. The Company recognises lease liabilities to make lease payments and
right-of-use assets representing the right to use the underlying assets as below:-
i) 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. The cost of right-of-use assets includes the amount of
lease liabilities recognised, initial direct costs incurred, and lease payments made at or before
the commencement date less any lease incentives received. Right-of-use assets are
depreciated on a straight-line basis over the shorter of the lease term and the estimated
useful lives of the underlying assets.
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 in section ‘Impairment of nonfinancial assets’.
ii) 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. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by the Company and payments
of penalties for terminating the lease, if the lease term reflects the Company exercising the
option to terminate. Variable lease payments that do not depend on an index or a rate are
recognised as expenses (unless they are incurred to produce inventories) in the period in
which the event or condition that triggers the payment occurs.
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.
(iii) Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases
(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 that are considered to be 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.
“Lease liability” and “Right of Use” asset is separately presented in the Balance Sheet and
lease payments have been classified as financing cash flows.
1.3.14 Employee Benefits
I) Short Term Employees Benefits:
All short term employee benefits such as salaries, wages, bonus, short term compensated
absences, awards, ex gratia, performance pay, medical benefits, which fall due within 12
months of the period in which the employee renders the related service which entitles him to
avail such benefits and non-accumulating compensated absences are recognized on an
undiscounted basis and charged to profit and loss account
II) Post Employment Benefit:
a) Defined Contribution Plan
Retirement benefit in the form of provident fund is a defined contribution plan. Company’s
contribution to the provident fund based on a percentage of salary is made to Employee
Provident Fund and is charged to profit and loss account when an employee renders
the related service.
b) Defined Benefit Plan
The Company operates a defined benefit gratuity plan in India, which requires
contributions to be made to a separately administered fund.
The Company also provide defined benefit in the form of leave accrual and encashment.
The cost of providing benefits under the defined benefit plan is determined using the
projected unit credit method.
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 recognised 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 profit or loss in subsequent periods.
Past service costs are recognised in profit or loss on the earlier of:
• The date of the plan amendment or curtailment, and
• The date that the Company recognises related restructuring costs
Net interest is calculated by applying the discount rate to the net defined benefit liability
or asset. The company recognises the following changes in the net defined benefit
obligation as an expense in the consolidated 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
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