3. MATERIAL ACCOUNTING POLICIES
A summary of the Material accounting policies applied in the preparation of the financial statements are given below. These accounting policies have been applied consistently to all the periods presented in the financial statements.
3.1. Property, Plant and Equipment & Capital Work in Progress
• Property, plant, and equipment, excluding freehold land, are stated at cost less accumulated depreciation and impairment losses. Freehold land is measured at fair value as of April 1,2016, with the revaluation surplus credited to retained earnings under other equity. The cost of an asset includes the purchase price, non- refundable taxes, borrowing costs (when capitalization criteria are met), and any direct costs necessary to bring the asset to working condition for its intended use. Self-constructed assets
include the cost of materials, direct labor, attributable overheads, borrowing costs, and the estimated costs of dismantling and site restoration.
• Subsequent costs are added to an asset's carrying amount only if they are likely to bring future economic benefits and can be measured reliably. When a component, treated as a separate asset, is replaced, it carrying amount is derecognized. Major inspection, repair, or overhauling expenses are added to the asset's carrying amount if they meet recognition criteria, and any unamortized part of previous similar expenses is derecognized.
• Depreciation on property, plant and equipment is provided on straight line method at the rates determined based on the useful lives of respective assets as prescribed in the Schedule II of the Act. Depreciation on additions (disposals) during the year is provided on a pro-rata basis i.e., from (up to) the date on which asset is ready for use (disposed of).
• Upon derecognition, gains or losses are determined by the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in the statement of profit and loss. Residual values, useful lives, and depreciation methods are reviewed at each financial year-end and adjusted prospectively if necessary. Components of an asset that are significant in relation to the total cost and have different useful lives are identified and depreciated separately.
• Capital work-in-progress is carried at cost, which includes expenses incurred during construction, interest on borrowed funds for qualifying assets, and other pre-production expenses. Advances for the acquisition or construction of property, plant, and equipment are presented as capital advances under other non-current assets.
3.2. Intangible Assets
• Intangible assets, including separately acquired goodwill, are initially recognized at cost and subsequently carried at cost less accumulated amortization and impairment losses. Intangible assets with finite lives are amortized over their useful economic life and tested for impairment when indications of impairment arise.
• Amortization is typically done on a straight-line basis and recognized in the statement of profit and loss, unless it is included in the carrying amount of another asset. Gains or losses from derecognition of an intangible asset are determined by the difference between the net disposal proceeds and the carrying amount, and are recognized in the statement of profit and loss upon derecognition.
• Goodwill is considered to have indefinite useful life and hence is not subject to amortization but tested for impairment at least annually.
3.3. 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.
As a lessee:
Leases are recognised as right of use assets and a correspondence liability at the date at which the leased asset is available for use by the Company. Contract may contain both lease and non-lease components. The Company allocates the consideration in the contract to the lease and non-lease components based on their relative standalone prices. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payment: -
a) Fixed payments (including in substance fixed payments) less any lease incentive receivable.
b) Variable lease payment that are based on an index or a rate, initially measured using the index or a rate at the commencement date.
c) Amount expected to be paid by the Company as under residual value guarantees.
d) Exercise price of a purchase option if the Company is reasonably certain to exercise that option.
e) Payment of penalties for terminating the lease, if the lease term reflects the Company exercising that option.
Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Company, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.
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 to use the underlying assets.
Right of use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight- line basis. Payment associated with short-term leases of equipment and all the leases of low value assets are recognized on a straight-line basis as an expense in the Statement of Profit and Loss. Short term leases are leases with a lease term of 12 months or less.
As a lessor:
Lease income from operating leases where the Company is a lessor is recognized in income on a straight-line basis over the lease term unless the receipts are structured to increase in line with expected general inflation to compensate for the expected inflationary cost increases. The respective leased assets are included in the balance sheet based on their nature.
3.4. Borrowing Cost
Borrowing costs (including other ancillary borrowing cost) 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.
3.5. Foreign Currency Transactions
Foreign currency transactions are translated into the functional currency using the spot rates of exchanges at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate of exchanges at the reporting date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities are generally recognised in profit or loss in the year in which they arise except for exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those qualifying assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings, the balance is presented in the statement of profit and loss within finance costs. Non-monetary items are not retranslated at period end and are measured at historical cost (translated using the exchange rate at the transaction date).
3.6. Inventories
• Raw materials, stores and spares and loose tools are valued at lower of cost and net realisable value. However, items held for use in the production of inventories are not written down below cost, if the finished products in which they will be incorporated are expected to be sold at or above cost. Cost includes cost of purchase, non- refundable taxes and other costs incurred in bringing the inventories to their present location and condition. Cost is computed on weighted average basis.
• Work-in-progress and finished goods are valued at lower of cost and net realisable value. Finished goods and work-in-progress include cost of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost is computed on weighted average basis.
• Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated cost necessary to make the sale. Net realisable value of work-in-progress is determined with reference to the selling prices of related finished goods.
• Adequate provision is made for obsolete and slow-moving stocks, wherever necessary.
3.7. Revenue Recognition
The Company considers the terms of the contract in determining the transaction price. The transaction price is based upon the amount the entity expects to be entitled to in exchange for transferring of promised goods and services to the customer after deducting incentive programs, included but not limited to discounts, volume rebates etc.
a) Sale of Goods
• The Company derives revenues primarily from sale of jute products. Revenue from contracts with customers is recognized on satisfaction of performance obligation upon transfer of control of promised goods to a customer at an amount that reflects the consideration to which the Company is expected to be entitled to in exchange for those goods.
• Performance Obligation is satisfied when the products have been shipped or delivered to the specific location as the case may be, risks of loss have been transferred to the customers, and either the customer has accepted the goods in accordance with the sales contract or the acceptance provisions have lapsed or the Company has objective evidence that all criteria for acceptance have been satisfied
• Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price allocated to that performance obligation based on the consideration specified in the contract with the customers and excludes any taxes and duties collected on behalf of the government. The transaction price of goods sold is net of variable consideration on account of trade discounts, returns, volume rebates offered by the Company as part of the contract. Revenue (net of variable consideration)
is recognized only to the extent that it is highly probable that the amount will not be subject to significant reversal when uncertainty relating to its recognition is resolved.
• The company does not expect to have any contracts where the period between transfer of promised goods or services to the customer and payment by customer exceeds one year. As a consequence, the company does not adjust any of the transaction prices for the time value of money.
• A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only passage of time is required before payment is done.
b) Interest Income
Interest income from financial assets is recognised using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset.
c) Dividend Income
Dividend income from investments is recognised when the Company's right to receive payment has been established.
d) Other Operating Revenue
Export incentives and subsidies are recognised when there is reasonable assurance that the Company will comply with the conditions attached to them and the incentive will be received.
3.8. Government Grants
Government grants are recognized at their fair value, where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed.
The grant relating to the acquisition/ construction of an item of property, plant and equipment is included in non- current liability as deferred income and is credited to statement of profit and loss on the same systematic basis as the respective asset is depreciated over its expected life and is presented in other operating income. Alternatively, the same can be presented by deducting the grant from the carrying amount of the asset.
3.9. Income Tax
Income tax comprises current and deferred tax. It is recognised in the statement of profit and loss except to the extent that it relates to an item recognised directly in equity or in other comprehensive income.
a) Current Tax
Current tax liabilities (or assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the taxation authorities based on tax rates and tax laws that have been enacted during the period.
b) Deferred Tax
• Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.
• Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for taxation purposes (i.e., tax base). Deferred tax is also recognised for carry forward of unused tax losses and unused tax credits.
• 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.
• The carrying amount of deferred tax assets is reviewed at the end of each reporting period. The Company reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or that entire deferred tax asset to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available.
• Deferred tax relating to items recognised outside the statement of profit and loss is recognised either in other comprehensive income or in equity. Deferred tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.
• Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.
c) Minimum Alternate Tax (MAT)
Minimum alternate tax is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which MAT credit becomes eligible to be recognized as an asset, the said asset is created by way of credit to the statement of profit and loss and included in deferred tax assets. The Company reviews the same at each balance sheet date and writes down the carrying amount of MAT entitlement to the extent there is no longer convincing evidence to the affect that the company will pay normal income tax during the specified period.
3.10.Earnings Per Share:
Ý Basic earnings per share is calculated by dividing the net profit or loss for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
Ý For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding during the period are adjusted for the effects of all dilutive potential ordinary shares.
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