2.2 Summary of Significant Accounting Policies
a) Property, Plant and Equipment (PPE)
i. Property, plant and equipment held for use in the
production or supply of goods or services, or for
administrative purposes, are stated in the balance
sheet at cost less accumulated depreciation,
accumulated impairment loss, government grant
received in respect of Propertry, plant and equipment.
Cost includes all expenses directly incidental to
acquisition, bringing the asset to the location and
installation including site restoration up to the time
when the asset is ready for intended use. Such Costs
also include Borrowing Cost if the recognition criteria
are met.
ii. The residual values, useful lives and method of
depreciation of property, plant and equipment is
ii. reviewed at each financial year end and adjusted
prospectively.
iii. Depreciation on Property, Plant & Equipment is provided
on Straight Line Method based on estimated useful life of
the assets which is same as envisaged in schedule II of the
Companies Act, 2013, In case where the useful life is
different from that prescribed in schedule II of the act,
they are based on internal technical evaluation. The
residual values, useful lives and method of depreciation
of property, plant and equipment is reviewed at each
financial year end and adjusted prospectively, if
appropriate. Management has estimated useful life of PPE
as under -
iv.De-recognition 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 the 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 profit or loss.
b) Intangible assets
i. Intangible assets which is purchased are initially
measured at cost. Subsequently, intangible assets are
carried at cost less any accumulated amortisation and
accumulated impairment losses, if any
ii. An item of Intangible asset is derecognised upon disposal
or when no future economic benefits are expected from
its use or disposal. 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 and Loss when the asset is
derecognised.
iii. Amortisation Finite-life intangible assets are amortised
on a straight-line basis over the period of their expected
useful lives. Estimated useful life of computer software is
estimated for 3 year
c) Impairment of non financial assets
At the end of each reporting period, the Company
determines whether there is any indication that its assets
(property, plant and equipment, intangible assets carried at
cost) have suffered an impairment loss with reference to
their carrying amounts. If any indication of impairment
exists, the recoverable amount (i.e. higher of the fair value
less costs of disposal and value in use) of such assets is
estimated and impairment is recognised, if the carrying
amount exceeds the recoverable amount. In assessing value
in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money
d) Financial Assets
a) Initial Recognition and Measurement
All financial assets are recognized initially at fair value
plus, in the case of financial assets not recorded at fair
value through profit or loss, transaction costs that are
attributable to the acquisition of the financial asset.
Financial assets are classified, at initial recognition, as
financial assets measured at fair value or as financial
assets measured at amortized cost.
b) Subsequent Measurement For purpose of subsequent
measurement financial assets are classified in two broad
categories:-
I. Financial assets at amortized cost
II. Financial Assets at fair value through profit or loss
III. Financial Assets at fair value through other
comprehensive income (OCI)
A financial asset that meets the following two conditions
is measured at amortized cost:
I. Business Model Test: The objective of the company’s
business model is to hold the financial asset to collect
the contractual cash flows
II. Cash flow characteristics test: The contractual terms
of the financial asset give rise on specified dates to
cash flows that are solely payment of principal and
interest on the principal amount outstanding.
A financial asset that meets the following two
conditions is measured at fair value through OCI:-
- Business Model Test: The financial asset is held within
a business model whose objective is achieved by both
collecting contractual cash flows and selling financial
assets.
- Cash flow characteristics test: The contractual terms
of the financial asset give rise on specified dates to
cash flows that are solely payment of principal and
interest on the principal amount outstanding.
All equity investments are measured at fair value in the
balance sheet, with value changes recognized in the
statement of profit and loss, except for those equity
investments for which the entity has elected
irrevocable option to present value changes in OCI
All other financial assets are measured at fair value
through profit and loss
Where assets are measured at fair value through profit
of loss, gains and losses are recognized in the
statement of profit and loss
Where assets are measured at fair value through other
comprehensive income, gains and losses are
recognized in other comprehensive income
III. Impairment of financial assets The Company assesses
on a forward looking basis the expected credit losses
associated with its assets carried at amortised cost.
The impairment methodology applied depends on
whether there has been a significant increase in credit
risk and if so, assess the need to provide for the same
in the Statement of Profit and Loss.
IV. Derecognition of financial assets A financial asset
is derecognised only when Company has
transferred the rights to receive cash flows from the
financial asset. Where the entity has transferred an
asset, the Company evaluates whether it has
transferred substantially all risks and rewards of
ownership of the financial asset. In such cases, the
financial asset is derecognised.
e) Financial Liabilities
i. Initial recognition and measurement Financial liabilities
are recognised when the Company becomes a party to
the contractual provisions of the instrument. Financial
liabilities are initially measured at the amortised cost
unless at initial recognition, they are classified as fair
value through profit and In case of trade payables, they
are initially recognised at fair value and subsequently,
these liabilities are held at amortised cost, using the
effective interest method.
ii. 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.
iii. Derecognition A financial liability is derecognised when
the obligation specified in the contract is discharged,
cancelled or expires.
f) Leases Assets taken on lease The Company mainly has lease
arrangements for land for Factory and building for offices.
The Company assesses whether a contract is or contains a
lease, at inception of a contract. The assessment involves
the exercise of judgement about whether (i) the contract
involves the use of an identified asset, (ii) the Company has
substantially all of the economic benefits from the 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 recognises a right-of-use asset (“ROU”) and a
corresponding lease liability at the lease commencement
date. The ROU asset is initially recognised at cost, which
comprises the initial amount of the lease liability adjusted
for any lease payments made at or before the
commencement date, plus any initial direct costs incurred
and an estimate of costs to dismantle and remove the
underlying asset or to restore the underlying asset or the
site on which it is located, less any lease incentives. They are
subsequently measured at cost less accumulated
depreciation and impairment losses and adjusted for certain
re-measurements of the lease liability.. The ROU asset is
depreciated using the straightline method from the
commencement date to the earlier of, the end of the useful
life of the ROU asset or the end of the lease term. The lease
liability is initially measured at the present value of the lease
payments that are not paid at the commencement date,
discounted using the incremental borrowing rate specific to
the Company. Lease payments included in the measurement
of the lease liability include fixed payments, variable lease
payments that known at the commencement date. Variable
lease payments that do not depend on an rate are not
included in the measurement the lease liability and the ROU
asset. The related payments are recognised as an expense in
the period in which the event or condition that triggers
those payments occurs and are included in the line “other
expenses” in the statement of profit or loss. After the
commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced for
the lease payments made and remeasured (with a
corresponding adjustment to the related ROU asset) when
there is a change in future lease payments in case of
renegotiation, changes of an rate or in case of reassessment
of options. Short-term leases and leases of low-value
assets: The Company has elected not to recognize ROU
assets and lease liabilities for short term leases as well as
low value assets and recognizes the lease payments
associated with these leases as an expense on a straight-line
basis over the lease term.
g) Inventory Inventories are valued at the
lower of cost and net realisable value.
Cost of Raw material & Stock in Trade: Inventory items that
are not interchangeable, specific cost are attributed for
specific individual items of inventory. Inventory items that
are interchangeable, cost are attributed to these inventory
items on FIFO Basis.
Cost of Finished goods and WIP: Cost of finished goods and
work in progress include weighted average costs of raw
materials, conversion costs and other costs incurred in
bringing the inventories to their present location and
condition. The net realisable value is the estimated selling
price in the ordinary course of business less the estimated
costs of completion and estimated costs necessary to make
the sale.
h) Income Tax Provision for tax is made for the current
accounting period (reporting period) on the basis of the
taxable profits computed in accordance with the Income-
tax Act, 1961 and the Income Computation and Disclosure
Standards prescribed therein. Deferred tax is recognised in
respect of temporary differences between the carrying
amount of assets and liabilities for financial reporting
purposes and the corresponding amounts used for taxation
purposes. A deferred tax liability is recognised based on the
expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted, or
substantively enacted, by the end of the reporting period.
Deferred tax assets are recognised only to the extent that it
is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets
are reviewed at each reporting date and reduced to the
extent that it is no longer probable that the related tax
benefit will be realised. Current tax assets and current tax
liabilities are offset when there is a legally enforceable right
to set off the recognised amounts. Deferred tax assets and
deferred tax liabilities are offset when there is a legally
enforceable right to set off current tax assets against
current tax liabilities; and the deferred tax assets and the
deferred tax liabilities relate to income taxes levied by the
same taxation authority.
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