2.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Property, Plant and Equipment (PPE)

i) Properly, plant and equipment are stated at cost, net of recoverable taxes, trade discount and rebates
less accumulated depreciation and impairment losses, if any. Such cost includes purchase price,
borrowing cost and any cost directly attributable to bringing the assets to its working condition for its
intended use, net charges on foreign exchange contracts and adjustments arising from exchange rate
variations attributable to the assets.

ii) 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 entity and the cost can be measured reliably. In the carrying amount of an item of PPE, the cost of
replacing the part of such an item is recognized when that cost is incurred if the recognition criteria are
met. The carrying amount of those parts that are replaced is derecognized in accordance with the
derecognition principles.

iii) Expenses incurred relating to project, net of income earned during the project development stage prior to
its intended use, are considered as pre - operative expenses and disclosed under Capital Work - in -
Progress.

iv) Depreciation on property, plant and equipment is provided using straight line method. Depreciation is
provided based on useful life of the assets as prescribed in Schedule II to the Companies Act, 2013
except, in respect of Rolls, where useful life taken for one year only as per technical advise. Each part of
an item of Property, Plant & Equipment with a cost that is significant in relation to total cost of the
Machine is depreciated separately, if its useful life is different than the life of the Machine.

v) 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.

vi) Gains or losses arising from derecognition of a property, plant and equipment 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.

vii) Spare parts procured along with the Plant & Machinery or subsequently which meet the recognition
criteria are capitalized and added in the carrying amount of such item. The carrying amount of those
spare parts that are replaced is derecognized when no future economic benefits are expected from their
use or upon disposal. Other machinery spares are treated as “stores & spares” forming part of the
inventory.

b) Leases

i) Leases are classified as finance leases whenever the terms of the lease, transfers substantially all the
risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

ii) Leased assets: Assets held under finance leases are initially recognised as assets of the Company at their
fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments.
The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation.

iii) Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to
achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are
recognised immediately in Statement of Profit and Loss, unless they are directly attributable to qualifying
assets, in which case they are capitalized. Contingent rentals are recognised as expenses in the periods
in which they are incurred.

iv) A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty
that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the
shorter of the estimated useful life of the asset and the lease term.

v) Operating lease payments are recognised as an expense in the Statement of Profit and Loss on a straight¬
line basis over the lease term except where another systematic basis is more representative of time
pattern in which economic benefits from the leased assets are consumed.

c) Intangible assets

i) Intangible Assets are stated at cost of acquisition net of recoverable taxes, trade discount and rebates less
accumulated amortization /depletion and impairment loss, if any. Such cost includes purchase price,
borrowing costs, and any cost directly attributable to bringing the asset to its working condition for the
intended use, net charges on foreign exchange contracts and adjustments arising from exchange rate
variations attributable to the intangible assets.

ii) 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 entity and the cost can be measured reliably.

iii) 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

d) Capital Work in Progress

i) Expenditure incurred on assets under construction (including a project) is carried at cost under Capital
Work in Progress. Such costs comprises purchase price of asset including import duties and non
refundable taxes after deducting trade discounts and rebates and costs that are directly attributable to
bringing the asset to the location and condition necessary for it to be capable of operating in the manner
intended by management.

ii) Cost directly attributable to projects under construction include costs of employee benefits, expenditure
in relation to survey and investigation activities of the projects, cost of site preparation, initial delivery
and handling charges, installation and assembly costs, professional fees, expenditure on maintenance
and up-gradation etc. of common public facilities, depreciation on assets used in construction of project,
interest during construction and other costs if attributable to construction of projects. Such costs are
accumulated under “Capital works in progress” and subsequently allocated on systematic basis over
major assets, other than land and infrastructure facilities, on commissioning of projects.

iii) Capital Expenditure incurred for creation of facilities, over which the Company does not have control but
the creation of which is essential principally for construction of the project is capitalized and carried
under “Capital work in progress” and subsequently allocated on systematic basis over major assets, other
than land and infrastructure facilities, on commissioning of projects, keeping in view the “attributability”
and the “Unit of Measure” concepts in Ind AS 16- “Property, Plant & Equipment”. Expenditure of such
nature incurred after completion of the project, is charged to Statement of Profit and Loss.

e) Research and Development Expenditure

Revenue expenditure pertaining to research is charged to the Statement of Profit and Loss. Development costs

of products are charged to the Statement of Profit and Loss unless a product’s technological and commercial

feasibility has been established, in which case such expenditure is capitalised.

f) Finance Cost

i) Borrowing costs include exchange differences arising from foreign currency borrowings to the extent they
are regarded as an adjustment to the interest cost. 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. A qualifying asset is
one that necessarily takes substantial period of time to get ready for its intended use.

ii) Interest income earned on the temporary investment of specific borrowings pending their expenditure on
qualifying assets is deducted from the borrowing costs eligible for capitalisation.

iii) All other borrowing costs are expensed in the period in which they occur.

g) Inventories

i) Items of inventories are measured at lower of cost and net realisable value after providing for
obsolescence, if any, except in case of by-products which are valued at net realisable value. Cost of
inventories comprises of cost of purchase, cost of conversion and other costs including manufacturing
overheads net of recoverable taxes incurred in bringing them to their respective present location and
condition.

ii) Cost of raw materials, stores and spares, packing materials, trading and other products are determined
at Cost, with moving average price on FIFO basis

h) Impairment of non-financial assets - property, plant and equipment and intangible assets

i) The Company assesses at each reporting date as to whether there is any indication that any property,
plant and equipment and intangible assets or group of assets, called Cash Generating Units (CGU) may
be impaired. If any such indication exists the recoverable amount of an asset or CGU is estimated to
determine the extent of impairment, if any. When it is not possible to estimate the recoverable amount of
an individual asset, the Company estimates the recoverable amount of the CGU to which the asset
belongs.

ii) An impairment loss is recognised in the Statement of Profit and Loss to the extent, asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is higher of an asset’s fair value less
cost of disposal and value in use. Value in use is based on the estimated future cash flows, discounted to
their present value using pre-tax discount rate that reflects current market assessments of the time value
of money and risk specific to the assets.

iii) The impairment loss recognised in prior accounting period is reversed if there has been a change in the
estimate of recoverable amount.