2*| MATERIAL ACCOUNTING POLICIES
Basis of preparation of financial statements
The standalone financial statements are prepared in
accordance with Indian Accounting Standards (Ind
AS) notified under the Companies (Indian Accounting
Standards) Rules,2015 (as amended from time to time)
and presentation requirements of Division II of Schedule
III to the Companies Act, 2013, (Ind AS compliant
Schedule III).
The standalone financial statements have been prepared
on a historical cost basis, except for the following assets
and liabilities which have been measured at fair value:
- Defined benefit plans - plan assets
Company’s financial statements are presented in Indian
Rupees (C), which is also its functional currency and is
rounded off to nearest C in lacs.
The Company has prepared the financial statements
on the basis that it will continue to operate as a going
concern.
2*11 SUMMARY OF MATERIAL ACCOUNTING POLICIES
a) Current-non-current classification
All assets and liabilities have been classified as current
or non-current as per the Company’s normal operating
cycle and other criteria set out in the Schedule III
to the Companies Act, 2013. Based on the nature
of manufacturing activity and the time between the
acquisition of assets for processing and their realization
in cash and cash equivalents, the Company has
ascertained its operating cycle for the purpose of current
- non current classification of assets and liabilities as 12
months for its products.
All assets and liabilities are classified into current and
non-current.
Assets
An asset is classified as current when it satisfies any of
the following criteria:
(a) it is expected to be realised in, or is intended for sale
or consumption in, the company’s normal operating
cycle;
(b) it is held primarily for the purpose of being traded;
(c) it is expected to be realised within 12 months after
the reporting date; or
(d) it is cash or cash equivalent unless it is restricted
from being exchanged or used to settle a liability for
at least 12 months after the reporting date.
Current assets include the current portion of non-current
financial assets.
All other assets are classified as non-current.
A liability is classified as current when it satisfies any of
the following criteria:
(a) it is expected to be settled in the company’s normal
operating cycle;
(b) it is held primarily for the purpose of being traded;
(c) it is due to be settled within 12 months after the
reporting date; or
(d) the company does not have an unconditional right
to defer settlement of the liability for at least 12
months after the reporting date. Terms of a liability
that could, at the option of the counterparty, result
in its settlement by the issue of equity instruments
do not affect its classification.
Current liabilities include current portion of non-current
financial liabilities.
All other liabilities are classified as non-current.
b. Fair Value Measurement
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.
Normally at initial recognition, the transaction price is the
best evidence of fair value.
However, when the Company determines that
transaction price does not represent the fair value, it
uses inter-alia 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 financial assets and financial liabilities for which fair
value is measured or disclosed in the financial statements
are categorised within the fair value hierarchy. This
categorisation is 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
Financial assets and financial liabilities that are
recognised at fair value on a recurring basis, the Company
determines whether transfers have occurred between
levels in the hierarchy by re- assessing categorisation at
the end of each reporting period.
c) Property, Plant and Equipment (PPE)
On transition to Ind AS, the Company has elected to
continue with the carrying value of all of its property, plant
and equipment recognised as at April 1,2020, measured
as per the previous GAAP, and use that carrying value as
the deemed cost of such property, plant and equipment.
An item of PPE is recognized as an asset if it is probable
that future economic benefits associated with the item
will flow to the Company and the cost of the item can be
measured reliably.
The cost of an item of property, plant and equipment is
measured at :
- its purchase price, including import duties and non¬
refundable purchase taxes, after deducting trade
discounts and rebates.
- any costs 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.
- the initial estimate of the costs of dismantling
and removing the item and restoring the site on
which it is located, the obligation which is to be
incurred either when the item is acquired or as
a consequence of having used the item during a
particular period for purposes other than to produce
inventories during that period.
- Expenditure incurred on renovation and
modernization of PPE on completion of the
originally estimated useful life resulting in increased
life and/or efficiency of an existing asset, is added
to the cost of the related asset. 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.
- After initial recognition, PPE is carried at cost
less accumulated depreciation/amortization and
accumulated impairment losses, if any.
- 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.
- If the cost of the replaced part or earlier inspection
is not available, the estimated cost of similar new
parts/ inspection is used as an indication of what
the cost of the existing part/ inspection component
was when the item was acquired or inspection
carried out.
- An item of property, plant and equipment is
derecognized upon disposal or when no future
economic benefits are expected from its use or
disposal. Any gain or loss arising on derecognition
of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount
of the asset) is included in the Statement of Profit
and Loss when the asset is derecognized.
d) Capital work in progress
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.
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.
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) 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 Leasee
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
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
assets, as follows:
- Lease hold properties - 5 years
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.
- 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.
- Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition
exemption to its short-term leases of machinery and
equipment (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 of
office equipment 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.
f) Revenue recognition
A. Sale of Goods
The Company recognises revenue when control over
the promised goods or services is transferred to the
customer at an amount that reflects the consideration
to which the Company expects to be entitled in
exchange for those goods or services. The Company
has generally concluded that it is the principal in its
revenue arrangements as it typically controls the goods
or services before transferring them to the customer.
Revenue is adjusted for variable consideration such as
discounts, rebates, refunds, credits, price concessions,
incentives, or other similar items in a contract when
they are highly probable to be provided. The amount
of revenue excludes any amount collected on behalf of
third parties.
The Company recognises revenue generally at the point
in time when the products are delivered to customer or
when it is delivered to a carrier for export sale, which
is when the control over product is transferred to the
customer.
Revenue from sale of by products are included in
revenue.
Contract Balances
Contract Assets:
A contract asset is the right to consideration in exchange
for goods or services transferred to the customer. If the
Company performs by transferring goods or services to
a customer before the customer pays consideration or
before payment is due, a contract asset is recognised for
the earned consideration.
Trade Receivables:
A receivable is recognised when the goods are delivered
and to the extent that it has an unconditional contractual
right to receive cash or other financial assets (i.e., only
the passage of time is required before payment of the
consideration is due).
Contract Liabilities:
A contract liability is the obligation to transfer goods
or services to a customer for which the Company has
received consideration (or an amount of consideration is
due) from the customer. If a customer pays consideration
before the Company transfers goods or services to the
customer, a contract liability is recognised when the
payment is made or the payment is due (whichever is
earlier). Contract liabilities are recognised as revenue
when the Company performs under the contract
including Advance received from Customer.
A refund liability is the obligation to refund some or all
of the consideration received (or receivable) from the
customer and is measured at the amount the Company
ultimately expects it will have to return to the customer
including volume rebates and discounts. The Company
updates its estimates of refund liabilities at the end of
each reporting period.
B. Exports Benefits:
Benefits arises on exports of goods like export incentives
are recognized on accrual basis when exports sales are
recognized.
C. Interest Income
Interest income from a financial asset is recognised
when it is probable that the economic benefits will flow
to the Company and the amount of income can be
measured reliably. Interest income is accrued on a time
basis, by reference to the principal outstanding and at
the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts
through the expected life of the financial asset to that
asset’s net carrying amount on initial recognition.
g) Depreciation on Property, Plant & Equipment
Depreciation on Property, Plant & Equipment is provided
on Written Down Value Method based on estimated
useful life of the assets which is same as envisaged in
schedule II of the Companies Act, 2013.
Depreciation on additions to /deductions from Property,
Plant & Equipment during the year is charged on pro¬
rata basis from / up to the date on which the asset is
available for use / disposal.
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.
Where the life and / or efficiency of an asset is increased
due to renovation and modernization, the expenditure
thereon along with its unamortized depreciable amount
is charged prospectively over the revised / remaining
useful life determined by technical assessment.
Spares parts procured along with the Plant & Machinery
or subsequently which are capitalized and added in the
carrying amount of such item are depreciated over the
residual useful life of the related plant and machinery or
their useful life whichever is lower.
h) Inventories
Inventories are valued at lower of cost and net realizable
value, after providing for obsolences, if any.
Cost of stores & consumables and chemicals are
computed on FIFO basis and cost of Raw Materials,
Finished Goods & Goods in Process are computed on
Weighted average basis.
Cost of Work in Progress and Finished Goods includes
direct materials, labour, conversion and proportion
of manufacturing overheads incurred in bringing the
inventories to their present location and condition.
The cost is determined using weighted average cost
formula and net realizable value is the estimated
selling price in the ordinary course of business, less the
estimated costs necessary to make the sale.
The by-products are valued at net realizable value.
i) Borrowing 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. All other borrowing costs are expensed in
the period in which they occur. Borrowing costs consist
of interest and other costs that the company 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.
j) Income Taxes
Income tax expense represents the sum of current and
deferred tax. Tax is recognised in the Statement of Profit
and Loss, except to the extent that it relates to items
recognised directly in equity or other comprehensive
income. In which case the tax is also recognised directly
in equity or in other comprehensive income.
Current tax
Current tax assets and liabilities are measured at the
amount expected to be recovered from or paid to the
taxation authorities, based on tax rates and laws that are
enacted or substantively enacted at the Balance sheet
date.
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
bases used in the computation of taxable profit.
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 (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
The carrying amount of Deferred tax liabilities and
assets are reviewed at the end of each reporting period.
k) Foreign Currency Transactions
Transactions in foreign currency are initially recorded at
exchange rate prevailing on the date of transaction. At
each Balance Sheet date, monetary items denominated
in foreign currency are translated at the exchange rates
prevailing on that date.
Exchange differences arising on translation or settlement
of monetary items are recognised as income or expenses
in the period in which they arise in the Statement of Profit
and loss.
l) Employee Benefits Expense
Short Term Employee Benefits
The undiscounted amount of short term employee
benefits expected to be paid in exchange for the services
rendered by employees are recognised as an expense
during the period when the employees render the
services.
Post-Employment Benefits
Defined Contribution Plans
A defined contribution plan is a post-employment
benefit plan under which the Company pays specified
contributions to a separate entity. The Company makes
specified monthly contributions towards Provident
Fund and Contributory Pension Fund. The Company’s
contribution is recognised as an expense in the
Statement of Profit and Loss during the period in which
the employee renders the related service.
Defined Benefits Plans
The cost of the defined benefit plan and other post¬
employment benefits and the present value of such
obligation are determined using actuarial valuations. An
actuarial valuation involves making various assumptions
that may differ from actual developments in the future.
These include the determination of the discount rate,
future salary increases, mortality rates and future
pension increases. Due to the complexities involved
in the valuation and its long-term nature, a defined
benefit obligation is highly sensitive to changes in these
assumptions. All assumptions are reviewed at each
reporting date.
The company has recognized the gratuity payable to the
employees as per the Payment of Gratuity Act,1972 and
Leave Encashment Benefits as defined benefit plans.
The liability in respect of these benefits is calculated
using the Projected Unit Credit Method and spread over
the period during which the benefit is expected to be
derived from employees’ services.
Re-measurement of defined benefit plans in respect
of post-employment are charged to the Other
Comprehensive Income.
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