(2) MATERIAL ACCOUNTING POLICIES FOLLOWED BY THE COMPANY
(a) Basis of preparation
I These financial statements comply in all material aspects with the Indian Accounting Standards (Ind AS) notified
under section 133 of the Companies Act, 2013 ('Act') read with the Companies (Indian Accounting Standards)
Rules, 2015 as amended and other relevant provisions of the Act.
i) The financial statements have been prepared on a historical cost basis, except for the following assets and
liabilities:
ii) Certain financial assets and liabilities that are measured at fair value
iii) Assets held for sale-measured at fair value less cost to sell
iv) Measurement of derivative financial instruments
v) Defined benefit plans-plan assets measured at fair value
The financial statements are presented in Indian Rupees (Rs.), which is Company's functional and presentation
currency and all values are rounded to nearest crore upto two decimal, except when otherwise indicated.
II 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 i.e. 12 months;
• Held primarily for purpose of business;
• 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 i.e. 12 months;
• It is held primarily for purpose of business;
• 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.
All other liabilities are classified as non-current.
(b) Property, Plant and Equipment (PPE)
Freehold land is carried at cost. All other items of property, plant and equipment are stated at cost less depreciation
and impairment, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items.
Cost includes its purchase price including non refundable taxes and duties after deducting trade discounts/rebates,
directly attributable costs of bringing the asset to its present location and condition and initial estimate of costs of
dismantling and removing the item and restoring the site on which it is located.
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 Company and the cost of the
item can be measured reliably.
The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other
repairs and maintenance are charged to the Statement of Profit and Loss during the reporting period in which they are
incurred.
Machinery spares, stand-by equipment and servicing equipment are recognised as property, plant and equipment
when they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory.
Capital work- in- progress includes cost of property, plant and equipment under installation / under development as at
the balance sheet date.
Depreciation on property, plant and equipment has been provided on straight line method based on the useful life
specified in Schedule II of the Companies Act, 2013 except for Continuous Process Plant where useful life is considered
as 18 years as per technical evaluation. Further office equipments of ECD, the useful life has been estimated as 20
years (on a single shift basis) against 5 years as per schedule II of the Act, based on independent technical valuation.
Depreciation commences when the assets are ready for their intended use. Depreciation in respect of assets used for
long term engineering contracts is provided on the estimated useful life of the assets.
Assets costing less than Rs. 5,000/- are fully depreciated at the rate of 100% in the year of purchase.
The residual values are not more than 5% of the original cost of the asset. The assets residual values and useful lives
are reviewed, and adjusted if appropriate, at the end of each reporting period.
Gains and Losses on disposals are determined by comparing net disposal proceeds with carrying amount. These are
included in the Statement of Profit and Loss.
(c) Intangible Assets
Intangible assets that are acquired by the Company, which have finite useful lives, are measured at cost less
accumulated amortisation and accumulated impairment losses. Cost includes expenditures that are directly attributable
to the acquisition of the intangible asset.
Intangible Assets under Implementation includes cost of such assets under installation / under development as at the
balance sheet date.
Amortisation
Intangible assets are amortised on straight line basis over the estimated useful life. The method of amortisation
and useful life is reviewed at the end of each accounting year with the effect of any changes in the estimate being
accounted for on a prospective basis.
Useful life of 3 years is considered for amortisation of intangible assets - Computer Software.
Gains and Losses on disposals are determined by comparing net disposal proceeds with carrying amount. These are
included in the Statement of Profit and Loss.
(d) Leases
The Company recognizes a right-of-use (ROU) asset and a corresponding lease liability for all lease arrangements,
except for leases with a term of 12 months or less (short-term leases) and low value leases. 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.
(e) Borrowing costs
General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a
qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its
intended use. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their
intended use. Other borrowing costs are expensed in the period in which they are incurred.
Transaction costs relating to borrowings are considered under effective interest rate method.
(f) Impairment of Non-financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any
indication exists, the Company estimates the asset's recoverable amount. An asset's recoverable amount is the higher
of an asset's or cash-generating units (CGU) fair value less costs of disposal and its value in use. Recoverable amount
is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of
those from other assets or group of assets. Where the carrying amount of an asset or CGU exceeds its recoverable
amount, the asset is considered impaired and is written down to its 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 and the risks specific to the asset. In
determining fair value less costs of disposal, recent market transactions are taken into account, if available. If no such
transactions can be identified, an appropriate valuation model is used. After impairment, depreciation/amortisation is
provided on the revised carrying amount of the asset over its remaining useful life.
(g) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.
(I) Financial Assets
Financial assets are recognized when the Company becomes a party to the contractual provisions of the
instrument. The Company classifies its financial assets in the following measurement categories:
* those to be measured subsequently at fair value (either through other comprehensive income, or through profit
or loss), and
* those to be measured at amortised cost.
The classification depends on the Company's business model for managing the financial assets and contractual
terms of the cash flows.
Initial Recognition & Measurement
All financial assets are recognised 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.
However trade receivables that do not contain a significant financing component are measured at transaction
price.
Subsequent Measurement
For purposes of subsequent measurement, financial assets are classified in following categories:
• Debt instruments at fair value through profit or loss (FVTPL)
• Debt instruments at fair value through other comprehensive income (FVTOCI)
• Debt instruments at amortised cost
• Equity instruments at fair value (either through profit or loss or through other comprehensive income, if
designated).
Where assets are measured at fair value, gains and losses are either recognised entirely in the statement of
profit and loss (i.e. fair value through profit or loss), or recognised in other comprehensive income (i.e. fair value
through other comprehensive income). For investment in debt instruments, this will depend on the business
model in which the investment is held. For investment in equity instruments, this will depend on whether the
Company has made an irrevocable election at the time of initial recognition to account for equity instruments at
FVTOCI.
Debt instruments at amortised cost
A Debt instrument is measured at amortised cost if both the following conditions are met:
a) Business Model Test: The objective is to hold the debt instrument to collect the contractual cash flows
(rather than to sell the instrument prior to its contractual maturity to realize its fair value changes).
b) Cash flow characteristics test: The contractual terms of the debt instrument give rise on specific dates to
cash flows that are solely payments of principal and interest on principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortised cost using the
effective interest rate (EIR) method. Amortised cost is calculated by taking into account any discount or
premium on acquisition and fees or costs that are an integral part of 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.
Debt instruments at fair value through OCI
A Debt instrument is measured at fair value through other comprehensive income if following conditions are met:
a) Business Model Test: The objective of financial instrument is achieved by both collecting contractual cash
flows and for selling financial assets.
b) Cash flow characteristics test: The contractual terms of the debt instrument give rise on specific dates to
cash flows that are solely payments of principal and interest on principal amount outstanding.
Debt instrument included within the FVTOCI category are measured initially as well as at each reporting
date at fair value. Fair value movements are recognised in the other comprehensive income (OCI), except
for the recognition of interest income, impairment gains or losses and foreign exchange gains or losses
which are recognised in statement of profit and loss. On derecognition of asset, cumulative gain or loss
previously recognised in OCI is reclassified from the equity to statement of profit and loss. Interest earned
whilst holding FVTOCI financial asset is reported as interest income using the EIR method.
Debt instruments at FVTPL
FVTPL is a residual category for financial instruments. Any financial instrument which does not meet the criteria
for amortised cost or FVTOCI is classified as at FVTPL. A gain or loss on a Debt instrument that is subsequently
measured at FVTPL and is not a part of a hedging relationship is recognised in the statement of profit and loss
and presented net in the Statement of Profit and Loss within other gains or losses in the period in which it arises.
Interest income from these debt instruments is included in other income.
Equity Instruments
For all equity instruments, the Company may make an irrevocable election to present in other comprehensive
income all subsequent changes in the fair value. The Company makes such election on an instrument-by¬
instrument basis. The classification is made on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes on the
instrument, excluding dividends, are recognised in the OCI. There is no recycling of the amounts from OCI to
profit and loss, even on sale of investment. However, the Company may transfer the cumulative gain or loss
within equity. Equity instruments included within the FVTPL category are measured at fair value with all changes
recognised in the Statement of Profit and Loss.
Preference Instruments are stated at amortised costs.
Derecognition of financial assets
The Company de-recognises a financial asset only when the contractual rights to the cash flows from the asset
expire, or it transfers the financial asset and substantially all risks and rewards of ownership of the asset to
another entity.
If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues
to control the transferred asset, the Company recognises its retained interest in the assets and an associated
liability for amounts it may have to pay.
If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset,
the Company continues to recognise the financial asset and also recognises a collateralised borrowing for the
proceeds received.
Impairment of financial assets
Loss allowance for expected credit losses is recognised for financial assets measured at amortised cost and fair
value through other comprehensive income.
The Company recognises life time expected credit losses for all trade receivables that do not constitute a financing
transaction. For financial assets whose credit risk has not significantly increased since initial recognition, loss
allowance equal to twelve months expected credit losses is recognised. Loss allowance equal to the lifetime
expected credit losses is recognised if the credit risk on the financial instruments has significantly increased since
initial recognition.
(II) Equity & Financial Liabilities
Debt and equity instruments issued by an entity are classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangements and the definitions of a financial liability and an
equity instrument.
(i) Equity Instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after
deducting all of its liabilities. Equity instruments issued by the Company are recognised at the proceeds
received, net of direct issue costs.
(ii) Financial liabilities
Initial recognition and measurement
Financial liabilities are initially recognised at fair value plus any transaction costs that are attributable to the
acquisition of the financial liabilities except financial liabilities at FVTPL which are initially measured at fair
value.
Subsequent measurement
The financial liabilities are classified for subsequent measurement into following categories:
• At amortised cost
• At fair value through profit or loss (FVTPL)
Financial liabilities at amortised cost
The Company classifies the following under amortised cost:
• Borrowings from banks
• Borrowings from others
• Trade payables
• Lease Deposits
• Lease Liability
Amortised cost for financial liabilities represents amount at which financial liability is measured at initial
recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective
interest method of any difference between that initial amount and the maturity amount.
Financial liabilities at fair value through profit or loss
Financial liabilities held for trading are measured at FVTPL.
Financial liabilities at FVTPL are stated at fair value with any gains or losses arising on remeasurement,
recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the
financial liability and is included in the 'other gains and losses' line item.
Derecognition of financial liabilities
A financial liability is removed from the balance sheet when the obligation is discharged, or is cancelled, or
expires. When an existing financial liability is replaced by another from the same lender on substantially different
terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated
as the derecognition of the original liability and the recognition of a new liability. The difference in the respective
carrying amounts is recognised in the Statement of Profit and Loss.
(III) Financial guarantees contracts
Financial guarantee contracts issued by the Company are those contracts that require a payment to be made
to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in
accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a
liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee.
Subsequently, the liability is measured at the higher of the amount of loss allowance determined as per impairment
requirements of Ind AS109 and the amount recognised less cumulative amortisation.
(IV) Derivative financial instruments
Derivative financial instruments such as forward contracts are taken by the Company to hedge its foreign currency
risks, are initially recognised at fair value on the date a derivative contract is entered into and are subsequently
re-measured at their fair value with changes in fair value recognised in the Statement of Profit and Loss in the
period when they arise (other than in case of hedge accounting).
(V) Offsetting of financial instruments
Financials assets and financial liabilities are offset and the net amount is reported in the balance sheet if there
is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net
basis, to realize the assets and settle the liabilities simultaneously.
(h) Fair value measurement
The Company measures financial instruments, such as, certain investments and 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 fair value of an asset or a liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
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.
(i) Inventories
Inventories are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where
applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present
location and condition. Net realisable value represents the estimated selling price for inventories less all estimated
costs of completion and costs necessary to make the sale. The cost formulae used for determination of cost is 'First
in First Out' for raw materials and 'Weighted Average Cost' for stores and spares.
Machinery spares, stand-by equipment and servicing equipment are recognised as inventory when the useful life is
less than one year and the same are charged to the Statement of Profit and Loss as and when issued for consumption.
(j) Taxes
The income tax expense or credit for the period is the tax payable on the current period's taxable income based on
the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary
differences and to unused tax losses.
The Company's liability for current tax is calculated using the Indian tax rates and laws that have been enacted by
the reporting date. The Company periodically evaluates positions taken in the tax returns with respect to situations in
which applicable tax regulations are subject to interpretations and provisions where appropriate.
Deferred income tax is provided in full, using the liability method on temporary differences arising between the tax
bases of assets and liabilities and their carrying amount in the financial statement. Deferred income tax is determined
using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are
expected to apply when the related deferred income tax assets is realised or the deferred income tax liability is settled.
Deferred tax assets are recognised for all deductible temporary differences and unused tax losses, only if, it is probable
that future taxable amounts will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities
are offset where the Company has a legally enforceable right to offset and intends either to settle on a net basis, or to
realize the asset and settle the liability simultaneously.
Current and deferred tax is recognised in the statement of profit and loss, except to the extent that it relates to items
recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other
comprehensive income or directly in equity, respectively.
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