3 Material accounting policies
3.1 Revenue recognition
Revenue is recognised upon transfer of control
of promised products or services to customers
in an amount that reflects the consideration
which the company expects to receive in
exchange for those products or services.
The compan/ s revenues are derived from sale
of goods and services.
• Revenue from sale of goods is
recognized where control is transferred
to the company's customers at the time
of shipment to or receipt of goods by the
customers.
• Service income, is recognized as and
when the underlying services are
performed. Upfront non-refundable
payments received under these
arrangements continue to be deferred
and are recognized over the expected
period that related services are to be
performed.
• Dividend income is accounted for
when the right to receive the income is
established.
• Difference between the sale price and
carrying value of investment is recognised
as profit or loss on sale / redemption on
investment on trade date of transaction.
• Interest income is accrued on, 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.
3.2 Leases
A contract is, or contains, a lease 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 lessee
The Company accounts for each lease
component within the contract as a lease
separately from non-lease components of the
contract and allocates the consideration in the
contract to each lease component on the basis
of the relative stand-alone price of the lease
component and the aggregate stand-alone
price of the non-lease components.
The Company recognises right-of-use asset
representing its right to use the underlying asset
for the lease term at the lease commencement
date. The cost of the right of-use asset
measured at inception shall comprise of the
amount of the initial measurement of the lease
liability adjusted for any lease payments made
at or before the commencement date less any
lease incentives received, plus any initial
direct costs incurred and an estimate of costs
to be incurred by the lessee in dismantling and
removing the underlying asset or restoring
the underlying asset or site on which it is
located. The right-of-use assets is subsequently
measured at cost less any accumulated
depreciation, accumulated impairment losses,
if any and adjusted for any remeasurement
of the lease liability. The right-of-use assets
is depreciated using the straight-line method
from the commencement date over the shorter
of lease term or useful life of right-of-use asset.
The estimated useful lives of right-of-use assets
are determined on the same basis as those of
property, plant and equipment. Right of-use
assets are tested for impairment whenever
there is any indication that their carrying
amounts may not be recoverable. Impairment
loss, if any, is recognised in the statement of
profit and loss.
The Company measures the lease liability at
the present value of the lease payments that
are not paid at the commencement date of
the lease. The lease payments are discounted
using the interest rate implicit in the lease
if that rate can be readily determined. If
that rate cannot be readily determined,
the Company uses incremental borrowing
rate. For leases with reasonably similar
characteristics, the Company, on a lease by
lease basis, may adopt either the incremental
borrowing rate specific to the lease or the
incremental borrowing rate for the portfolio
as a whole. The lease payments shall include
fixed payments, variable lease payments,
residual value guarantees, exercise price
of a purchase option where the Company
is reasonably certain to exercise that option
and payments of penalties for terminating
the lease, if the lease term reflects the lessee
exercising an option to terminate the lease.
The lease liability is subsequently remeasured
by increasing the carrying amount to reflect
interest on the lease liability, reducing the
carrying amount to reflect the lease payments
made and remeasuring the carrying amount to
reflect any reassessment or lease modifications
or to reflect revised in-substance fixed lease
payments. The Company recognises the
amount of the re-measurement of lease
liability due to modification as an adjustment
to the right-of-use asset and statement of
profit and loss depending upon the nature of
modification. Where the carrying amount of
the right-of-use asset is reduced to zero and
there is a further reduction in the measurement
of the lease liability, the Company recognises
any remaining amount of the re-measurement
in statement of profit and loss.
The Company has elected not to apply the
requirements of Ind AS 116 Leases to short
term leases of all assets that have a lease term
of 12 months or less and leases for which the
underlying asset is of low value. The lease
payments associated with these leases are
recognised as an expense on a straight-line
basis over the lease term.
3.3 Foreign currencies
In preparing the financial statements of the
company, transactions in currencies other
than the compan/ s functional currency
(foreign currencies) are recognised at the
rates of exchange prevailing at the dates of
the transactions. At the end of each reporting
period, monetary items denominated in
foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items
that are measured in terms of historical cost
in a foreign currency are not retranslated.
Exchange differences on monetary items are
recognised in profit or loss in the period in
which they arise.
3.4 Borrowing costs
Specific borrowing costs that are attributable to
the acquisition, construction or production of a
qualifying asset are capitalized as part of the
cost of such asset till such time the asset is ready
for its intended use and borrowing costs are
being incurred. A qualifying asset is an asset
that necessarily takes a substantial period of
time to get ready for its intended use. All other
borrowing costs are recognised as an expense
in the period in which they are incurred.
Borrowing cost includes interest expense,
amortization of discounts, ancillary costs
incurred in connection with borrowing of
funds and exchange difference arising from
foreign currency borrowings to the extent they
are regarded as an adjustment to the Interest
cost.
3.5 Taxation
Income tax expense consists of current and
deferred tax. Income tax expense is recognized
in the income statement except to the extent
that it relates to items recognized directly in
equity, in which case it is recognized in equity.
Current tax
Current tax is the expected tax payable on
the taxable income for the year, using tax
rates enacted or substantively enacted at the
reporting date, and any adjustment to tax
payable in respect of previous years.
Deferred tax
Deferred tax is recognized using the balance
sheet method, providing for temporary
differences between the carrying amounts of
assets and liabilities for financial reporting
purposes and the amounts used for taxation
purposes. Deferred tax is not recognized
for the following temporary differences: the
initial recognition of assets or liabilities in a
transaction that is not a business combination
and that affects neither accounting nor taxable
profit; differences relating to investments in
subsidiaries and jointly controlled entities to
the extent that it is probable that they will not
reverse in the foreseeable future; and taxable
temporary differences arising upon the initial
recognition of goodwill. Deferred tax is
measured at the tax rates that are expected
to be applied to the temporary differences
when they reverse, based on the laws that
have been enacted or substantively enacted
by the reporting date. Deferred tax assets
and liabilities are offset if there is a legally
enforceable right to offset current tax liabilities
and assets, and they relate to income taxes
levied by the same tax authority on the same
taxable entity, or on different tax entities, but
they intend to settle current tax liabilities and
assets on a net basis or their tax assets and
liabilities will be realized simultaneously.
A deferred tax asset is recognized to the extent
that it is probable that future taxable profits
will be available against which the temporary
difference can be utilized. Deferred tax assets
are reviewed at each reporting date and
are reduced to the extent that it is no longer
probable that the related tax benefit will be
realized.
3.6 Earnings per share
The company presents basic and diluted
earnings per share ("EPS") data for its
ordinary shares. The basic earnings per
share is computed by dividing the net profit
attributable to equity shareholders for the
period by the weighted average number of
equity shares outstanding during the year.
Diluted earnings per share is computed
by dividing the net profit attributable to
equity shareholders for the year relating to
the dilutive potential equity shares, by the
weighted average number of equity shares
considered for deriving basic earnings per
share and the weighted average number of
equity shares which could have been issued
on the conversion of all dilutive potential
equity shares. Potential equity shares are
deemed to be dilutive only if their conversion
to equity shares would decrease the net profit
per share.
3.7 Property, plant and equipment (PPE)
The initial cost of PPE comprises its purchase
price, including import duties and non¬
refundable purchase taxes, and any directly
attributable costs of bringing an asset to
working condition and location for its intended
use, including relevant borrowing costs and
any expected costs of decommissioning, less
accumulated depreciation and accumulated
impairment losses, if any. Expenditure
incurred after the PPE have been put into
operation, such as repairs and maintenance,
are charged to the Statement of Profit and Loss
in the period in which the costs are incurred.
If significant parts of an item of PPE have
different useful lives, then they are accounted for
as separate items (major components) of PPE.
Material items such as spare parts, stand¬
by equipment and service equipment are
classified as PPE when they meet the definition
of PPE as specified in Ind AS 16 - Property,
Plant and Equipment.
3.8 Expenditure during construction
period
Expenditure during construction period
(including financing cost related to borrowed
funds for construction or acquisition of
qualifying PPE) is included under Capital
Work-in-Progress, and the same is allocated
to the respective PPE on the completion of
their construction. Advances given towards
acquisition or construction of PPE outstanding
at each reporting date are disclosed as Capital
Advances under "Other non-current Assets".
3.9 Depreciation
Depreciation is the systematic allocation of the
depreciable amount of PPE over its useful life
and is provided on a straight-line basis over
the useful lives as prescribed in Schedule II to
the Act or as per technical assessment.
Depreciable amount for PPE is the cost of PPE
less its estimated residual value. The useful life
of PPE is the period over which PPE is expected
to be available for use by the company, or the
number of production or similar units expected
to be obtained from the asset by the company.
The company has componentised its PPE and
has separately assessed the life of major
components.In case of certain classes of PPE,
the company uses different useful lives than
those prescribed in Schedule II to the Act.
The useful lives have been assessed based
on technical advice, taking into account the
nature of the PPE and the estimated usage of
the asset on the basis of management s best
estimation of obtaining economic benefits
from those classes of assets.
Depreciation on additions is provided on a
pro-rata basis from the month of installation
or acquisition and in case of Projects from
the date of commencement of commercial
production. Depreciation on deductions/
disposals is provided on a pro-rata basis up
to the date of deduction/disposal.
3.10 Intangible assets and amortisation
Intangible assets are stated at cost less
accumulated amortization and impairment.
Intangible assets are amortized over their
respective estimated useful lives on a straight¬
line basis, from the date that they are available
for use.
Amortization
The estimated useful life of an identifiable
intangible asset is based on a number of
factors including the effects of obsolescence,
demand, competition and other economic
factors (such as the stability of the industry
and known technological advances) and the
level of maintenance expenditures required to
obtain the expected future cash flows from the
asset.
Software, Design and development is
amortised over a period of five years.
Technical knowhow is amortised over a period
of eight years.
3.11 Inventories
Inventories are valued as follows:
• Raw materials, stores & spare
parts and packing materials:
Valued at lower of cost and net realisable
value (NRV). However, these items are
considered to be realisable at cost, if the
finished products, in which they will be
used, are expected to be sold at or above
cost. Cost is determined on weighted
average basis.
• Work-in- progress (WIP), finished
goods and stock-in-trade:
Valued at lower of cost and NRV. Cost
of Finished goods and WIP includes
cost of raw materials, cost of conversion
and other costs incurred in bringing the
inventories to their present location and
condition.
3.12 Cash and cash equivalents
Cash and cash equivalents in the Balance
Sheet comprise cash at bank and in hand
and short-term deposits with banks that are
readily convertible into cash which are subject
to insignificant risk of changes in value and
are held for the purpose of meeting short-term
cash commitments.
3.13 Cash flow statement
Cash flows are reported using the indirect
method, whereby net profit before tax is
adjusted for the effects of transactions of a
non-cash nature and any deferrals or accruals
of past or future cash receipts or payments.
The cash flows from operating, investing
and financing activities of the company are
segregated. Bank overdrafts are classified
as part of cash and cash equivalent, as they
form an integral part of an entity's cash
management.
3.14 Government grants
Government grants are recognised
where there is reasonable assurance
that the grant will be received and all
attached conditions will be complied with.
Where the company receives non-monetary
grants, the asset and the grant are accounted
at fair value and recognised in the statement
of profit and loss over the expected useful life
of the asset.
3.15 Impairment of non financial assets
The carrying amounts of the company's non¬
financial assets, inventories and deferred tax
assets are reviewed at each reporting date to
determine whether there is any indication of
impairment. If any such indication exists, then
the asseT s recoverable amount is estimated.
The recoverable amount of an asset or cash¬
generating unit (as defined below) is the
greater of its value in use and its fair value
less costs to sell. 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 or the cash-generating unit. For
the purpose of impairment testing, assets are
companyed together into the smallest company
of assets that generates cash inflows from
continuing use that are largely independent of
the cash inflows of other assets or companys
of assets (the "cash-generating unit").
An impairment loss is recognized in the income
statement if the estimated recoverable amount of an
asset or its cash-generating unit is lower than its
carrying amount. Impairment losses recognized in
prior periods are assessed at each reporting date
for ndications that the loss has decreased or
no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to
determine the recoverable amount. An impairment
loss is reversed only to the extent that the asseT s
carrying amount does not exceed the carrying
amount that would have been determined, net of
depreciation or amortization, if no impairment
loss had been recognized. Goodwill that forms
part of the carrying amount of an investment in
an associate is not recognized separately, and
therefore is not tested for impairment separately.
Instead, the entire amount of the investment in an
associate is tested for impairment as a single asset
when there is objective evidence that the investment
in an associate may be impaired.
An impairment loss in respect of equity accounted
investee is measured by comparing the recoverable
amount of investment with its carrying amount.
An impairment loss is recognized in the income
statement, and reversed if there has been a
favorable change in the estimates used to determine
the recoverable amount."
Short-term employee benefits
Short-term employee benefits are expensed
as the related service is provided. A liability
is recognized for the amount expected to be
paid if the company has a present legal or
constructive obligation to pay this amount
as a result of past service provided by the
employee and the obligation can be estimated
reliably.
Defined contribution plans
The company's contributions to defined
contribution plans are charged to the income
statement as and when the services are
received from the employees.
Defined benefit plans
The liability in respect of defined benefit
plans and other post-employment benefits
is calculated using the projected unit
credit method consistent with the advice of
qualified actuaries. The present value of the
defined benefit obligation is determined by
discounting the estimated future cash outflows
using interest rates of high-quality corporate
bonds that are denominated in the currency
in which the benefits will be paid, and that
have terms to maturity approximating to the
terms of the related defined benefit obligation.
In countries where there is no deep market in
such bonds, the market rates on government
bonds are used. The current service cost of the
defined benefit plan, recognized in the income
statement in employee benefit expense, reflects
the increase in the defined benefit obligation
resulting from employee service in the current
year, benefit changes, curtailments and
settlements. Past service costs are recognized
immediately in income. The net interest cost is
calculated by applying the discount rate to the
net balance of the defined benefit obligation
and the fair value of plan assets. This cost is
included in employee benefit expense in the
income statement. Actuarial gains and losses
arising from experience adjustments and
changes in actuarial assumptions are charged
or credited to equity in other comprehensive
income in the period in which they arise.
Termination benefits are recognized as an
expense when the company is demonstrably
committed, without realistic possibility of
withdrawal, to a formal detailed plan to either
terminate employment before the normal
retirement date, or to provide termination
benefits as a result of an offer made to
encourage voluntary redundancy. Termination
benefits for voluntary redundancies are
recognized as an expense if the company
has made an offer encouraging voluntary
redundancy, it is probable that the offer will
be accepted, and the number of acceptances
can be estimated reliably.
Other long-term employee benefits
The compan/s net obligation in respect of
other long term employee benefits is the
amount of future benefit that employees
have earned in return for their service in the
current and previous periods. That benefit is
discounted to determine its present value. Re¬
measurements are recognized in the statement
of profit and loss in the period in which they
arise.
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