Significant Accounting Policies
1) Property Plant & Equipment
Recognition and measurement
Property, Plant and Equipment are stated at cost of acquisition or construction less
accumulated depreciation and impairment loss, if any. Cost includes expenditures that are
directly attributable to the acquisition of the asset i.e., freight, duties and taxes applicable and
other expenses related to acquisition and installation. The cost of self-constructed assets
includes the cost of materials and other costs directly attributable to bringing the asset to a
working condition for its intended use. Borrowing costs that are directly attributable to the
construction or production of a qualifying asset are capitalized as part of the cost of that asset.
Directly attributable costs include:
a. Cost of Employee Benefits arising directly from Construction or acquisition of PPE.
b. Cost of Site Preparation.
c. Initial Delivery & Handling costs.
d. Professional Fees and
e. Costs of testing whether the asset is functioning properly, after deducting the net proceeds
from selling any items produced while bringing the asset to that location and condition (such as
samples produced when testing equipment).
When parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items (major components) of property, plant and equipment.
Gains and losses upon disposal of an item of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant and
equipment and are recognized net within in the statement of profit and loss.
The cost of replacing part of an item of property, plant and equipment is recognized in the
carrying amount of the item if it is probable that the future economic benefits embodied within
the part will flow to the Company and its cost can be measured reliably. The costs of repairs
and maintenance are recognized in the statement of profit and loss as incurred.
Items of property, plant and equipment acquired through exchange of non-monetary assets
are measured at fair value, unless the exchange transaction lacks commercial substance or
the fair value of either the asset received or asset given up is not reliably measurable, in which
case the asset exchanged is recorded at the carrying amount of the asset given up.
f. Costs of testing whether the asset is functioning properly, after deducting the net proceeds from
selling any items produced while bringing the asset to that location and condition (such as
samples produced when testing equipment).
When parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items (major components) of property, plant and equipment.
Gains and losses upon disposal of an item of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant and
equipment and are recognized net within in the statement of profit and loss.
The cost of replacing part of an item of property, plant and equipment is recognized in the
carrying amount of the item if it is probable that the future economic benefits embodied within
the part will flow to the Company and its cost can be measured reliably. The costs of repairs
and maintenance are recognized in the statement of profit and loss as incurred.
Items of property, plant and equipment acquired through exchange of non-monetary assets
are measured at fair value, unless the exchange transaction lacks commercial substance or
the fair value of either the asset received or asset given up is not reliably measurable, in which
case the asset exchanged is recorded at the carrying amount of the asset given up.
Depreciation
Depreciation is recognized in the statement of profit and loss on a straight line basis over the
estimated useful lives of property, plant and equipment based on Schedule II to the
Companies Act, 2013 (“Schedule”), which prescribes the useful lives for various classes of
tangible assets. For assets acquired or disposed of during the year, depreciation is provided
on prorata basis. Land is not depreciated. Depreciation methods, useful lives and residual
values are reviewed at each reporting date and adjusted prospectively, if appropriate.
Advances paid towards the acquisition of property, plant and equipment outstanding at each
reporting date is disclosed as capital advances under other noncurrent assets. The cost of property,
plant and equipment not ready to use before such date are disclosed under capital work-in¬
progress. Assets not ready for use are not depreciated.
The Company assesses at each balance sheet date, whether there is objective evidence that an
asset or a group of assets is impaired. An asset's carrying amount is written down immediately to its
recoverable amount if the asset's carrying amount is greater than its estimated recoverable
amount. Recoverable mount is higher of the value in use or fair value less cost to sell.
2) 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.
Financial assets
Initial recognition and 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. Purchases or sales of financial assets that require delivery of assets within a
time frame established by regulation or convention in the market place (regular way trades) are
recognised on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
Debt instrument at FVTPL
Debt instruments included within the FVTPL category are measured at fair value with all changes
recognised in the statement of profit and loss. The Company has not designated any debt
instrument as at FVTPL.
Investment in Preference Shares and Unquoted trade Investments
Investment in Preference Shares and Unquoted trade Investments are measured at amortized cost
using Effective Rate of Return (EIR).
Investment in equity instruments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which
are held for trading and contingent consideration recognised by an acquirer in a business
combination to which Ind AS103 applies are classified as at FVTPL. For all other equity
instruments, the Company may make an irrevocable election to present in other comprehensive
income 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 the statement of profit and loss, even on sale of investment. However, the Company
may transfer the cumulative gain or loss within equity. Equity instruments i.e., investments in equity
shares within the FVTPL category are measured at fair value with all changes recognised in the
statement of profit and loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial
assets) is primarily derecognised (i.e., removed from the Company's balance sheet) when:
• The rights to receive cash flows from the asset have expired, or
• The Company has transferred its rights to receive cash flows from the asset or has assumed
an obligation to pay the received cash flows in full without material delay to a third party under a
‘pass-through' arrangement; and either (a) the Company has transferred substantially all the
risks and rewards of the asset, or (b) the Company has neither transferred nor retained
substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into
a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards
of ownership. When it has neither transferred nor retained substantially all of the risks and rewards
of the asset, nor transferred control of the asset, the Company continues to recognise the
transferred asset to the extent of the Company's continuing involvement. In that case, the Company
also recognises an associated liability. The transferred asset and the associated liability are
measured on a basis that reflects the rights and obligations that the Company has retained.
Impairment of trade receivables
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for
measurement and recognition of impairment loss on the trade receivables or any contractual right
to receive cash or another financial asset that result from transactions that are within the scope of
Ind AS 18. Expected credit loss model takes into consideration the present value of all the cash
shortfalls over the expected life of a financial instrument. In simple terms, it is weighted average of
credit losses with the respective risks of default occurring as weights. The credit loss is the
difference between all contractual cash flows that are due to an entity as per the contract and all the
contractual cash flows that the entity expects to receive, discounted to the effective interest rate.
The Standard presumes that entities would suffer credit loss even if the entity expects to be paid in
full but later than when contractually due. In other words, it simply focuses on DELAYS in collection
of receivables. For the purpose of identifying the days of delay, the Company took into
consideration the weighted average number of delays taking into consideration the date of billing,
the credit period and the collection days.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through
profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments
in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and,
in the case of loans and borrowings and payables, net of directly attributable transaction costs. The
Company's financial liabilities include trade and other payables, loans and borrowings including
bank overdrafts, financial guarantee contracts.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at
amortised cost using the EIR method. Gains and losses are recognised in the statement of profit
and loss when the liabilities are derecognised as well as through the EIR amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees
or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the
statement of profit and loss.
Fair value measurement
The Company classifies the fair value of its financial instruments in the following hierarchy, based
on the inputs used in their valuation:
i) Level 1: The fair value of financial instruments quoted in active markets is based on their
quoted closing price at the balance sheet date.
ii) Level 2: The fair value of financial instruments that are not traded in an active market is
determined by using valuation techniques using observable market data. Such valuation
techniques include discounted cash flows, standard valuation models based on market
parameters for interest rates, yield curves or foreign exchange rates, dealer quotes for similar
instruments and use of comparable arm's length transactions.
iii) Level 3: The fair value of financial instruments that are measured on the basis of entity specific
valuations using inputs that are not based on observable market data (unobservable inputs).
Derivative financial instruments and hedging activities
A derivative is a financial instrument which changes value in response to changes in an
underlying asset and is settled at future date. Derivatives are recognised at fair value at the
end of reporting period and are subsequently re-measured at their fair value at each reporting
period. The method of recognising the resulting gain or loss depends on whether the derivative
is designated as a hedging instrument, and if so, the nature of the item being hedged. The
Company designates certain derivatives as either:
a. hedges of the fair value of recognised assets or liabilities (fair value hedge); or
b. hedges of a particular risk associated with a firm commitment or a highly probable forecasted
transaction (cash flow hedge);
The Company documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as its risk management objectives and strategy for
undertaking various hedging transactions. The Company also documents its assessment,
both at hedge inception and on an on-going basis, of whether the derivatives that are used in
hedging transactions are effective in offsetting changes in cash flows of hedged items.
Movements in the hedging reserve are accounted in other comprehensive income and are
shown within the statement of changes in equity. The full fair value of a hedging derivative is
classified as a non-current asset or liability when the remaining maturity of hedged item is
more than 12 months and as a current asset or liability when the remaining maturity of the
hedged item is less than 12 months. Trading derivatives are classified as a current asset or
liability.
(a) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are
recorded in the Statement of Profit and Loss, together with any changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk.
(b) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify
as cash flow hedges is recognised in other comprehensive income. The ineffective portion of
changes in the fair value of the derivative is recognised in the statement of profit and loss.
Gains or losses accumulated in equity are reclassified to the statement of profit and loss in the
periods when the hedged item affects the statement of profit and loss.
When a hedging instrument expires or swapped or unwound, or when a hedge no longer
meets the criteria for hedge accounting, any accumulated gain or loss existing in statement of
changes in equity is recognised in the Statement of Profit and Loss. When a forecasted
transaction is no longer expected to occur, the cumulative gains/losses that were reported in
equity are immediately transferred to the statement of profit and loss.
Fair value measurement
Fair value of financial assets and liabilities is normally determined by references to the
transaction price or market price. If the fair value is not reliably determinable, the Company
determines the fair value using valuation techniques that are appropriate in the circumstances
and for which sufficient data are available, maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
3) Inventories
Inventories consist of raw materials, work-in-progress and finished goods and are measured
at the lower of cost and net realisable value. The cost of all categories of inventories is based
on the weighted average method. Cost includes expenditures incurred in acquiring the
inventories, production or conversion costs and other costs incurred in bringing them to their
existing location and condition. In the case of finished goods and work-in-progress, cost
includes an appropriate share of overheads based on normal operating capacity. Stores and
spares, that do not qualify to be recognised as property, plant and equipment, consists of
packing materials, engineering spares (such as machinery spare parts) and consumables
which are used in operating machines or consumed as indirect materials in the manufacturing
process. Net realisable value is the estimated selling price in the ordinary course of business,
less the estimated costs of completion and selling expenses.
4) Impairment of non-financial assets
The carrying amounts of the Company's non-financial assets, other than 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. For goodwill and intangible assets that have indefinite lives or that are not yet
available for use, an impairment test is performed each year at March 31. 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 grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets (the “cash-generating
unit”).
An impairment loss is recognized in the statement of profit and loss if the estimated
recoverable amount of an asset or its cash-generating unit is lower than its carrying amount.
Impairment losses recognized in respect of cash- generating units are allocated first to reduce
the carrying amount of any goodwill allocated to the units and then to reduce the carrying
amount of the other assets in the unit on a pro-rata basis. An impairment loss in respect of
goodwill is not reversed. In respect of other assets, impairment losses recognized in prior
periods are assessed at each reporting date for any indications 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.
5) Cash & Cash Equivalents
Cash and bank balances comprise of cash balance in hand, in current accounts with banks,
demand deposit, short-term deposits, Margin Money deposits and unclaimed dividend
accounts. For this purpose, “short-term” means investments having maturity of three months
or less from the date of investment.
6) Employee Benefits
Short term employee benefits
Short-term employee benefits are expensed as the related service is provided. A liability is
recognised 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 Plan
The Company's contributions to defined contribution plans are charged to the statement of profit
and loss 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 based on prevailing market yields of Indian Government Bonds and
that have terms to maturity approximating to the terms of the related defined benefit obligation. The
current service cost of the defined benefit plan, recognised in the statement of profit and loss 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 recognised 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 statement of profit and loss. 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
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 Company'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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