2. Summary of basis of compliance, basis of preparation and presentation, critical
accounting estimates, assumptions and judgments and material accounting policies
2.1 Basis of Preparation of Financial Statements
The principal accounting polices applied in the preparation of these financial statements
are set out below. These policies have been consistently applied to all the years
presented.
(i) Compliance with Ind-AS
These financial statements have been prepared in accordance with the Indian
Accounting Standards (hereinafter referred to as the 'Ind AS') as notified by
Ministry of Corporate Affairs pursuant to Section 133 of the Companies Act,
2013 ('Act') read with Rule 3 of the Companies (Indian Accounting Standards)
Rules, 2015 as amended and other relevant provisions of the Act.
(ii) Basis of Preparation and presentation
The financial statements have been prepared and presented on the going
concern basis and at historical cost basis considering the applicable provisions of
Companies Act 2013, except for the following items that have been measured at
fair value as required by relevant IND AS.
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.
a) Certain financial assets/liabilities measured at fair value (refer accounting
policy regarding financial instruments) and
b) Any other item as specifically stated in the accounting policy.
(iii) Functional and Presentation Currency
The financial statements are presented in Indian Rupees, which is the functional
currency of the Company and the currency of the primary economic
environment in which the Company operates.
(iv) Classification of Assets and Liabilities as Current and Non-Current
All assets and liabilities are classified as current or non-current as per the
Company's normal operating cycle, and other criteria set out in Schedule III of
the Companies Act, 2013. Based on the nature of products and the time lag
between the acquisition of assets for processing and their realisation in cash and
cash equivalents, 12 months period has been considered by the Company as its
normal operating cycle.
(iv) Rounding off amounts
The financial statements are presented in INR and all values are rounded to the
nearest Lakhs (INR 1,00,000) as per the requirement of Schedule III, unless
otherwise stated.
2.2 Critical accounting estimates, assumptions and judgements
The preparation of financial statements requires management to make judgments,
estimates and assumptions in the application of accounting policies that affect the
reported amounts of assets, liabilities, income and expenses. Actual results may differ
from these estimates. Continuous evaluation is done on the estimation and judgments
based on historical experience and other factors, including expectations of future events
that are believed to be reasonable.
Estimates and judgements are continually evaluated. They are based on historical
experience and other factors, including expectations of future events that may have a
financial impact on the Company and that are believed to be reasonable under the
circumstances.
2.2.1 Useful lives of property, plant and equipment
a. Useful lives and residual values of Property, plant and equipment represent a
material portion of the Company's asset base. The periodic charge of
depreciation is derived after estimating useful life of an asset and expected
residual value at the end of its useful life. The useful lives and residual values of
assets are estimated by the management at the time the asset is acquired and
reviewed periodically, including at each financial year end. The lives are based on
various external and internal factors including historical experience, relative
efficiency and operating costs and change in technology.
b. Provision for income tax and valuation of deferred tax assets
The Company's tax jurisdiction is India. Significant judgments are involved in
determining the provision for income taxes including amounts to be recovered
or paid for uncertain tax positions. Management judgment is required to
determine the amount of deferred tax assets that can be recognised, based upon
the likely timing and the level of future taxable profits.
c. Employee benefit obligations
Defined benefit obligations are measured at fair value for financial reporting
purposes. Fair value determined by actuary is based on actuarial assumptions.
Management judgement is required to determine such actuarial assumptions.
Such assumptions are reviewed annually using the best information available
with the Management.
d. Provisions and contingent liabilities
In the normal course of business, contingent liabilities may arise from litigation
and other claims against the Company. Potential liabilities that are possible but
not probable of crystalizing or are very difficult to quantify reliably are treated as
contingent liabilities. Such liabilities are disclosed in the notes but are not
recognised.
e. Fair value measurement
In measuring the fair value of certain assets and liabilities for financial reporting
purpose, the Company uses market observable data to the extent available.
Where such Level 1 inputs are not available, the Company establish appropriate
valuation techniques and inputs to the model. The inputs to these models are
taken from observable markets where possible, but where this is not feasible, a
degree of judgment is required in establishing fair values. Judgments include
considerations of inputs such as liquidity risk, credit risk and volatility. Changes in
assumptions about these factors could affect the reported fair value of financial
instruments.
2.3 Property, Plant and Equipment (PPE)
These tangible assets are held for use in production, supply of goods or services or for
administrative purposes. Property, Plant and Equipment are stated at cost less
accumulated depreciation and accumulated impairment losses except for freehold land
which is not depreciated. Cost includes purchase price after deducting trade
discount/rebate, import duties, non-refundable taxes, Net of GST input credit wherever
applicable, cost of replacing the component parts, borrowing costs and other directly
attributable cost of bringing the asset to its working condition in the manner intended
by the management.
If significant parts of an item of PPE have different useful lives, then they are accounted
for as separate items (major components) of PPE.
The cost of an item of PPE is recognised as an asset if, and only if, it is probable that the
economic benefits associated with the item will flow to the Company in future periods
and the cost of the item can be measured reliably. Expenditure incurred after the PPE
have been put into operations, such as repairs and maintenance expenses are charged
to the Statement of Profit and Loss during the period in which they are incurred.
De-recognised upon disposal
An item of PPE is derecognised on disposal or when no future economic benefits are
expected from use or disposal. Any gain or loss arising on derecognition of an item of
property, plant and equipment is determined as the difference between the net disposal
proceeds and the carrying amount of the asset and is recognized in Statement of Profit
and Loss when asset is derecognised.
Depreciation
The depreciable amount of an asset is determined after deducting its residual value.
Where the residual value of an asset increases to an amount equal to or greater than
the asset's carrying amount, no depreciation charge is recognized till the asset's residual
value decreases below the asset's carrying amount. Depreciation of an asset begins
when it is available for use, i.e., when it is in the location and condition necessary for it
to be capable of operating in the intended manner. Depreciation of an asset ceases at
the earlier of the date that the asset is classified as held for sale in accordance with IND
AS 105 and the date that the asset is derecognised.
The Company depreciates its property, plant and equipment (PPE) over the useful life in
the manner prescribed in Schedule II to the Act. Management believes that useful life of
assets are same as those prescribed in Schedule II to the Act.
The assets residual values, useful lives and methods of depreciation are reviewed at
each financial year end and adjusted prospectively, if appropriate.
2.4 Intangible assets
Intangible assets with finite useful lives that are acquired separately are carried at cost
less accumulated amortisation and accumulated impairment losses, if any. Amortisation
is recognised on a straight-line basis over their estimated useful lives. The estimated
useful life and amortisation method are reviewed at the end of each reporting period,
with the effect of any changes in estimate being accounted for on a prospective basis.
2.5 Leases
At the inception of a lease, the lease arrangements is classified as either a finance lease
or an operating lease, based on the substance of the lease arrangement..
As a Lessee:
Leases of property, plant and equipment where the Company, as lessee, has
substantially all the risks and rewards of ownership are classified as finance leases.
Finance leases are capitalized at the lease's inception at the fair value of the leased
property or, if lower, the present value of minimum lease payments. The corresponding
rental obligations, net of finance charges, are included in borrowing or other financial
liabilities as appropriate.
Each lease payment is allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce a constant periodic
rate of interest on the remaining balance of the liability for each period.
Leases in which a significant portion of the risks and rewards of ownership are not
transferred to the Company as lessee are classified as operating leases. Payments made
under operating leases (net of any incentives received from lessor) are charged to profit
or loss on straight-line basis over the period of the lease unless the payments are
structured to increase in line with expected general inflation to compensate for the
lessor's expected inflationary cost increases.
The Company recognises a right-of-use asset and a lease liability at the lease
commencement date except for leases with a term of twelve months or less (short-term
leases) and low value leases. For these short-term and low value leases, the lease are
recognized payments associated with these leases as an expense in the Statement of
Profit and Loss on a straight-line basis over the lease term.
Lease term is a non-cancellable period together with periods covered by an option to
extend the lease if the Company is reasonably certain to exercise that option; and
periods covered by an option to terminate the lease if the Company is reasonably
certain not to exercise that option.
The right-of-use asset is initially measured at cost, which comprises the initial amount of
the lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the underlying asset or the site
on which it is located, less any lease incentives received. The right-of-use asset is
subsequently amortised using the straight-line method from the commencement date
to the end of the lease term, unless the lease transfers ownership of the underlying
asset to the Company by the end of the lease term or the cost of the right of-use asset
reflects that the Company will exercise a purchase option. In that case the right-of-use
asset will be amortised over the useful life of the underlying asset. In addition, the right-
of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments to be
paid over the lease term at the commencement date, discounted using the interest rate
implicit in the lease or, if that rate cannot be readily determined, the Company's
incremental borrowing rate. Generally, the Company uses its incremental borrowing
rate as the discount rate. Subsequently, the lease liability is measured at amortised cost
using the effective interest method
As a Lessor:
Lease income from operating leases where the Company is a lessor is recognised in
other income on straight-line basis over the lease term unless the receipts are
structured to increase in line with expected general inflation to compensate for the
expected inflationary cost increases. The respective leased assets are included in the
balance sheet based on their nature.
2.6 Borrowing Cost
Borrowing cost includes interest expense, amortisation 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.
Borrowing costs that are attributable to the acquisition or 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. 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.
Investment income earned on the temporary investment of specific borrowings pending
their expenditure on qualifying assets is deducted from the borrowing costs eligible for
capitalization. All other borrowing cost are recognised in the Statement of Profit and
Loss in the period in which they are incurred.
2.7 Impairment of Assets
At the end of each reporting period, the Company reviews the carrying amounts of its
PPE and other intangible assets to determine whether there is any indication that these
assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the impairment
loss. Where it is not possible to estimate the recoverable amount of an individual asset,
the Company estimates the recoverable amount of the cash-generating unit (CGU) to
which the asset belongs. When 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. The resulting impairment loss is recognised in the Statement of
Profit and Loss Recoverable amount is the higher of fair value less costs to sell and value
in use. 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 no such transactions can be identified, an appropriate valuation model is
used.
Where an impairment loss subsequently reverses, the carrying amount of the asset or
CGU is increased to the revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset or CGU in prior years.
A reversal of an impairment loss is recognised in the Statement of Profit and Loss.
2.8 Government Grants
Government grants are recognized when there is reasonable assurance that the
Company will comply with the conditions attached to them and that the grants will be
received. When the grant relates to an expense item, it is recognised in the Statement
of Profit and Loss by way of a deduction to the related expense on a systematic basis
over the periods that the related costs, for which it is intended to compensate, are
expensed. When the grant relates to an asset, it is recognized as income on a systematic
basis over the expected useful life of the related asset.
2.9 Taxes
Income tax expense represents the sum of tax currently payable and deferred tax. Tax is
recognized in the Statement of Profit and Loss, except to the extent that it relates to
items recognized directly in equity or in other comprehensive income.
a) Current Tax
Current tax includes provision for Income Tax computed under Special provision
(i.e., Minimum alternate tax) or normal provision of Income Tax Act. Tax on
Income for the current period is determined on the basis on estimated taxable
income and tax credits computed in accordance with the provisions of the
relevant tax laws and based on the expected outcome of assessments/appeals.
b) Deferred Tax
Deferred tax is recognised on temporary differences between the carrying
amounts of assets and liabilities in the balance sheet and the corresponding tax
bases used in the computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences.
Deferred tax assets are generally recognised for all deductible temporary
differences, unabsorbed losses and unabsorbed depreciation to the extent that it
is probable that future taxable profits will be available against which those
deductible temporary differences, unabsorbed losses and unabsorbed
depreciation can be utilized.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are
expected to apply in the period in which the liability is settled or the asset
realized, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the balance sheet date. The measurement of deferred
tax liabilities and assets reflects the tax consequences that would follow from
the manner in which the Company expects, at the reporting date, to recover or
settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable
right to set off current tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation authority and the Company
intends to settle its current tax assets and liabilities on a net basis.
2.10 Employees Benefits
a) Employee Benefits
All employee benefits payable wholly within twelve months of rendering services
are classified as short term employee benefits. Benefits such as salaries, wages,
short-term compensated absences, performance incentives etc., are recognized
during the period in which the employee renders related services and are
measured at undiscounted amount expected to be paid when the liabilities are
settled.
b) Post-employment obligations
Defined contribution plans
The Company pays provident fund contributions to publicly administered funds
as per local regulations when liability to pay arise . The Company has no further
payment obligations once the contributions have been paid. The contributions
are accounted for as defined contribution plans and the contributions are
recognized as employee benefit expense when they are due.
|