1 SIGNIFICANT ACCOUNTING POLICIES
The accounting policies mentioned herein are relating to the standalone financial statements of the Company.
a) Brief description of the Company
Shree Karthik Papers Limited having CIN: L21012TZ1991PLC003570 is a public companydomiciledin India and is incorporated under the provisions of the Companies Act, 1956. Its sharesare listed in a recognised stock exchange in India. The registered office of the Company is located atNo-25, 50 Ft Road,Krishnasamy Nagar, Ramanathapuram, Coimbatore, Tamil Nadu, 641045.TheCompany is primarily engaged in the business of manufacturing of Papers.Its manufacturing facility issituated at SF.NO.387,388,390 and 391 Puliangudi, Kottur Village, Aliyar, Pollachi, Tamil Nadu.
b) Basis of preparation
The financial statements comply in all material aspects with the Indian Accounting Standards (Ind AS) notified underSection 133 of the Companies Act, 2013 (the Act) [Companies (Indian Accounting Standards) Rules, 2015] and otherrelevant provisions of the Act.
The financial statements have been prepared on the historical cost convention under the accrual basis of accountingexcept for certain financial assets and liabilities (as per the accounting policy below), which have been measured atfair valueand the statements are prepared on a Going Concern basis.
c) Use of estimates
The preparation of financial statements requires management to make certain estimates and assumptions that affectthe amounts reported in the financial statements and notes thereto. The management believes that these estimatesand assumptions are reasonable andprudent. However, actual results could differ from these estimates. Any revisionto accounting estimates is recognised prospectively in the current and future periods.
This note provides an overview of the areas that involve a higher degree of judgement orcomplexity, and of itemsthat are more likely to be materially adjusted due to estimates andassumptions turning out to be different than thoseoriginally assessed. Detailed information about each of these estimates and judgments is included in the relevantnotes together with information about the basis of calculation for each affected line item in the financialstatements where applicable.
d) Significant Estimates and judgements
Significant accounting Judgments, estimates, and assumptions:
The preparation of financial statements in conformity with the recognition and measurementprinciples of Ind AS requires management to make judgments, estimates, and assumptions thataffect thereported balances of revenues, expenses, assets and liabilities, the accompanyingdisclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions andestimates could result in outcomes that require a material adjustment to the carrying amount ofassets or liabilities affected in future periods.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period in which the estimate is revised if the revisionaffects only that period or in the period of the revision and future periods if the revision affects bothcurrent and future periods.
The following are the areas of estimation uncertainty and critical judgments that the managementhas made in the process of applying the Company's accounting policies:
1) Recognition of deferred tax assets:
The extent to which deferred tax assets can be recognised is based on an assessment of theprobability of the future taxable income against which the deferred tax assets can be utilized.
2) Provision and contingent liability:
On an ongoing basis, the Company reviews pending cases, claims by third parties, and othercontingencies. For contingent losses that are considered probable, an estimated loss isrecorded asan accrual in financial statements. Loss contingencies that are consideredpossible are not providedfor but disclosed as Contingent liabilities in the financial statements.Contingencies, the likelihood of which is remote, are not disclosed in the financial statements.
3) Useful lives of depreciable assets:
Management reviews the useful lives of depreciable assets at each reporting. As of March31,2023 management assessed that the useful lives represent the expected utility of theassets to theCompany. Further, there is no significant change in the useful lives as comparedto the previous year.
4) Evaluation of indicators for impairment of assets:
The evaluation of applicable indicators of impairment of assets requires the assessment of severalexternal and internal factors that could result in the deterioration of the recoverable amount of theassets.
5) Defined benefit obligation:
Management's estimate of the Defined Benefit obligation is based on a number of underlyingassumptions such as standard rates of inflation, mortality, discount rate, and anticipation offuturesalary increases. Variations in these assumptions may impact the obligation amountand the annual defined benefit expenses.
6) Fair value measurements:
Management applies valuation techniques to determine the fair value of financial instruments(whereactive market quotes are not available). This involves developing estimates andassumptions consistent with how market participants would price the instrument.
e) Revenue recognition l.Sale of goods:
The Company recognizesthe sale of goods when the significant risks and rewards of ownershipare transferred to the buyer.
2. Interest Income:
Interest income, including income arising from other financial instruments, is recognised using the effective interest rate (EIR) method. EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorterperiod, where appropriate, to the gross carrying amount of the financial asset or the amortized cost of a financial asset. When calculating the effective interest rate, the company estimates the expected cash flows by considering all the contractual terms of the financial instrument but does not consider the expected credit losses. Interest income is included in "Other income" in the statement of profit and loss. The expected cash flows are reassessed on a yearly basis and changes, if any, are accounted prospectively.
f) Property, Plant and Equipment
Freehold Land is carried at historical cost. All other items of Property, Plant and Equipment are stated at cost ofacquisition or construction less accumulated depreciation/amortization and impairment, if any. Cost
includes purchaseprice, taxes and duties, labour cost, and directly attributable overheads incurred upto the date the asset is ready for itsintended use. However, cost excludes Goods and Services Tax to the extent credit of the tax is availed of.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, onlywhen it is probable that future economic benefits associated with the item will flow to the Company and the cost of theitem can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognisedwhen replaced. All other repairs and maintenance are charged to Profit or Loss during the reporting period in whichthey are incurred.
Gains and losses on disposals are determined by comparing proceeds with carrying amounts. These are included inthe statement of profit and loss when the asset is disposed off or derecognised.
g) Depreciation and amortization
Depreciation on Property, Plant, and Equipment (PPE) is provided under straight-line method as per the useful lives and manner prescribed under Schedule II to the Companies Act, 2013, except for a few categories where the company has received technical opinion for adopting higher /lower useful life.
Where the cost of a part of the PPE is significant to the total cost of the PPE and if that part of the PPE has a different useful life than the main PPE, the useful life of that part is determined separately for depreciation.
The Company has used the following useful lives to provide depreciation on its Property, Plant, and Equipment:
Class of Assets Useful Lives
Building 30 years
Furniture and fixtures 10 years
Office equipment's 5 years
Computers 3 years
Plant and Machinery 15 years
River pipeline 30 years
Electrical Fittings 10 years
Improvements to Leasehold Buildings are amortized as depreciation overthe lease period, which is considered as the estimated useful life by the management.
The depreciation method applied to an asset is reviewed at each financial year-end and if there has been a significant change in the expected pattern of consumption of future economic benefits embodied in the asset, depreciation is charged prospectively to reflect the changed pattern.
Depreciation in respect of tangible assets costing less than Rs. 5,000/- is provided at 100%.
h) Impairment
Assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for, the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less the costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.
i) Foreign currency translation
Functional and presentation currency
The financial statements are presented in Indian Rupee which is also the functional andpresentationcurrency of the Company. All amounts have been rounded off to the nearest rupee.
No foreign currency transactions occurred during the year.
j) Inventories
All inventories are valued at moving weighted average price. Finished goods and Work in progress are computed based on the respective moving weighted average price of procured materials and the appropriate share of labour and other manufacturing overheads.
Inventories are valued at cost or net realizable value, whichever is lower. Cost also includes all charges incurred for bringing the inventories to their present location and condition. Excise and customs duty accrued on the production or import of goods, as applicable, is included in the valuation of finished goods.
Inventories of stores and spare parts are valued at cost.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and to make the sale.
k) Employee benefits
1. Short Term and other long-term employee benefits:
A liability is recognised for benefits accruing to employees in respect of wages and salaries, annual leave, and sick leave in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.
Liabilities recognised in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.
Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Company inrespect of services provided by employees up to the reporting date.
Compensated leave absences are encashed by employees at year end and no carry forwardof leaveis permitted as per the leave policy.
2. Post-Employment Benefitsa. Defined Contribution Plans
A defined contribution plan is a post-employment benefit plan under which the Companypays specified contributions to a separate entity. The Company makes specified monthlycontributions towards the Provident Fund and Superannuation Fund. The Company'scontribution is recognised as an expense in the Statement of Profit and Loss during theperiod in which the employee renders the related service.
b. Defined Benefit Plans
For defined benefit retirement plans, the cost of providing benefits is determined usingthe projected unit credit method, with actuarial valuations being carried out at the end ofeach annual reportingperiod. Remeasurement, comprising actuarial gains and losses,the effect of the changes to theasset ceiling (if applicable), and the return on plan assets(excluding interest), is reflected immediately in the statement of financial position with acharge or credit recognised in OCI in the period in which they occur. Re-measurementrecognised in other comprehensive income is reflected immediately in retained earningsand will not be reclassified to profit or loss. Past service cost is recognised in profit or lossin the period of a plan amendment.
l) Taxes on income
Tax expense comprises of current and deferred tax.
1. Current income tax:
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date. Current income tax relating to items recognised directly in equity is recognised in other comprehensive income/equity and not in the statement of profit and loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
2. Deferred tax
Deferred tax is provided on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits, and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized.
Unrecognised deferred tax assets are re-assessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
3. Minimum Alternate Tax:
Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered an asset if there is convincing evidence that the Company will pay normal income tax. The carrying amount of MAT is reviewed at each reporting date and the asset will be written down to the extent the company's right of adjustment would lapse.
Accordingly, MAT is recognised as an asset in the Balance Sheet when it is highly probable that future economic benefits associated with it will flow to the Company.
m) Provisions and contingent liabilities 1) Provision:
A provision is recorded when the Company has a present legal or constructive obligation as a result of past events,it is probable that an outflow of resources will be required to settle the obligation and the amount can be reasonablyestimated.
Provisions are measured at the present value of management's best estimate of the expenditure required to settlethe present obligation at the end of the reporting period. The discount rate used to determine the present value is apre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability where the time value of money is essential.
The increase in the provision due to the passage of time is recognised as interest expenses.
2) Contingent liabilities:
Wherever there is a possible obligation that arises from past events and whose existence will be confirmed only bythe occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entityor a present obligation that arises from past events but is not recognised because (a) it is not probable that anoutflow of resources embodying economic benefits will be required to settle the obligation, or (b) the amount of theobligation cannot be measured with sufficient reliability are considered as contingent liabilities. The company does not recognize contingent liability but discloses its existence in the financial statements.
Contingent assets arenot recognised but are disclosed when the inflow of economic benefits is probable.
o) Cash and Cash equivalents
Cash and cash equivalents for the purposes of the Cash Flow Statementcomprise cash at the bank and in hand and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value.
p) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effectiveinterest method, less provision for impairment
q) Investments and Other financial assets
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.
1. 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 marketplace (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
For purposes of subsequent measurement, financial assets are classified in four categories:
• Debt instruments at amortized cost
• Debt instruments at fair value through other comprehensive income (FVTOCI);
• Debt instruments and equity instruments at fair value through profit or loss (FVTPL);
• Equity instruments measured at fair value through other comprehensive income (FVTOCI).
Debt instruments at amortized cost:
A 'debt instrument' is measured at the amortized cost if both the following conditions are met:
• The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and
• Contractual terms of the asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method. Amortized 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 amortization is included in finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss. This category generally applies to trade and other receivables.
Debt instrument at FVTOCI:
A 'debt instrument' is classified as at the FVTOCI if both of the following criteria are met:
• The objective of the business model is achieved both by collecting contractual cash flowsand selling the financial assets, and
• The asset's contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as ateach reporting date at fair value. Fair value movements are recognised in the othercomprehensive income (OCI).
Debt instrument at FVTPL:
FVTPL is a residual category for debt instruments. Any debt instrument, that does not meetthe criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.Debt instruments included within the FVTPL category are measured at fair value with allchanges recognised in the statement of profit and loss.
In addition, the Company may elect to designate a debt instrument, which otherwise meetsamortized cost or FVTOCI criteria, as at FVTPL. However, such an election is allowed only ifdoing so reduces or eliminates a measurement or recognition inconsistency (referred to as'accounting mismatch').
De-recognition of Financial Assets:
A financial asset (or, where applicable, a part of a financial asset or part of a Company ofsimilarfinancial assets) is primarily de-recognised 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 hasassumed an obligation to pay the received cash flows in full without material delay to athird party undera 'pass-through' arrangement and either (a) the Company hastransferred substantially all the risks and rewards of the asset, or (b) the Company hasneither transferred nor retained substantially all the risks and rewards of the asset, but hastransferred control of the asset.
When the Company has transferred its rights to receive cash flows from an asset or hasentered into a passthrough arrangement, it evaluates if and to what extent it has retained therisks and rewards ofownership. When it has neither transferred nor retained substantially allof the risks and rewards of the asset nor transferred control of the asset, the Companycontinues to recognize the transferred asset to the extent of the Company's continuinginvolvement. In that case, the Company also recognizes an associated liability. The transferredasset and the associated liability are measured on a basis that reflects the rights andobligations that the Company has retained.
2. Financial Liabilities
Initial recognition and measurement
All financial liabilities are recognised initially at fair value and transaction cost (if any) that isattributable to the acquisition of the financial liabilities is also adjusted.
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
a. Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measuredat amortized cost using the Effective Interest Rate (EIR) method. Gains and losses arerecognised in profit or loss when the liabilities are de-recognised as well as through theEIRamortization process. Amortized cost is calculated by taking into account any discountor premium on acquisition and fees or costs that are an integral part of the EIR. The EIRamortization is included as finance costs in the statement of profit and loss.
b. Trade and other payables
These amounts represent liabilities for goods or services provided to the Company whichareunpaid at the end of the reporting period. Trade and other payables are presented ascurrent liabilities when the payment is due within a period of 12 months from the end ofthe reporting period. For all trade and other payables classified as current, the carryingamounts approximate fair value due to the short maturity of these instruments. Otherpayables falling due after 12 months from the end of the reporting period are presentedas non-current liabilities and are measured at amortized cost unless designated as fairvalue through profit and loss at the inception.
c. Other financial liabilities at fair value through profit or loss:
Financial liabilities at fair value through profit or loss include financial liabilities held fortrading and financial liabilities designated upon initial recognition as at fair value throughprofit or loss. Gains or losses on liabilities held for trading are recognised in the profit orloss.
De-recognition of Financial Liabilities:
A financial liability is de-recognised when the obligation under the liability is discharged orcancelled or expires. When an existing financial liability is replaced by another from the samelender on substantially different terms, or the terms of an existing liability are substantiallymodified, such anexchange or Modification is treated as the de-recognition ofthe originalliability and the recognition ofa new liability. The difference in the respective carrying amountsis recognised in the statement ofprofit or loss.
3. Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in thebalance sheet if there is a currently enforceable legal right to offset the recognised amountsand there is an intention to settle on a net basis, to realize the assets and settle the liabilitiessimultaneously.
4. Compound Financial Instruments:
A financial instrument that comprises both the liability and equity components is accountedas a compound financial instrument. The fairvalue ofthe liability component is separatedfrom the compound instrument and is subsequently measured at amortized cost. The residualvalue is recognised as an equity component of other financial instruments and is not re-measuredafter initial recognition.
The transaction costs related to compound instruments are allocated to the liability andequity components in proportion to the allocation of gross proceeds. Transaction costsrelated to the equity component arerecognised directly in equity and the cost related to the liabilitycomponent is included in the carrying amount of the liability component and amortized usingthe effective interest method.
r) Borrowing costs
Borrowing costs directly attributable to the acquisition/ construction of qualifying assets are capitalized
until the time all substantial activities necessary to prepare the qualifying assets for their intended use are complete. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use/ sale. All other borrowing costs are charged to the statement of profit and loss.
s) Current and Non-current classification
The operating cycle is the time between the acquisition of assets for processing and their realization in cash and cash equivalents. The Company has identified twelve months as its operating cycle.
The entity presents assets and liabilities in the balance sheet based on current/ non-current classification.
An asset is classified as current, when:
• It is expected to be realised or intended to be sold or consumed in the normal operating cycle.
• It is held primarily for the purpose of trading.
• It is expected to be realised within twelve months after the reporting period, or
• It is 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 classified as current, when:
• It is expected to be settled in a normal operating cycle.
• It is held primarily for the purpose of trading.
• 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.
The entity classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
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