I N Provisions. Contingent liabilities, Contingent assets and Commitments:
r^nrr*nS ai*'ccogn'sed whcjl ,hc Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of economic benefits wiU be required to settle the obligation and a reliable estimate can be made of the amount of the obligation When the but nnlv JLJ! S°me ^ a ° 3 provislon to ^reiniCursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, reimbursement * re'm ursemcnl IS virtual,y certa'n The expense relating to a provision is presented in the statement of profit and loss net of any
the liability* \vh™ h”!6 Va!Ue °rnion^y ,s mater'a1, Prov,sions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability When discounting ,s used, the increase in the provision due to the passage of time is recognised as a finance cost.
Contingent liability is disclosed in the case of:
- a oresent ***' WhC" ",S n0'probab,e *Ý* an «**»" of resources will be required to settle the obligation
a present obligation arising from past events, when no reliable estimate is possible
- a possible obligation arising from past events, unless the probability of outflow of resources is remote Commitments include the amount of purchase order
1.15 Current and Non-current Classification:
The Company’s presen.s asse<s and liabilities in the balance sheet are based on currenonon-cwren. class,fication An asset as current when it is.
- Expected to be realised or intended to sold or consumed in normal operating cycle,
- Held primarily for the purpose of trading,
- Expected to be realised within twelve months after the reporting period, Or
- Cash or cash equ. valent unless rcsiriced from being exchanged or used .0 settle a habiliiy for a, leas, twelve months after the reporting period.
- 10% Recovery account is created by bank to recover the borrowings which have become NPA in the rnrram *-.«« i ™
the outstanding dues, debits an amount of 10% of the credit received in the bank account of the company ***' ^ ^ 3S 3 pr°cess t0 rccover
All other assets are classified as non-current.
A liability is current when:
- It is expected to be settled in 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 uncond.tional right .0 defer tire seitlement of foe liability''for a. leas, twelve months after foe rcoortinv ne„ ,
Deferred tax assets / liabilities are classified as non-current. porting period.
All other liabilities are classified as non-current
1.16 Fair V.l» Mt..urrmcnt: ofccrtIlin ,nvestments fair value, a. each balance sheet date
TVCompaty measures fmancia . an orderly transaction between marie, panic,pants a, the
IT ZZZ* « the —non to sen the asset or transfer the hability taies p,ace either
ÝXttTjSttZZ advantageous -* for the asset or hahthty The prtnepa, or the most advantage marie, must be
accessible by the Company
The fair value of an asset or a liability is measured using the assumptions that marie, participants would use when pricing the asset or liability, assuming a market participants act in their economic best interest
«___—- - - *r-’SSST* “* “ ~" ”
highest and best use or by selling it to another market participant that would use the as gh
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data arc available to measure fair the use of relevant observable inputs and minimizing the use of unobserv able inputs
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value 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 For assets and liabilities that are recognised in the balance sheet on a recurring basis, the Company determines whether
in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fan value measurement as a whole) at the reporting period
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
1.17 Financial instruments
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:
The classification depends on the Company's business model for managing the financial assets and the contractual terms of the cash flows.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income For investments in equity instruments, this will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income.
Initial recognition and measurement
Financial assets are recognized when the Company becomes a party to the contractual provisions of the instrument Financial assets are recognized 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 Transaction costs of financial assets carried at fair value through profit or loss are expensed in the Statement of Profit and Loss
Subsequent measurement
Afle, initial rccognnion. financal assets (other Utan mvcstntents ,n subsidiariesandI join. ventures) are measured either a.
fair value (ctoer through other comprchens.ve income or through profit or loss) or, ii) amortized cost
Measured at amortized cost:
Financial assets that are held with,,, a business model whose objective ,s to hold financial assets in order to collect «>ntractual cash flows that are solely payments of principal and interest, arc subsequently measured at amortized cost using the effective interest rate ( EIR ) method less impairment, ,f any, the amortization of EIR and loss arising from impairment, if any is recognized in the Statement of Profit and Loss.
Measured at fair value through other comprehensive income (FVOCI): . „ . ^ „ c fKaf
Financial assets that are held within a business model whose objective is achieved by both, selling financial assets and collecting contracUial cash flows that are solely payments of principal and interest, are subsequently measured at fair value through other comprehensive income Fair value movements are recognized in the other comprehensive income (OC1) net of taxes
Interest income measured using the EIR method and impairment losses, if any are recognized in Profit and Loss.
In case of investment in equity instruments classified as the FVOCI, the gains or losses on de-recognition are re-classified to retained earnings
In case of Investments in debt instruments classified as the FVOCI, the gains or losses on de-recognition are reclassified to statement of Profit and Loss.
Measured at fair value through profit or loss (FVTPL):
A financial asset not classified as either amortized cost or FVOCI, is classified as FVTPL, Such financial assets are measured at fair value with all changes in fair value, including interest income and dividend income if any. recognized as ‘other income’ in the Statement of Profit and Loss
The Company measures all its investments in equity (other than investments in subsidiaries and joint ventures) and mutual funds at FVTPL.
Changes in the fair value of financial assets measured at fair value through profit or loss are recognized in Profit and Loss Impairment losses (and reversal of impairment losses) on equity investments measured at FVTPL are recognised in Profit and Loss.
Impairment of financial assets:
The Company assesses on a forward looking basis the expected credit losses associated with its financial assets carried at amortized cost, FVTPL and FVOCI and debt instruments The impairment methodology applied depends on whether there has been a significant increase in credit risk.
For trade receivable only, the Company applies the simplified approach permitted by Ind AS - 109 Financial Instruments, which requires expected lifetime losses to be recognised from initial recognition of such receivables
i) The Company has transferred the rights to receive cash flows from the financial asset or
ii) Retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients
Where the entity has transferred an asset, the Company evaluates whether it has transferred substantially all risks and rewards of ownership of the financial asset. In such cases, the financial asset is de-recognized. ^
Where the entity has not transferred substantially all risks and rewards of ownership of the financial asset, the financial asset is not de-recognized
1.18 Financial liabilities
Classification as debt or equity ..... .. . . . .
Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument
Initial recognition and measurement Subsequent measurement
Financial liabilities other than those measured at fair value through profit and loss arc subsequently measured at amortized cost using the effective interest rate method The Company measures all debt instruments at amortised
Financial liabilities earned at fair value through profit or loss arc measured at fair value with all changes in fair value recognized in Profit and Loss De-recognition.
A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expires.
Offsetting financial instruments:
Financial assets and liabilities are offset and the net amount is reported in the Balance Sheet where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty
1.19 Segment Reporting - Identification of Segments
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the company's chief operating decision maker to make decisions for which discrete financial information is available Based on the management approach as defined in Ind AS 108, the chief operating decision maker evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by business segments and geographic segments.
The preparation of the Company’s Financial Statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
Judgements, Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below The Company based its assumptions and estimates on parameters available when the financial statements were prepared Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Company Such changes are reflected in the assumptions when they occur.
2.1 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, or when annual impairment testing for an asset is required, the Company estimates the asset's recoverable amount
2.1 Estimation of Defined Benefit Obligations / Plans
The cost of the defined benefit plan and other post-employment benefits and the present value of such obligation are determined using actuarial valuations An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date
2.3 Impairment of financial assets
The impairment provisions for financial assets are based on assumptions about nsk of default and expected loss rates. The Company uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on Company's history, existing market conditions as well as forward looking estimates at the end of each reporting period
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
The Valuation of this property is done by using Sales Comparison Method of Market Approach using composite rate of said assets.
This method is applicable to all properties which are capable of being bought and sold in the market. A comparison is made for the purpose of valuation with similar properties that have recently been sold in the market and thus have a transaction price. The sales comparison approach is the preferred approach when sales data are available.
Sales prices of comparable properties are usually considered the best evidence of Market Value of the property being valued. Sales Comparison Method models the behaviour of the market by comparing the property being appraised with similar properties that have recently been sold or for which offers to purchase have been made. Comparable properties are selected for similarity to the subject property considering attributes like age, size, shape, quality of construction, building features, condition, design, gentry, etc.
Their sale prices are then adjusted for their difference from the subject property. Finally, a Fair Value for the subject property is estimated from the adjusted sales price of the comparable properties.
The Company obtains independent valuations for its investment properties at least annually. The best evidence of fair value is current prices in an active market for similar properties. Where such information is not available, the company consider information from a variety of sources including:
- current prices in an active market for properties of different nature or recent prices of similar properties in less active markets, adjusted to reflect those differences
(v) Terms and conditions of transactions with related parties
Thetransactionswith related parties are made onterms equivalents those thatprevail in arm's lengthtransactions. Outstandingbalances at the yearend are unsecuredand interest free and settlement occurs by cash flows. There have been no guarantees provided or received for any related party receivables andpayables. This assessmentis undertakeneach financialyear throughexaminingthe financial positionof the related party andmarket in which the related party operates.
|33. SEGMENT REPORTING |
The company’s operations predominantly consist of manufacturing of steel products and heavy engineering activities. Hence there are no reportable segments under Ind AS -108 “ Operating Segment ” during the yearunder report, the companyhas engaged in its business onlywithin India and not in any other country. The condition prevailing in India being uniform, no separate geographical disclosures are considered necessary.
35 |35. FINANCIAL RISK MANAGEMENT |
The company's activity expose it to market risk, liquidity risk and credit risk. The company’s focus is to foresee the unpredictability of financial risk and to address the issue to minimize the potential adverse effects of its financial performance. In order to minimise any adverse effects on the financial performance of the company, derivative financial instruments, such as interest rate swaps to hedge variable interest rate exposures. Derivatives are used exclusively for hedging purposes and not as trading or speculative instruments. This note explains the sources of risk which the entity is exposed to and how the entity manages the risk and the impact of hedge accounting in the financial statements.
The Company’s financial risk management is an integral part of how to plan and execute its business strategies. The Company’s financial risk management policy is set by the company’s management.
(A) Credit risk
Credit risk refers to the risk for a counter party default on its contractual obligation resulting a financial loss to the company. The maximum exposure of the financial assets represents trade receivables, work in progress and receivables.
The maximum exposure to the credit risk at the reporting date is primarily from trade receivables. Customer credit risk is managed centrally by the Company and subject to established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on an extensive credit rating scorecard and individual credit limits defined in accordance with the assessment.
Credit risk on cash and cash equivalents is limited as the Company generally invest in deposits with banks and financial institutions with high credit ratings assigned by international and domestic credit rating agencies.
(B) Liquidity risk
Liquidity risk refers to the risk of financial distress or extraordinary high financing costs arising due to shortage of liquid funds in a situation where business conditions unexpectedly deteriorate and requiring financing. The Company requires funds both for short term operational needs as well as for long term capital expenditure growth projects. The Company generates sufficient cash flow for operations, which together with the available cash and cash equivalents and short term investments provide liquidity in the short-term and longterm. .
The following tables detail the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods and its non-derivative financial assets. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Company can be required to pay. The tables include both interest and principal cash flows.
Foreign currency risk is the risk of impact related to fair value or future cash flows of an exposure in foreign currency, which fluctuate due to changes in foreign exchange rates. The Company’s exposure to the risk of changes in foreign exchange rates relates primarily to the foreign receivables.
The Company evaluates exchange rate exposure arising from foreign currency transactions and follows established risk management policies and standard operating procedures to mitigate the risks.
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk because funds are borrowed at both fixed and floating interest rates. Interest rate risk is measured by using the cash flow sensitivity for changes in variable interest rate. The borrowings of the Company are principally denominated in rupees with a mix of fixed and floating rates of interest. The Company has exposure to interest rate risk, arising principally on changes in base lending rate. The Company uses a mix of interest rate sensitive financial instruments to manage the liquidity and fund requirements for its day-to-day operations. The risk is managed by the Company by maintaining an appropriate mix between fixed and floating rate borrowings.
Commodity price risk - The company is affected by the price volatility of certain commodities. Its operating activities require a continuous supply of Steel (goods-RM). Due to the significantly increased volatility of the price of the Steel (goods-RM), the company also entered into various purchase contracts for Steel (goods-RM) for which there is an active market.
The company's board of directors has developed and enacted a risk management strategy regarding commodity price risk and its mitigation. The company mitigates its commodity price risk by ordering as per the price fluctuations which is in the best interest of the company.
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