(1) Basis of preparation and presentation of financial statements:
The financial statements have been prepared in accordance with the Generally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards, the Companies (Accounting Standards) Rules, 2006 (as amended) specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014. Further, the guidance notes / announcements issued by the Institute of Chartered Accountants of India (ICAI) are also considered, wherever applicable, except to the extent where compliance with other statutory bodies, viz., SEBI guidelines override the same requiring a different treatment. Certain escalation and other claims are accounted for in terms of contracts with the customers / admitted by the appropriate authorities.
(2) Use of estimates:
The preparation of financial statements in conformity with Indian GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent liabilities and assets. The estimates and assumptions used in the accompanying financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. The examples of such estimates include, the useful life of tangible and intangible assets, allowances for doubtful debts/advances, future obligations in respect of retirement benefit plans, etc. Actual results may differ from the estimates and assumptions and in such case, the difference is recognised in the period in which the results are known.
(3) Property, plant and equipment:
The Company has adopted cost model as its accounting policy and has accordingly applied the same to the entire class of property, plant and equipment.
(A) Tangible assets:
(a) Tangible assets are stated at cost, net of tax / duty credit availed, if any, less accumulated depreciation, amortisation and impairment, if any. Costs directly attributable to acquisition are capitalised until the assets are ready for use as intended by the management. Subsequent upgradations / enhancements which results in an increase in the future benefits from such assets, beyond the previously assessed standard of performance, are also capitalised. Machinery spares which can be used only in connection with an item of tangible assets and whose use is not regular in nature are capitalised and written-off over the estimated useful life of the relevant asset.
(b) Administrative and other general overheads that are specifically attributable to construction or acquisition of tangible assets or bringing the tangible assets to working condition necessary for it to be capable of operating in the manner intended by the management are allocated and capitalised as a part of tangible assets.
(c) Pre-operative expenses, including interest on borrowings upto the date of commercial operations, are treated as part of project cost and capitalised.
(d) Self-constructed tangible assets are capitalised at factory cost, including excise duty, and appropriate share of overheads, where applicable.
(e) Tangible assets not ready for intended use on the date of the balance sheet are disclosed as Capital work-in-progress.
(f) Where cost of an asset (‘asset component’) is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part is determined separately and such asset component is depreciated over its separate useful life.
(g) Capital expenditure on tangible assets for research and development is classified under tangible assets and is depreciated on the same basis as other tangible assets.
(h) Tangible assets are eliminated from financial statements, either on disposal or when retired from active use. Losses arising in case retirement of assets and gains or losses arising from disposal of tangible assets are recognised in the statement of profit and loss in the year of occurrence.
(i) Useful lives and residual values of the assets are determined by the management at the time the asset is acquired and reviewed periodically including at each financial year end.
(B) Intangible assets and amortisation:
The goodwill arising as a result of business combination is not amortised and is tested for impairment every year.
(b) Other intangible assets
Intangible assets are recognised when it is probable that the future economic benefits that are attributable to the assets will flow to the group and the cost of the asset can be measured reliably. Intangible assets are stated at acquisition cost net of accumulated amortisation and accumulated impairment losses, if any.
Intangible assets are amortised on straight line basis over their useful life as follows:
(1) Computer software: Over a period of five years
(2) Technical know-how: Over a period of five years (from the date of its availability for use)
(c) Administrative and other general overhead expenses that are specifically attributable to acquisition of intangible assets are allocated and capitalised as a part of the cost of the intangible assets.
(d) Intangible assets not ready for the intended use on the date of the balance sheet are disclosed as ‘intangible assets under development’.
(e) Amortisation on impaired assets is provided by adjusting the amortisation charges in the remaining periods so as to allocate the asset’s revised carrying amount over its remaining useful life.
(f) Research and development cost:
(1 ) Research cost:
Revenue expenditure on research is charged to statement of profit and loss under the respective heads of accounts in the period in which it is incurred.
(2) Development cost:
Development expenditure on new product is capitalised as intangible asset, if all of the following can be demonstrated.
(i) the technical feasibility of completing the intangible asset so that it will be available for use or sale;
(ii) the Company has intention to complete the development of intangible asset and use or sell it;
(iii) the Company has ability to use or sell the intangible asset;
(iv) the manner in which the probable future economic benefit will be generated including the existence of a market for output of the intangible asset or the intangible asset itself or if it is to be used internally, the usefulness of the intangible asset;
(v) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
(vi) the Company has ability to measure the expenditure attributable to the intangible asset during the development reliably.
Development costs on the intangible assets, fulfilling the criteria are amortised over a period of five years, otherwise are expensed in the period in which they are incurred.
(a) Owned assets:
Depreciation on tangible assets carried at historical costs is provided on straight line method on the basis of the useful life of assets as specified in Schedule II to the Companies Act, 2013. In case of tangible assets which are added / disposed off during the year, the depreciation is provided on pro-rata basis with reference to the month of addition / deletion.
In case of following category of tangible assets, the depreciation has been provided based on the technical evaluation of the remaining useful life which is different from the one specified in Schedule II to the Companies Act, 2013:
(i) Plant and machinery - Maximum 21 years
(ii) Furniture and fixtures - Maximum 15 years
(iii) Vehicles - Maximum 8 years.
(b) Leased assets:
(i) Leasehold lands are amortised over the period of lease.
(ii) Buildings constructed on leasehold land are depreciated based on the useful life specified in Schedule II to the Companies Act, 2013, where the lease period is beyond the life of the building.
(iii) In other cases, buildings constructed on leasehold land is amortised over the primary lease period of the land.
(5) Impairment of assets:
As at each balance sheet date, the carrying amounts of assets are tested for impairment so as to determine:
(a) the provision for impairment loss, if any; and
(b) the reversal of impairment loss recognised in previous accounting periods, if any.
Impairment loss is recognised when the carrying amount of an asset exceeds its recoverable amount.
Recoverable amount is determined:
(a) In the case of an individual asset, at the higher of the net selling price and the value in use; and
(b) In the case of cash generating unit (a group of assets that generates identified, independent cash flows), at the higher of the cash generating unit’s net selling price and the value in use.
(Value in use is determined as the present value of estimated future cash flows from the continuing use of an asset and from its disposal at the end of its useful life.)
(6) Inventories :
Inventories are valued after providing for obsolescence, if any, as under:
(a) Raw materials, components, stores and spare parts : At lower of cost computed, on weighted average basis and net realisable value
(b) Work -in-progress - Manufacturing : At lower of cost of materials, plus appropriate production overheads and net realisable value.
(c) Finished goods - Manufacturing : At lower of cost of materials plus appropriate production overheads, including excise duty paid / payable on such goods and net realisable value.
(d) Finished goods - Trading : At lower of cost computed, on weighted average basis and net realisable value
The cost of inventories have been computed to include all cost of purchases, cost of conversion and other related costs incurred in bringing the inventories to their present location and condition. Materials and supplies held for use in the production of inventories are not written down, if the finished goods in which they will be used are expected to be sold at or above cost.
Investments that are readily realisable and are intended to be held for not more than one year from the date of acquisition are classified as current investments. Cost of investments include acquisition charges, if any, and are stated at lower of cost and fair value determined on individual basis.
Any reduction in the carrying amount or any reversals of such reduction is charged or credited to the statement of profit and loss.
(8) Cash and cash equivalents:
(a) Cash comprises cash on hand and demand deposits with banks.
(b) Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value.
(9) Foreign currency transactions :
(a) The reporting currency of the Company is Indian Rupee.
(b) Foreign currency transactions are recorded on initial recognition in the reporting currency, using the exchange rate at the date of the transaction. At each balance sheet date, foreign currency monetary items are reported using the closing exchange rate.
(10) Derivative contracts:
(a) The Company uses forwards or options contracts to hedge its risks associated with foreign currency transactions relating to certain firm commitments and forecasted transactions.
(b) Forward contracts and options, other than those entered into to hedge foreign currency risks on unexecuted firm commitments or highly probable forecast transactions are treated as foreign currency transactions and accounted accordingly as per Accounting Standard (AS) 11 The Effects of Changes in Foreign Exchange Rates. Exchange differences arising on such contracts are recognised in the period in which they arise.
(c) The premium or discount on forward or options contracts is amortised as expense or income over the period of the contract.
(d) Gains and losses on roll over or cancellation of derivative contracts which qualify as effective hedge are recognised in the statement of profit and loss in the same period in which the hedged item is accounted.
(11) Long-term loans
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. 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 effective interest rate. The effective interest rate amortisation is included as finance costs in the income statement.
(12) Revenue recognition:
a. Sale of goods:
Revenue from sale of goods is recognised, when all the significant risks and rewards of ownership are transferred to the buyer, as per the terms of contracts and no significant uncertainty exists regarding the amount of the consideration that will be derived from sale of the goods. Sales also includes excise duty and price variations based on the contractual agreements and excludes value added tax / sales tax.
b. Sale of services:
Service income is recognised as per the terms of the contracts / arrangements with the customers on proportionate completion method. When no significant uncertainty exists regarding the amount of the consideration that will be derived from rendering the service and is recognised net of service tax as applicable.
c. Revenue from contracts:
Revenue from contracts is recognised by applying percentage of completion method after providing for foreseeable losses, if any. Percentage of completion is determined as a proportion of the costs incurred upto the reporting date to the total estimated cost to complete. Foreseeable loss, if any, on the contracts is recognised as an expense in the period in which it is foreseen, irrespective of the stage of completion of the contract. While determining the amount of foreseeable loss, all elements of costs and related incidental income not included in contract revenue is taken into consideration. Contract is reflected at cost till such time the outcome of the contract cannot be ascertained reliably and at realisable value thereafter. Claims are accounted as income acceptance by customer.
d. Interest income:
Interest income on deposits, securities and loans is recognised at the agreed rate on time proportionate basis.
e. Dividend income:
Dividend income on investments is recognised when the right to receive dividend is established.
(13) Employee benefits :
(a) Short-term employee benefits:
All employee benefits falling due wholly within twelve months of rendering service are classified as short-term employee benefits. Benefits, such as, salaries, wages, short-term compensated absences, performance incentives, etc., and the expected cost of bonus, ex-gratia are recognised during the period in which the employee renders related service.
(b) Post-employment benefits:
Defined contribution plans:
The Company’s contribution to defined contribution plans, namely State governed provident fund, superannuation fund, employee state insurance scheme, employee pension scheme and labour welfare fund are charged as an expense based on the amount of contribution required to be made and when services are rendered by the employees. The above benefits are classified as Defined Contribution Scheme as the company has no further defined obligations beyond the monthly contributions.
Defined benefit plans:
For defined benefit schemes in the form of gratuity fund and post-retirement medical benefits, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at each balance sheet date, which recognises each period of service as giving rise to additional unit of employee benefit entitlement and measures each unit separately to build up the final obligation.
The obligation is measured at the present value of the estimated future cash flows. The discounting rate used for determining the present value of the obligation under defined benefit plans, is based on the market yields on government securities as at the balance sheet date, having maturity periods approximately to the terms of related obligations.
Actuarial gains / losses are recognised in full in the statement of profit and loss, for the period in which they occur.
The retirement benefit obligations recognised in the balance sheet represents that present value of the defined benefit obligation as adjusted for unrecognised past service cost and as reduced by the fair value of the scheme of assets.
(c) Long-term employee benefits:
Compensated absences which are not expected to occur within twelve months after the end of the period in which the employee renders the related services are recognised as a liability at the present value of the defined benefit obligation at the balance sheet date.
(d) Termination benefits:
Termination benefits are recognised as an expense in the period in which they are incurred.
(e) Employee stock option plan:
Equity settled stock options granted under the employee stock option plan are accounted for under the intrinsic value method as per the accounting treatment prescribed by Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, issued by Securities and Exchange Board of India and the Guidance Note on Employee Share-based Payments issued by the Institute of Chartered Accountants of India.
(14) Borrowing costs:
(a) Borrowing costs that are attributable to the acquisition, construction, or production of a qualifying asset are capitalised as a part of the cost of such asset till such time the asset is ready for its intended use or sale. A qualifying asset is an asset that necessarily requires a substantial period of time (generally over twelve months) to get ready for its intended use or sale.
(b) All other borrowing costs are recognised as expense in the period in which they are incurred.
(15) Segment accounting:
(a) Segment accounting policies:
Segment accounting policies are in line with the accounting policies of the Company. The Company identifies primary business segment based on the different risks and returns, the organisation structure and the internal reporting systems. Secondary segments are identified on the basis of geography in which sales have been effected. In addition, the following specific accounting policies have been followed for segment reporting:
(1) Segment revenue includes sales and other income directly identifiable with / allocable to the segment including inter-segment revenue.
(2) Expenses that are directly identifiable with/ allocable to segments are considered for determining the segment result. Expenses which relate to the Company as a whole and not allocable to segments are included under unallocable expenditure.
(3) Income which relates to the Company as a whole and not allocable to segments is included in unallocable income.
(4) Segment result includes margins on inter-segment and sales which are reduced in arriving at the profit before tax of the Company.
(5) Segment assets and liabilities include those directly identifiable with the respective segments. Unallocable assets and liabilities represent the assets and liabilities that relate to the Company as a whole and not allocable to any segment.
(b) Inter-segment transfer pricing:
Segment revenue resulting from transactions with other business segments is accounted on the basis of transfer price agreed between the segments. Such transfer prices are either determined to yield a desired margin or agreed on a negotiated basis.
The determination of whether an agreement is a lease is based on the substance of the agreement at the date of inception. Lease rentals are charged to the statement of profit and loss on accrual basis.
(17) Earnings per share :
(a) Basic earnings per share is calculated by dividing the net profit for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period.
(b) Diluted earnings per share is calculated by dividing the net profit for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period after adjusting for the effects of all dilutive potential equity shares.
(18) Taxes on income:
(a) Tax on income for the current period is determined on the basis of estimated taxable income and tax credits computed in accordance with the provisions of the Income Tax Act,1961 and based on the expected outcome of assessments / appeals.
(b) Deferred tax is recognised on timing differences between the accounting income and the taxable income for the year and quantified using the tax rates and tax laws enacted or substantively enacted as on the balance sheet date.
(c) Deferred tax assets relating to unabsorbed depreciation / business losses are recognised and carried forward to the extent there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.
(d) Other deferred tax assets are recognised and carried forward to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised.
(e) The carrying amount of deferred tax asset is reviewed at each balance sheet date for any write down as considered appropriate.
(19) Provisions, Contingent liabilities, Contingent assets and Commitments:
(a) Provisions are recognised for liabilities that can be measured only by using a substantial degree of estimation, if:
(1) the Company has a present obligation as a result of a past event;
(2) it is probable that an outflow of resource embodying economic benefits will be required to settle the obligation; and
(3) a reliable estimate can be made of the amount of obligation.
(b) Reimbursement by another party, expected in respect of expenditure required to settle a provision, is recognised when it is virtually certain that reimbursement will be received if the enterprise settles the obligation.
(c) Contingent liability is disclosed in the case of:
(1) a present obligation arising from past events, when it is not probable that an outflow of resources will be required to settle the obligation;
(2) a present obligation arising from past events, when no reliable estimate is possible;
(3) a possible obligation arising from past events, where the probability of outflow of resources is remote.
(d) Contingent assets are neither recognised nor disclosed.
(e) Commitments are future liabilities for contractual expenditure. Commitments include the amount of purchase order (net of advances) issued to parties for completion of assets.
(f) Provisions, contingent liabilities, contingent assets and commitments are reviewed at each balance sheet date.
(20) Extraordinary and exceptional items:
Income or expenses that arise from events or transactions that are clearly distinct from ordinary activities of the company are classified as extraordinary items. Specific disclosures of such events / transactions are made in the financial statements. Similarly, any external event beyond the control of the company, significantly impacting income or expenses, is also treated as extraordinary item and disclosed as such. On Certain occasions, the size, type or incidence of an item of income or expense, pertaining to the ordinary activities of the company is such that its disclosure improves the understanding of the performance of the company. Such income or expense is classified as an exceptional item and accordingly, disclosed in the notes accompanying to the financial statements.