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Accounting Policies of Elgi Rubber Company Ltd. Company
Mar 31, 2025
3 Material Accounting Policies
a) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification.
An asset is treated as current when it is:
i) Expected to be realised or intended to be sold or consumed in normal operating cycle
ii) Held primarily for the purpose of trading
iii) Expected to be realised within twelve months after the reporting period, or
iv) 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 current when:
i) It is expected to be settled in normal operating cycle
ii) It is held primarily for the purpose of trading
iii) It is due to be settled within twelve months after the reporting period, or
iv) There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents.
The Company has identified 12 months as its operating cycle.
b) Fair value measurement
The Company has applied the fair value measurement wherever necessitated at each reporting period.
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. The fair value measurement is based on the presumption that the transaction to sell the
asset or transfer the liability takes place either:
i) In the principal market for the asset or liability;
ii) In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset
or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non - financial asset takes into account a market participant''s ability to generate economic benefits
by using the asset in its highest and the best use or by selling it to another market participant that would use the asset in its highest
and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to
measure fair value, maximizing the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value
hierarchy, described as 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 market 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; and
Level 3 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether
transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is
significant to the fair value measurement as a whole) at the end of each reporting period.
The Company has designated the respective team leads to determine the policies and procedures for both recurring and non -
recurring fair value measurement. External valuers are involved, wherever necessary with the approval of Company''s board of
directors. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.
For the purpose of fair value disclosure, the Company has determined classes of assets and liabilities on the basis of the nature,
characteristics and risk of the asset or liability and the level of the fair value hierarchy as explained above. The component wise
fair value measurement is disclosed in the relevant notes.
c) Revenue Recognition
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for rebates, and similar
allowances.
Sale of goods and services:
Revenue from the sale of goods and services is recognized when the company transfers control of goods or services to its customer
at the amount to which the company expects to be entitled.
Export entitlements
Export entitlements from Government authorities are recognised in the statement of profit and loss when the right to receive credit
as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no significant
uncertainty regarding the ultimate collection of the relevant export proceeds.
Interest Income
Interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future
cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross
carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate,
the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example,
prepayment, extension, call and similar options) but does not consider the expected credit losses.
Rental Income
Rental income from operating lease is recognised on a straight line basis over the term of the relevant lease, if the escalation is not
a compensation for increase in cost inflation index.
Dividend income
Dividend income is recognized when the companyâs right to receive dividend is established by the reporting date, which is generally
when shareholders approve the dividend.
d) Property, plant and equipment and capital work in progress
Presentation
Property, plant and equipment and capital work in progress are stated at cost, net of accumulated depreciation and accumulated
impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs of a
qualifying asset, if the recognition criteria are met. When significant parts of plant and equipment are required to be replaced at
intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are
recognised in profit or loss as incurred.
Advances paid towards the acquisition of tangible assets outstanding at each balance sheet date, are disclosed as capital advances
under long term loans and advances and the cost of the tangible assets not ready for their intended use before such date, are
disclosed as capital work in progress.
Component Cost
All material/ significant components have been identified and have been accounted separately. The useful life of such component
are analysed independently and wherever components are having different useful life other than plant they are part of, useful life of
components are considered for calculation of depreciation.
The cost of replacing part of an item of property, plant and equipment is recognised 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 recognised in the statement of profit and loss as incurred.
Machinery spares/ insurance spares that can be issued only in connection with an item of fixed assets and their issue is expected to
be irregular are capitalised. Replacement of such spares is charged to revenue. Other spares are charged as revenue expenditure
as and when consumed.
Derecognition
Gains or losses arising from derecognition of property, plant and equipment are measured as the difference between the net
disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is
derecognized.
Intangible assets
Intangible assets with finite useful lives that are acquired separately, where the cost exceeds '' 10,000 and the estimated useful
life is two years or more, is capitalised and carried at cost less accumulated amortisation and accumulated impairment losses.
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.
Internally-generated intangible assets - research and development expenditure:
Expenditure on research activities e.g. the design and production of prototypes is recognised as an expense in the period in which
it is incurred.
An internally generated intangible asset arising from development (or from development phase of internal project) is recognised, if
and only if, all of the following have been demonstrated:
⢠technical feasibility of completing the intangible asset;
⢠how the intangible asset will generate probable future economic benefit;
⢠availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible
assets; and
⢠the ability to measure reliably, the attributable expenditure during the development stage.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date
when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be
recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and
accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
De-recognition of intangible assets:
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or
losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the
carrying amount of the asset, is recognised in profit or loss when the asset is derecognised.
Impairment of assets
At the end of each reporting period, the Group determines whether there is any indication that its assets (tangible, intangible assets
and investments in equity instruments in joint ventures and associates carried at cost) have suffered an impairment loss with
reference to their carrying amounts. If any indication of impairment exists, the recoverable amount of such assets is estimated and
impairment is recognised, if the carrying amount exceeds the recoverable amount. Recoverable amount is higher of the fair value
less costs of disposal 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 for which the estimates of future cash flows have not been adjusted.
Intangible assets under development are tested for impairment annually at each balance sheet date.
When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs.
When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount carried,
had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is
recognised immediately in profit or loss.
e) Depreciation on property, plant and equipment
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount for
assets is the cost of an asset, or other amount substituted for cost, less 5% being its residual value.
Depreciation is provided on Written Down Value method, over the useful lives specified in Schedule II to the Companies Act, 2013.
Depreciation for PPE on additions is calculated on pro-rata basis from the date of such additions. For deletion/disposals, the
depreciation is calculated on pro-rata basis up to the date on which such assets have been discarded / sold.
The residual values, estimated useful lives and methods of depreciation of property, plant and equipment are reviewed at each
financial year end and adjusted prospectively, if appropriate.
f) Inventories
Inventories are carried at the lower of cost and net realisable value. Cost includes cost of purchase and other costs incurred in
bringing the inventories to their present location and condition. Costs are determined on weighted average method as follows:
(i) Raw materials, packing materials, stores and spares: At purchase cost including other cost incurred in bringing materials/
consumables to their present location and condition.
(ii) Work-in-progress: At material cost, conversion costs and appropriate share of production overheads
(iii) Finished goods: At material cost, conversion costs, appropriate share of production overheads.
(iv) Stock-in-trade and goods in transit: At purchase cost including other cost incurred in bringing materials/consumables to their
present location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the
estimated costs necessary to make the sale.
g) Financial Instruments
Financial assets
Financial assets and financial liabilities are recognised when an entity becomes a party to the contractual provisions of the instruments.
Initial recognition and measurement
All financial assets are recognised initially at fair value including transaction costs that are attributable to the acquisition of the
financial asset, in the case of financial assets not recorded at fair value through profit or loss. 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
For purposes of subsequent measurement, financial assets are classified on the basis of their contractual cash flow characteristics
and the entityâs business model of managing them.
Financial assets are classified in four categories:
⢠Debt instruments at amortised cost
⢠Debt instruments at fair value through other comprehensive income (FVTOCI)
⢠Debt instruments, derivatives 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 amortised cost
The Company classifies a debt instrument as at amortised cost, if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and
b) 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.
Such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) 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 EIR.
The EIR amortisation is included in finance income in the profit or loss. The losses arising from impairment are recognised in the
profit or loss.
Debt instrument at FVTOCI
The Company classifies a debt instrument at FVTOCI, if both of the following criteria are met:
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) The assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured as at each reporting date at fair value. Fair value movements
are recognized in the other comprehensive income (OCI). However, the group recognizes interest income, impairment losses and
reversals and foreign exchange gain or loss in the profit and loss statement. On derecognition of the asset, cumulative gain or loss
previously recognised in OCI is reclassified from the equity to profit and loss. Interest earned whilst holding FVTOCI debt instrument
is reported as interest income using the EIR method.
Financial instruments other than equity instruments at FVTPL
The Company classifies all debt instruments, which do not meet the criteria for categorization as at amortized cost or as FVTOCI,
as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading are classified
as at FVTPL. Where the Company makes an irrevocable election of equity instruments at FVTOCI, it recognises all subsequent
changes in the fair value in other comprehensive income, without any recycling of the amounts from OCI to profit and loss, even on
sale of such investments.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
Financial assets are measured at FVTPL except for those financial assets whose contractual terms give rise to cash flows on
specified dates that represents solely payments of principal and interest thereon, are measured as detailed below depending on
the business model:
Derecognition
A financial asset is primarily derecognised 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 âpass-throughâ arrangements 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 Companyâs 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.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original
carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of
impairment loss on the following financial assets and credit risk exposure:
a) Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities, deposits, trade
receivables and bank balance.
b) Financial assets that are debt instruments and are measured at FVTOCI
c) 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 11 and Ind AS 18.
The Company follows âsimplified approachâ for recognition of impairment loss allowance on:
⢠Trade receivables or contract revenue receivables; and
⢠All lease receivables resulting from transactions within the scope of Ind AS 17
The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment
loss allowance based on lifetime Expected Credit Loss (ECL) at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been
a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 months ECL is used
to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period,
credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then
the entity reverts to recognising impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument.
The 12 months ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the
reporting date.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the
cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR. When estimating the cash flows,
the Company considers all contractual terms of the financial instrument (including prepayment, extension, call and similar options)
over the expected life of the financial instrument and Cash flows from the sale of collateral held or other credit enhancements that
are integral to the contractual terms.
ECL allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss.
This amount is reflected under the head âother expensesâ in the profit and loss. The balance sheet presentation for various financial
instruments is described below:
⢠Financial assets measured as at amortised cost, contractual revenue receivables and lease receivables: ECL is presented as
an allowance, which reduces the net carrying amount. Until the asset meets write-off criteria, the Company does not reduce
impairment allowance from the gross carrying amount.
⢠Debt instruments measured at FVTOCI: Since financial assets are already reflected at fair value, impairment allowance is not
further reduced from its value. Rather, ECL amount is presented as âaccumulated impairment amountâ in the OCI.
For assessing increase in credit risk and impairment loss, the company combines financial instruments on the basis of shared credit
risk characteristics with the objective of facilitating an analysis that is designed to enable significant increases in credit risk to be
identified on a timely basis.
For impairment purposes, significant financial assets are tested on individual basis at each reporting date. Other financial assets
are assessed collectively in groups that share similar credit risk characteristics. Accordingly, the impairment testing is done
retrospectively on the following basis:
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL and as at amortised cost.
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.
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 Companyâs financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial
guarantee contracts and derivative financial instruments.
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at FVTPL
Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition
as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of
repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are
not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also
classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These
gains/ loss are not subsequently transferred to profit and loss. However, the company may transfer the cumulative gain or loss
within equity. All other changes in fair value of such liability are recognised in the statement of profit or loss. The company has not
designated any financial liability as at fair value through profit and loss.
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 profit or loss when the liabilities are derecognised as well as through the EIR amortisation
process.
Derivative financial instruments
The Company holds derivative financial instruments such as foreign exchange forward and options contracts to mitigate the risk of
changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
Derivatives fair valued through profit or loss
This category has derivative financial assets or liabilities which are not designated as hedges. Although the Company believes that
these derivatives constitute hedges from an economic perspective, they may not qualify for hedge accounting under Ind AS 109,
Financial Instruments. Any derivative that is either not designated a hedge, or is so designated but is ineffective as per Ind AS 109,
is categorized as a financial asset or financial liability, at fair value through profit or loss.
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in
net profit in the Statement of Profit and Loss when incurred. Subsequent to initial recognition, these derivatives are measured at
fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets / liabilities in this
category are presented as current assets / current liabilities if they are either held for trading or are expected to be realized within
12 months after the Balance Sheet date.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing
financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition
of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no
reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt
instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the
business model are expected to be infrequent. The Companyâs senior management determines change in the business model as
a result of external or internal changes which are significant to the Companyâs operations. Such changes are evident to external
parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant
to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification
date which is the first day of the immediately next reporting period following the change in business model. The Company does not
restate any previously recognised gains, losses (including impairment gains or losses) or interest.
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet, if there is a currently
enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and
settle the liabilities simultaneously.
h) Foreign currency transactions and translations
Transactions and balances
Transactions in currencies other than the entityâs functional currency (foreign currencies) are recognised at the rates of exchange
prevailing at the dates of the transactions. However, for practical reasons, the Company uses an average rate, if the average
approximates the actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange
at the reporting date. Exchange differences arising on settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates
at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using
the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items
measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation
differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss,
respectively).
i) Borrowing Costs
Borrowing cost include interest computed using Effective Interest Rate method, amortisation of ancillary costs incurred and
exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest
cost.
Borrowing costs that are directly attributable to the acquisition, construction, production of a qualifying asset are capitalised as
part of the cost of that asset which takes substantial period of time to get ready for its intended use. The Company determines the
amount of borrowing cost eligible for capitalisation by applying capitalisation rate to the expenditure incurred on such cost. The
capitalisation rate is determined based on the weighted average rate of borrowing cost applicable to the borrowings of the Company
which are outstanding during the period, other than borrowings made specifically towards purchase of the qualifying asset. The
amount of borrowing cost that the Company capitalises during the period does not exceed the amount of borrowing cost incurred
during that period. All other borrowings costs are expensed in the period in which they occur.
Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the statement of profit and
loss in the period in which they are incurred.
j) Government grants
Government grants are recognised at fair value where there is a reasonable assurance that the grant will be received
and all the attached conditions are complied with.
In case of revenue related grant, the income is recognised on a systematic basis over the period for which it is intended to
compensate an expense and is disclosed under âOther operating revenueâ or netted off against corresponding expenses wherever
appropriate. Receivables of such grants are shown under âOther Financial Assetsâ. Export benefits are accounted for in the year of
exports based on eligibility and when there is no uncertainty in receiving the same. Receivables of such benefits are shown under
âOther Financial Assetsâ.
Government grants related to assets, including non-monetary grants at fair value, shall be presented in the balance sheet by setting
up the grant as deferred income. The grant set up as deferred income is recognised in profit or loss on a systematic basis over the
useful life of the asset.
k) Taxes
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 in the countries where the Company operates and generates taxable income.
Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive
income or in equity). Current tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.
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.
Deferred tax
Deferred tax is provided using the liability method 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 liabilities are recognised for all taxable temporary differences.
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 utilised. Where there is deferred
tax assets arising from carry forward of unused tax losses and unused tax created, they are recognised to the extent of deferred
tax liability.
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 utilised. 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 at the tax rates that are expected to apply in the year when the asset is realised or
the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive
income or in equity). Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against
current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
l) Retirement and other employee benefits
Short-term employee benefits
A liability is recognised for short-term employee benefit in the period the related service is rendered at the undiscounted amount of
the benefits expected to be paid in exchange for that service.
Defined contribution plans
Retirement benefit in the form of provident fund is a defined contribution scheme. The Company has no obligation, other than
the contribution payable to the provident fund and super annuation fund. The Company recognizes contribution payable to the
provident fund scheme as an expense, when an employee renders the related service. If the contribution payable to the scheme
for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is
recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due
for services received before the balance sheet date, then excess is recognized as an asset to the extent that the pre-payment will
lead to, for example, a reduction in future payment or a cash refund.
Defined benefit plans
The Company operates a defined benefit gratuity plan in India, which requires contributions to be made to a separately administered
fund. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.
Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net
interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net
defined benefit liability), are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings
through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
Compensated absences
The Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected
cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each
balance sheet date using projected unit credit method on the additional amount expected to be paid / availed as a result of the
unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is
recognized in the period in which the absences occur.
Other long term employee benefits
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 in respect of services provided by the employees up to the reporting date.
m) Business Combinations
Acquisitions of business are accounted for using the acquisition method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company,
liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in
exchange of control of the acquiree. Acquisition-related costs are generally recognised in statement of profit and loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that
⢠deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and
measured in accordance with Ind AS 12 Income Taxes and Ind AS 19 Employee Benefits respectively;
⢠liabilities or equity instruments related to share based payment arrangements of the acquiree or share-based payment
arrangements of the Company entered into to replace share-based payment arrangements of the acquiree are measured in
accordance with Ind AS 102 Share based Payment at the acquisition date; and
⢠assets (or disposal groups) that are classified as held for sale in accordance with Ind AS 105 Noncurrent Assets Held for Sale
and Discontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirer''s previously
held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed.
In case of a bargain purchase, before recognising a gain in respect thereof, the Company determines whether there exists clear
evidence of the underlying reasons for classifying the business combination as a bargain purchase. Thereafter, the Company
reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and recognises any
additional assets or liabilities that are identified in that reassessment. The Company then reviews the procedures used to measure
the amounts that Ind AS requires for the purposes of calculating the bargain purchase. If the gain remains after this reassessment
and review, the Company recognises it in other comprehensive income and accumulates the same in equity as capital reserve.
This gain is attributed to the acquirer. If there does not exist clear evidence of the underlying reasons for classifying the business
combination as a bargain purchase, the Company recognises the gain, after reassessing and reviewing (as described above),
directly in equity as capital reserve.
When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a
contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included
as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration
that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill
or capital reserve, as the case maybe. Measurement period adjustments are adjustments that arise from additional information
obtained during the âmeasurement periodâ (which cannot exceed one year from the acquisition date) about facts and circumstances
that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period
adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not
remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration
that is classified as an asset or a liability is remeasured at fair value at subsequent reporting dates with the corresponding gain or
loss being recognised in statement of profit and loss.
When a business combination is achieved in stages, the Companyâs previously held equity interest in the acquiree is remeasured
to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in statement of profit and loss. Amounts arising
from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are
reclassified to statement of profit and loss where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs,
the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are
adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information
obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts
recognised at that date.
n) Leases
Arrangements in the nature of lease
The Company enters into agreements, comprising a transaction or series of related transactions that does not take the legal form
of a lease but conveys the right to use the asset in return for a payment or series of payments. In case of such arrangements, the
Company applies the requirements of Ind AS 116 - Leases to the lease element of the arrangement. For the purpose of applying
the requirements under Ind AS 116 - Leases, payments and other consideration required by the arrangement are separated at the
inception of the arrangement into those for lease and those for other elements.
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception
of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or
assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
A lease that transfers substantially all the risks and rewards incidental to ownership to the Company is classified as a finance lease.
All other leases are operating leases.
Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if
lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and
reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges
are recognised in finance costs in the statement of profit and loss, unless they are directly attributable to qualifying assets, in
which case they are capitalized in accordance with the Companyâs general policy on the borrowing costs. Contingent rentals are
recognised as expenses in the periods in which they are incurred.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will
obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and
the lease term.
o) 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 assetâs recoverable amount. An
assetâs recoverable amount is the higher of an assetâs or cash-generating unitâs (CGU) fair value less costs of disposal and its value
in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets. 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.
Mar 31, 2024
1 Company Overview
Elgi Rubber Company Limited (âCompanyâ or âERCLâ) was incorporated on 16th October 2006. ERCL is leading Company providing solutions to Rubber Industry and engaged in the business of manufacture of Reclaimed rubber, Retreading machinery, and Retread rubber.
2 Basis of preparation of financial statements Statement of compliance
These financial statements are prepared in accordance with Indian Accounting Standards (Ind AS) under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values, the provisions of the Companies Act, 2013 (âthe Actâ) (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI). The Ind AS are prescribed under Section 133 of the Act read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016.
Basis of preparation and presentation
The financial statements have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value or revalued amount:
a) Derivative financial instruments
b) Certain financial assets and liabilities measured at fair value (refer accounting policy regarding financial instruments)
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. 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.
The preparation of financial statements in conformity with Indian Accounting Standards (Ind AS) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates is recognised prospectively in current and future periods.
The preparation of financial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, revenues and expenses and disclosure of contingent liabilities. Such estimates and assumptions are based on managementâs evaluation of relevant facts and circumstances as on the date of financial statements. The actual outcome may diverge from these estimates.
Functional and presentation currency
These financial statements are presented in Indian Rupees (INR), which is the Companyâs functional currency. All financial information presented in INR has been rounded to the nearest millions (up to two decimals). The financial statements are approved for issue by the Companyâs Board of Directors on May 30, 2024.
2A Critical accounting estimates and management judgments
In application of the accounting policies, which are described in note 2, the management of the Company is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
Information about significant areas of estimation, uncertainty and critical judgements used in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:
Property, Plant and Equipment (PPE)
The residual values and estimated useful life of PPEs, Intangible Assets and Investment Properties are assessed by the technical team at each reporting date by taking into account the nature of asset, the estimated usage of the asset, the operating condition of the asset, past history of replacement and maintenance support. Upon review, the management accepts the assigned useful life and residual value for computation of depreciation/amortisation. Also, management judgement is exercised for classifying the asset as investment properties or vice versa.
Calculations of income taxes for the current period are done based on applicable tax laws and managementâs judgement by evaluating positions taken in tax returns and interpretations of relevant provisions of law.
Significant management judgement is exercised by reviewing the deferred tax assets at each reporting date to determine the amount of deferred tax assets that can be retained / recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
Management uses valuation techniques in measuring the fair value of financial instruments where active market quotes are not available. In applying the valuation techniques, management makes maximum use of market inputs and uses estimates and assumptions that are, as far as possible, consistent with observable data that market participants would use in pricing the instrument. Where applicable data is not observable, management uses its best estimate about the assumptions that market participants would make. These estimates may vary from the actual prices that would be achieved in an armâs length transaction at the reporting date.
Impairment of Trade Receivables
The impairment for trade receivables are done based on assumptions about risk of default and expected loss rates. The assumptions, selection of inputs for calculation of impairment are based on management judgement considering the past history, market conditions and forward looking estimates at the end of each reporting date.
Impairment of Non-financial assets (PPE/Intangible Assets/Investment Properties)
The impairment of non-financial assets is determined based on estimation of recoverable amount of such assets. The assumptions used in computing the recoverable amount are based on management judgement considering the timing of future cash flows, discount rates and the risks specific to the asset.
Defined Benefit Plans and Other long term benefits
The cost of the defined benefit plan and other long term benefits, and the present value of such obligation are determined by the independent actuarial valuer. An actuarial valuation involves making various assumptions that may differ from actual developments in future. Management believes that the assumptions used by the actuary in determination of the discount rate, future salary increases, mortality rates and attrition rates are reasonable. Due to the complexities involved in the valuation and its long term nature, this obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities could not be measured based on quoted prices in active markets, management uses valuation techniques including the Discounted Cash Flow (DCF) model, to determine its fair value The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is exercised in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility.
The recognition and measurement of other provisions are based on the assessment of the probability of an outflow of resources, and on past experience and circumstances known at the reporting date. The actual outflow of resources at a future date may therefore vary from the figure estimated at end of each reporting period.
3 Material Accounting Policiesa) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification.
An asset is treated as current when it is:
i) Expected to be realised or intended to be sold or consumed in normal operating cycle
ii) Held primarily for the purpose of trading
iii) Expected to be realised within twelve months after the reporting period, or
iv) 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.
i) It is expected to be settled in normal operating cycle
ii) It is held primarily for the purpose of trading
iii) It is due to be settled within twelve months after the reporting period, or
iv) There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified 12 months as its operating cycle.
The Company has applied the fair value measurement wherever necessitated at each reporting period.
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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
i) In the principal market for the asset or liability;
ii) In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non - financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and the best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as 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 market 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; and
Level 3 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company has designated the respective team leads to determine the policies and procedures for both recurring and non -recurring fair value measurement. External valuers are involved, wherever necessary with the approval of Companyâs board of directors. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.
For the purpose of fair value disclosure, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risk of the asset or liability and the level of the fair value hierarchy as explained above. The component wise fair value measurement is disclosed in the relevant notes.
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for rebates, and similar allowances.
Revenue from the sale of goods and services is recognized when the company transfers control of goods or services to its customer at the amount to which the company expects to be entitled.
Export entitlements from Government authorities are recognised in the statement of profit and loss when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.
Interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Rental income from operating lease is recognised on a straight line basis over the term of the relevant lease, if the escalation is not a compensation for increase in cost inflation index.
Dividend income is recognized when the companyâs right to receive dividend is established by the reporting date, which is generally when shareholders approve the dividend.
d) Property, plant and equipment and capital work in progressPresentation
Property, plant and equipment and capital work in progress are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs of a qualifying asset, if the recognition criteria are met. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognised in profit or loss as incurred.
Advances paid towards the acquisition of tangible assets outstanding at each balance sheet date, are disclosed as capital advances under long term loans and advances and the cost of the tangible assets not ready for their intended use before such date, are disclosed as capital work in progress.
All material/ significant components have been identified and have been accounted separately. The useful life of such component are analysed independently and wherever components are having different useful life other than plant they are part of, useful life of components are considered for calculation of depreciation.
The cost of replacing part of an item of property, plant and equipment is recognised 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 recognised in the statement of profit and loss as incurred.
Machinery spares/ insurance spares that can be issued only in connection with an item of fixed assets and their issue is expected to be irregular are capitalised. Replacement of such spares is charged to revenue. Other spares are charged as revenue expenditure as and when consumed.
Gains or losses arising from derecognition of property, plant and equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
Intangible assets with finite useful lives that are acquired separately, where the cost exceeds '' 10,000 and the estimated useful life is two years or more, is capitalised and carried at cost less accumulated amortisation and accumulated impairment losses. 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.
Internally-generated intangible assets - research and development expenditure:
Expenditure on research activities e.g. the design and production of prototypes is recognised as an expense in the period in which it is incurred.
An internally generated intangible asset arising from development (or from development phase of internal project) is recognised, if and only if, all of the following have been demonstrated:
⢠technical feasibility of completing the intangible asset;
⢠how the intangible asset will generate probable future economic benefit;
⢠availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible assets; and
⢠the ability to measure reliably, the attributable expenditure during the development stage.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
De-recognition of intangible assets:
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, is recognised in profit or loss when the asset is derecognised.
At the end of each reporting period, the Group determines whether there is any indication that its assets (tangible, intangible assets and investments in equity instruments in joint ventures and associates carried at cost) have suffered an impairment loss with reference to their carrying amounts. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount exceeds the recoverable amount. Recoverable amount is higher of the fair value less costs of disposal 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 for which the estimates of future cash flows have not been adjusted.
Intangible assets under development are tested for impairment annually at each balance sheet date.
When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount carried, had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
e) Depreciation on property, plant and equipment
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less 5% being its residual value.
Depreciation is provided on Written Down Value method, over the useful lives specified in Schedule II to the Companies Act, 2013.
Depreciation for PPE on additions is calculated on pro-rata basis from the date of such additions. For deletion/disposals, the depreciation is calculated on pro-rata basis up to the date on which such assets have been discarded / sold.
The residual values, estimated useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
Inventories are carried at the lower of cost and net realisable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Costs are determined on weighted average method as follows:
(i) Raw materials, packing materials, stores and spares: At purchase cost including other cost incurred in bringing materials/ consumables to their present location and condition.
(ii) Work-in-progress: At material cost, conversion costs and appropriate share of production overheads
(iii) Finished goods: At material cost, conversion costs, appropriate share of production overheads.
(iv) Stock-in-trade and goods in transit: At purchase cost including other cost incurred in bringing materials/consumables to their present location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
g) Financial InstrumentsFinancial assets
Financial assets and financial liabilities are recognised when an entity becomes a party to the contractual provisions of the instruments. Initial recognition and measurement
All financial assets are recognised initially at fair value including transaction costs that are attributable to the acquisition of the financial asset, in the case of financial assets not recorded at fair value through profit or loss. 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.
For purposes of subsequent measurement, financial assets are classified on the basis of their contractual cash flow characteristics and the entityâs business model of managing them.
Financial assets are classified in four categories:
⢠Debt instruments at amortised cost
⢠Debt instruments at fair value through other comprehensive income (FVTOCI)
⢠Debt instruments, derivatives 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 amortised cost
The Company classifies a debt instrument as at amortised cost, if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and
b) 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.
Such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) 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 EIR. The EIR amortisation is included in finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss.
The Company classifies a debt instrument at FVTOCI, if both of the following criteria are met:
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) The assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI). However, the group recognizes interest income, impairment losses and reversals and foreign exchange gain or loss in the profit and loss statement. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassified from the equity to profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income using the EIR method.
Financial instruments other than equity instruments at FVTPL
The Company classifies all debt instruments, which do not meet the criteria for categorization as at amortized cost or as FVTOCI, as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss. Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading are classified as at FVTPL. Where the Company makes an irrevocable election of equity instruments at FVTOCI, it recognises all subsequent changes in the fair value in other comprehensive income, without any recycling of the amounts from OCI to profit and loss, even on sale of such investments.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
Financial assets are measured at FVTPL except for those financial assets whose contractual terms give rise to cash flows on specified dates that represents solely payments of principal and interest thereon, are measured as detailed below depending on the business model:
|
Classification |
Name of the financial asset |
|
Amortised cost |
Trade receivables, Loans given, deposits, interest receivable, unbilled revenue and other advances |
|
recoverable in cash. |
|
|
FVTPL |
Other investments in equity instruments, mutual funds, forward exchange contracts (to the |
|
extent not designated as a hedging instrument). |
A financial asset is primarily derecognised 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 âpass-throughâ arrangements 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 Companyâs 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.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
a) Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities, deposits, trade receivables and bank balance.
b) Financial assets that are debt instruments and are measured at FVTOCI
c) 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 11 and Ind AS 18.
The Company follows âsimplified approachâ for recognition of impairment loss allowance on:
⢠Trade receivables or contract revenue receivables; and
⢠All lease receivables resulting from transactions within the scope of Ind AS 17
The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime Expected Credit Loss (ECL) at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 months ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12 months ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR. When estimating the cash flows, the Company considers all contractual terms of the financial instrument (including prepayment, extension, call and similar options) over the expected life of the financial instrument and Cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECL allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss. This amount is reflected under the head âother expensesâ in the profit and loss. The balance sheet presentation for various financial instruments is described below:
⢠Financial assets measured as at amortised cost, contractual revenue receivables and lease receivables: ECL is presented as an allowance, which reduces the net carrying amount. Until the asset meets write-off criteria, the Company does not reduce impairment allowance from the gross carrying amount.
⢠Debt instruments measured at FVTOCI: Since financial assets are already reflected at fair value, impairment allowance is not further reduced from its value. Rather, ECL amount is presented as âaccumulated impairment amountâ in the OCI.
For assessing increase in credit risk and impairment loss, the company combines financial instruments on the basis of shared credit risk characteristics with the objective of facilitating an analysis that is designed to enable significant increases in credit risk to be identified on a timely basis.
For impairment purposes, significant financial assets are tested on individual basis at each reporting date. Other financial assets are assessed collectively in groups that share similar credit risk characteristics. Accordingly, the impairment testing is done retrospectively on the following basis:
|
Name of the financial asset |
Impairment Testing Methodology |
|
Trade Receivables |
Expected Credit Loss model (ECL) is applied. The ECL over lifetime of the assets are estimated by using a provision matrix which is based on historical loss rates reflecting current conditions and forecasts of future economic conditions which are grouped on the basis of similar credit characteristics such as nature of industry, customer segment, past due status and other factors that are relevant to estimate the expected cash loss from these assets. |
|
Other financial assets |
When the credit risk has not increased significantly, 12 month ECL is used to provide for impairment loss. When there is significant change in credit risk since initial recognition, the impairment is measured based on probability of default over the life time. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12 month ECL. |
Financial liabilitiesInitial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL and as at amortised cost.
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.
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 Companyâs financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at FVTPL
Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to profit and loss. However, the company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit or loss. The company has not designated any financial liability as at fair value through profit and loss.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Derivative financial instruments
The Company holds derivative financial instruments such as foreign exchange forward and options contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
Derivatives fair valued through profit or loss
This category has derivative financial assets or liabilities which are not designated as hedges. Although the Company believes that these derivatives constitute hedges from an economic perspective, they may not qualify for hedge accounting under Ind AS 109, Financial Instruments. Any derivative that is either not designated a hedge, or is so designated but is ineffective as per Ind AS 109, is categorized as a financial asset or financial liability, at fair value through profit or loss.
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in net profit in the Statement of Profit and Loss when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets / liabilities in this category are presented as current assets / current liabilities if they are either held for trading or are expected to be realized within 12 months after the Balance Sheet date.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Companyâs senior management determines change in the business model as a result of external or internal changes which are significant to the Companyâs operations. Such changes are evident to external parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognised gains, losses (including impairment gains or losses) or interest.
|
The following table shows various reclassification and how they are accounted for: |
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|
S.No |
Original classification |
Revised classification |
Accounting treatment |
|
1 |
Amortised cost |
FVTPL |
Fair value is measured at reclassification date. Difference between previous amortized cost and fair value is recognised in P&L. |
|
2 |
FVTPL |
Amortised Cost |
Fair value at reclassification date becomes its new gross carrying amount. EIR is calculated based on the new gross carrying amount. |
|
3 |
Amortised cost |
FVTOCI |
Fair value is measured at reclassification date. Difference between previous amortised cost and fair value is recognised in OCI. No change in EIR due to reclassification. |
|
4 |
FVTOCI |
Amortised cost |
Fair value at reclassification date becomes its new amortised cost carrying amount. However, cumulative gain or loss in OCI is adjusted against fair value. Consequently, the asset is measured as if it had always been measured at amortised cost. |
|
5 |
FVTPL |
FVTOCI |
Fair value at reclassification date becomes its new carrying amount. No other adjustment is required. |
|
6 |
FVTOCI |
FVTPL |
Assets continue to be measured at fair value. Cumulative gain or loss previously recognized in OCI is reclassified to P&L at the reclassification date. |
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet, if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
h) Foreign currency transactions and translations Transactions and balances
Transactions in currencies other than the entityâs functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. However, for practical reasons, the Company uses an average rate, if the average approximates the actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Exchange differences arising on settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).
Borrowing cost include interest computed using Effective Interest Rate method, amortisation of ancillary costs incurred and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost.
Borrowing costs that are directly attributable to the acquisition, construction, production of a qualifying asset are capitalised as part of the cost of that asset which takes substantial period of time to get ready for its intended use. The Company determines the amount of borrowing cost eligible for capitalisation by applying capitalisation rate to the expenditure incurred on such cost. The capitalisation rate is determined based on the weighted average rate of borrowing cost applicable to the borrowings of the Company which are outstanding during the period, other than borrowings made specifically towards purchase of the qualifying asset. The amount of borrowing cost that the Company capitalises during the period does not exceed the amount of borrowing cost incurred during that period. All other borrowings costs are expensed in the period in which they occur.
Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the statement of profit and loss in the period in which they are incurred.
Government grants are recognised at fair value where there is a reasonable assurance that the grant will be received and all the attached conditions are complied with.
In case of revenue related grant, the income is recognised on a systematic basis over the period for which it is intended to compensate an expense and is disclosed under âOther operating revenueâ or netted off against corresponding expenses wherever appropriate. Receivables of such grants are shown under âOther Financial Assetsâ. Export benefits are accounted for in the year of exports based on eligibility and when there is no uncertainty in receiving the same. Receivables of such benefits are shown under âOther Financial Assetsâ.
Government grants related to assets, including non-monetary grants at fair value, shall be presented in the balance sheet by setting up the grant as deferred income. The grant set up as deferred income is recognised in profit or loss on a systematic basis over the useful life of the asset.
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 in the countries where the Company operates and generates taxable income.
Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity). Current tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity. 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.
Deferred tax is provided using the liability method 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 liabilities are recognised for all taxable temporary differences.
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 utilised. Where there is deferred tax assets arising from carry forward of unused tax losses and unused tax created, they are recognised to the extent of deferred tax liability.
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 utilised. 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 at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity). Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
l) Retirement and other employee benefits Short-term employee benefits
A liability is recognised for short-term employee benefit in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.
Retirement benefit in the form of provident fund is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the provident fund and super annuation fund. The Company recognizes contribution payable to the provident fund scheme as an expense, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the pre-payment will lead to, for example, a reduction in future payment or a cash refund.
The Company operates a defined benefit gratuity plan in India, which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.
Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
The Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each balance sheet date using projected unit credit method on the additional amount expected to be paid / availed as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur.
Other long term employee benefits
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 in respect of services provided by the employees up to the reporting date.
Acquisitions of business are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange of control of the acquiree. Acquisition-related costs are generally recognised in statement of profit and loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that
⢠deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with Ind AS 12 Income Taxes and Ind AS 19 Employee Benefits respectively;
⢠liabilities or equity instruments related to share based payment arrangements of the acquiree or share-based payment arrangements of the Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with Ind AS 102 Share based Payment at the acquisition date; and
⢠assets (or disposal groups) that are classified as held for sale in accordance with Ind AS 105 Noncurrent Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirerâs previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
In case of a bargain purchase, before recognising a gain in respect thereof, the Company determines whether there exists clear evidence of the underlying reasons for classifying the business combination as a bargain purchase. Thereafter, the Company reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and recognises any additional assets or liabilities that are identified in that reassessment. The Company then reviews the procedures used to measure the amounts that Ind AS requires for the purposes of calculating the bargain purchase. If the gain remains after this reassessment and review, the Company recognises it in other comprehensive income and accumulates the same in equity as capital reserve. This gain is attributed to the acquirer. If there does not exist clear evidence of the underlying reasons for classifying the business combination as a bargain purchase, the Company recognises the gain, after reassessing and reviewing (as described above), directly in equity as capital reserve.
When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill or capital reserve, as the case maybe. Measurement period adjustments are adjustments that arise from additional information obtained during the âmeasurement periodâ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is c
Mar 31, 2023
1 Company Overview
Elgi Rubber Company Limited (âCompanyâ or âERCLâ) was incorporated on 16th October 2006. ERCL is leading Company providing solutions to Rubber Industry and engaged in the business of manufacture of Reclaimed rubber, Retreading machinery, and Retread rubber.
2 Basis of preparation of financial statements Statement of compliance
These financial statements are prepared in accordance with Indian Accounting Standards (Ind AS) under the historical cost convention on the accrual basis except for certain financial instruments which are measured at fair values, the provisions of the Companies Act, 2013 (âthe Actâ) (to the extent notified) and guidelines issued by the Securities and Exchange Board of India (SEBI). The Ind AS are prescribed under Section 133 of the Act read with Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015 and Companies (Indian Accounting Standards) Amendment Rules, 2016.
Basis of preparation and presentation
The financial statements have been prepared on a historical cost basis, except for the following assets and liabilities which have been measured at fair value or revalued amount:
a) Derivative financial instruments
b) Certain financial assets and liabilities measured at fair value (refer accounting policy regarding financial instruments)
Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. 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.
The preparation of financial statements in conformity with Indian Accounting Standards (Ind AS) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets, liabilities, income and expenses and the disclosure of contingent liabilities on the date of the financial statements. Actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates is recognised prospectively in current and future periods.
The preparation of financial statements in conformity with Ind AS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amount of assets and liabilities, revenues and expenses and disclosure of contingent liabilities. Such estimates and assumptions are based on managementâs evaluation of relevant facts and circumstances as on the date of financial statements. The actual outcome may diverge from these estimates.
Functional and presentation currency
These financial statements are presented in Indian Rupees (INR), which is the Companyâs functional currency. All financial information presented in INR has been rounded to the nearest millions (up to two decimals). The financial statements are approved for issue by the Companyâs Board of Directors on May 25, 2023.
2A Critical accounting estimates and management judgments
In application of the accounting policies, which are described in note 2, the management of the Company is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
Information about significant areas of estimation, uncertainty and critical judgements used in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes:
Property, Plant and Equipment (PPE)
The residual values and estimated useful life of PPEs, Intangible Assets and Investment Properties are assessed by the technical team at each reporting date by taking into account the nature of asset, the estimated usage of the asset, the operating condition of the asset, past history of replacement and maintenance support. Upon review, the management accepts the assigned useful life and residual value for computation of depreciation/amortisation. Also, management judgement is exercised for classifying the asset as investment properties or vice versa.
Calculations of income taxes for the current period are done based on applicable tax laws and managementâs judgement by evaluating positions taken in tax returns and interpretations of relevant provisions of law.
Significant management judgement is exercised by reviewing the deferred tax assets at each reporting date to determine the amount of deferred tax assets that can be retained / recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
Management uses valuation techniques in measuring the fair value of financial instruments where active market quotes are not available. In applying the valuation techniques, management makes maximum use of market inputs and uses estimates and assumptions that are, as far as possible, consistent with observable data that market participants would use in pricing the instrument. Where applicable data is not observable, management uses its best estimate about the assumptions that market participants would make. These estimates may vary from the actual prices that would be achieved in an armâs length transaction at the reporting date.
Impairment of Trade Receivables
The impairment for trade receivables are done based on assumptions about risk of default and expected loss rates. The assumptions, selection of inputs for calculation of impairment are based on management judgement considering the past history, market conditions and forward looking estimates at the end of each reporting date.
Impairment of Non-financial assets (PPE/Intangible Assets/Investment Properties)
The impairment of non-financial assets is determined based on estimation of recoverable amount of such assets. The assumptions used in computing the recoverable amount are based on management judgement considering the timing of future cash flows, discount rates and the risks specific to the asset.
Defined Benefit Plans and Other long term benefits
The cost of the defined benefit plan and other long term benefits, and the present value of such obligation are determined by the independent actuarial valuer. An actuarial valuation involves making various assumptions that may differ from actual developments in future. Management believes that the assumptions used by the actuary in determination of the discount rate, future salary increases, mortality rates and attrition rates are reasonable. Due to the complexities involved in the valuation and its long term nature, this obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.
Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities could not be measured based on quoted prices in active markets, management uses valuation techniques including the Discounted Cash Flow (DCF) model, to determine its fair value The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is exercised in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility.
The recognition and measurement of other provisions are based on the assessment of the probability of an outflow of resources, and on past experience and circumstances known at the reporting date. The actual outflow of resources at a future date may therefore vary from the figure estimated at end of each reporting period.
3 Significant Accounting Policiesa) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification.
An asset is treated as current when it is:
i) Expected to be realised or intended to be sold or consumed in normal operating cycle
ii) Held primarily for the purpose of trading
iii) Expected to be realised within twelve months after the reporting period, or
iv) 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.
i) It is expected to be settled in normal operating cycle
ii) It is held primarily for the purpose of trading
iii) It is due to be settled within twelve months after the reporting period, or
iv) There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified 12 months as its operating cycle.
The Company has applied the fair value measurement wherever necessitated at each reporting period.
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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
i) In the principal market for the asset or liability;
ii) In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non - financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and the best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as 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 market 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; and
Level 3 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company has designated the respective team leads to determine the policies and procedures for both recurring and non -recurring fair value measurement. External valuers are involved, wherever necessary with the approval of Companyâs board of directors. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.
For the purpose of fair value disclosure, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risk of the asset or liability and the level of the fair value hierarchy as explained above. The component wise fair value measurement is disclosed in the relevant notes.
Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for rebates, and similar allowances.
Revenue from the sale of goods and services is recognized when the company transfers control of goods or services to its customer at the amount to which the company expects to be entitled.
Export entitlements from Government authorities are recognised in the statement of profit and loss when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.
Interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Rental income from operating lease is recognised on a straight line basis over the term of the relevant lease, if the escalation is not a compensation for increase in cost inflation index.
Dividend income is recognized when the companyâs right to receive dividend is established by the reporting date, which is generally when shareholders approve the dividend.
d) Property, plant and equipment and capital work in progressPresentation
Property, plant and equipment and capital work in progress are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs of a qualifying asset, if the recognition criteria are met. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognised in profit or loss as incurred.
Advances paid towards the acquisition of tangible assets outstanding at each balance sheet date, are disclosed as capital advances under long term loans and advances and the cost of the tangible assets not ready for their intended use before such date, are disclosed as capital work in progress.
All material/ significant components have been identified and have been accounted separately. The useful life of such component are analysed independently and wherever components are having different useful life other than plant they are part of, useful life of components are considered for calculation of depreciation.
The cost of replacing part of an item of property, plant and equipment is recognised 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 recognised in the statement of profit and loss as incurred.
Machinery spares/ insurance spares that can be issued only in connection with an item of fixed assets and their issue is expected to be irregular are capitalised. Replacement of such spares is charged to revenue. Other spares are charged as revenue expenditure as and when consumed.
Gains or losses arising from derecognition of property, plant and equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
Intangible assets with finite useful lives that are acquired separately, where the cost exceeds '' 10,000 and the estimated useful life is two years or more, is capitalised and carried at cost less accumulated amortisation and accumulated impairment losses. 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.
Internally-generated intangible assets - research and development expenditure:
Expenditure on research activities e.g. the design and production of prototypes is recognised as an expense in the period in which it is incurred.
An internally generated intangible asset arising from development (or from development phase of internal project) is recognised, if and only if, all of the following have been demonstrated:
⢠technical feasibility of completing the intangible asset;
⢠how the intangible asset will generate probable future economic benefit;
⢠availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible assets; and
⢠the ability to measure reliably, the attributable expenditure during the development stage.
The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised in profit or loss in the period in which it is incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
De-recognition of intangible assets:
An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from de-recognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, is recognised in profit or loss when the asset is derecognised.
At the end of each reporting period, the Group determines whether there is any indication that its assets (tangible, intangible assets and investments in equity instruments in joint ventures and associates carried at cost) have suffered an impairment loss with reference to their carrying amounts. If any indication of impairment exists, the recoverable amount of such assets is estimated and impairment is recognised, if the carrying amount exceeds the recoverable amount. Recoverable amount is higher of the fair value less costs of disposal 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 for which the estimates of future cash flows have not been adjusted.
Intangible assets under development are tested for impairment annually at each balance sheet date.
When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount carried, had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
e) Depreciation on property, plant and equipment
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less 5% being its residual value.
Depreciation is provided on Written Down Value method, over the useful lives specified in Schedule II to the Companies Act, 2013.
Depreciation for PPE on additions is calculated on pro-rata basis from the date of such additions. For deletion/disposals, the depreciation is calculated on pro-rata basis up to the date on which such assets have been discarded / sold.
The residual values, estimated useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
Inventories are carried at the lower of cost and net realisable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Costs are determined on weighted average method as follows:
(i) Raw materials, packing materials, stores and spares: At purchase cost including other cost incurred in bringing materials/ consumables to their present location and condition.
(ii) Work-in-progress: At material cost, conversion costs and appropriate share of production overheads
(iii) Finished goods: At material cost, conversion costs, appropriate share of production overheads.
(iv) Stock-in-trade and goods in transit: At purchase cost including other cost incurred in bringing materials/consumables to their present location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
g) Financial InstrumentsFinancial assets
Financial assets and financial liabilities are recognised when an entity becomes a party to the contractual provisions of the instruments. Initial recognition and measurement
All financial assets are recognised initially at fair value including transaction costs that are attributable to the acquisition of the financial asset, in the case of financial assets not recorded at fair value through profit or loss. 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.
For purposes of subsequent measurement, financial assets are classified on the basis of their contractual cash flow characteristics and the entityâs business model of managing them.
Financial assets are classified in four categories:
⢠Debt instruments at amortised cost
⢠Debt instruments at fair value through other comprehensive income (FVTOCI)
⢠Debt instruments, derivatives 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 amortised cost
The Company classifies a debt instrument as at amortised cost, if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and
b) 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.
Such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) 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 EIR. The EIR amortisation is included in finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss.
The Company classifies a debt instrument at FVTOCI, if both of the following criteria are met:
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) The assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured as at each reporting date at fair value. Fair value movements are recognized in the other comprehensive income (OCI). However, the group recognizes interest income, impairment losses and reversals and foreign exchange gain or loss in the profit and loss statement. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassified from the equity to profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income using the EIR method.
Financial instruments other than equity instruments at FVTPL
The Company classifies all debt instruments, which do not meet the criteria for categorization as at amortized cost or as FVTOCI, as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss. Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading are classified as at FVTPL. Where the Company makes an irrevocable election of equity instruments at FVTOCI, it recognises all subsequent changes in the fair value in other comprehensive income, without any recycling of the amounts from OCI to profit and loss, even on sale of such investments.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
Financial assets are measured at FVTPL except for those financial assets whose contractual terms give rise to cash flows on specified dates that represents solely payments of principal and interest thereon, are measured as detailed below depending on the business model:
|
Classification |
Name of the financial asset |
|
Amortised cost |
Trade receivables, Loans given, deposits, interest receivable, unbilled revenue and other advances |
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recoverable in cash. |
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|
FVTPL |
Other investments in equity instruments, mutual funds, forward exchange contracts (to the |
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extent not designated as a hedging instrument). |
A financial asset is primarily derecognised 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 âpass-throughâ arrangements 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 Companyâs 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.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
a) Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities, deposits, trade receivables and bank balance.
b) Financial assets that are debt instruments and are measured at FVTOCI
c) 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 11 and Ind AS 18.
The Company follows âsimplified approachâ for recognition of impairment loss allowance on:
⢠Trade receivables or contract revenue receivables; and
⢠All lease receivables resulting from transactions within the scope of Ind AS 17
The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime Expected Credit Loss (ECL) at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 months ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12 months ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR. When estimating the cash flows, the Company considers all contractual terms of the financial instrument (including prepayment, extension, call and similar options) over the expected life of the financial instrument and Cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECL allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss. This amount is reflected under the head âother expensesâ in the profit and loss. The balance sheet presentation for various financial instruments is described below:
⢠Financial assets measured as at amortised cost, contractual revenue receivables and lease receivables: ECL is presented as an allowance, which reduces the net carrying amount. Until the asset meets write-off criteria, the Company does not reduce impairment allowance from the gross carrying amount.
⢠Debt instruments measured at FVTOCI: Since financial assets are already reflected at fair value, impairment allowance is not further reduced from its value. Rather, ECL amount is presented as âaccumulated impairment amountâ in the OCI.
For assessing increase in credit risk and impairment loss, the company combines financial instruments on the basis of shared credit risk characteristics with the objective of facilitating an analysis that is designed to enable significant increases in credit risk to be identified on a timely basis.
For impairment purposes, significant financial assets are tested on individual basis at each reporting date. Other financial assets are assessed collectively in groups that share similar credit risk characteristics. Accordingly, the impairment testing is done retrospectively on the following basis:
|
Name of the financial asset |
Impairment Testing Methodology |
|
Trade Receivables |
Expected Credit Loss model (ECL) is applied. The ECL over lifetime of the assets are estimated by using a provision matrix which is based on historical loss rates reflecting current conditions and forecasts of future economic conditions which are grouped on the basis of similar credit characteristics such as nature of industry, customer segment, past due status and other factors that are relevant to estimate the expected cash loss from these assets. |
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Other financial assets |
When the credit risk has not increased significantly, 12 month ECL is used to provide for impairment loss. When there is significant change in credit risk since initial recognition, the impairment is measured based on probability of default over the life time. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12 month ECL. |
Financial liabilitiesInitial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL and as at amortised cost.
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.
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 Companyâs financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at FVTPL
Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to profit and loss. However, the company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit or loss. The company has not designated any financial liability as at fair value through profit and loss.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Derivative financial instruments
The Company holds derivative financial instruments such as foreign exchange forward and options contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
Derivatives fair valued through profit or loss
This category has derivative financial assets or liabilities which are not designated as hedges. Although the Company believes that these derivatives constitute hedges from an economic perspective, they may not qualify for hedge accounting under Ind AS 109, Financial Instruments. Any derivative that is either not designated a hedge, or is so designated but is ineffective as per Ind AS 109, is categorized as a financial asset or financial liability, at fair value through profit or loss.
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in net profit in the Statement of Profit and Loss when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets / liabilities in this category are presented as current assets / current liabilities if they are either held for trading or are expected to be realized within 12 months after the Balance Sheet date.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Companyâs senior management determines change in the business model as a result of external or internal changes which are significant to the Companyâs operations. Such changes are evident to external parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognised gains, losses (including impairment gains or losses) or interest.
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The following table shows various reclassification and how they are accounted for: |
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S.No |
Original classification |
Revised classification |
Accounting treatment |
|
1 |
Amortised cost |
FVTPL |
Fair value is measured at reclassification date. Difference between previous amortized cost and fair value is recognised in P&L. |
|
2 |
FVTPL |
Amortised Cost |
Fair value at reclassification date becomes its new gross carrying amount. EIR is calculated based on the new gross carrying amount. |
|
3 |
Amortised cost |
FVTOCI |
Fair value is measured at reclassification date. Difference between previous amortised cost and fair value is recognised in OCI. No change in EIR due to reclassification. |
|
4 |
FVTOCI |
Amortised cost |
Fair value at reclassification date becomes its new amortised cost carrying amount. However, cumulative gain or loss in OCI is adjusted against fair value. Consequently, the asset is measured as if it had always been measured at amortised cost. |
|
5 |
FVTPL |
FVTOCI |
Fair value at reclassification date becomes its new carrying amount. No other adjustment is required. |
|
6 |
FVTOCI |
FVTPL |
Assets continue to be measured at fair value. Cumulative gain or loss previously recognized in OCI is reclassified to P&L at the reclassification date. |
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet, if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
h) Foreign currency transactions and translations Transactions and balances
Transactions in currencies other than the entityâs functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. However, for practical reasons, the Company uses an average rate, if the average approximates the actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Exchange differences arising on settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).
Borrowing cost include interest computed using Effective Interest Rate method, amortisation of ancillary costs incurred and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost.
Borrowing costs that are directly attributable to the acquisition, construction, production of a qualifying asset are capitalised as part of the cost of that asset which takes substantial period of time to get ready for its intended use. The Company determines the amount of borrowing cost eligible for capitalisation by applying capitalisation rate to the expenditure incurred on such cost. The capitalisation rate is determined based on the weighted average rate of borrowing cost applicable to the borrowings of the Company which are outstanding during the period, other than borrowings made specifically towards purchase of the qualifying asset. The amount of borrowing cost that the Company capitalises during the period does not exceed the amount of borrowing cost incurred during that period. All other borrowings costs are expensed in the period in which they occur.
Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the statement of profit and loss in the period in which they are incurred.
Government grants are recognised at fair value where there is a reasonable assurance that the grant will be received and all the attached conditions are complied with.
In case of revenue related grant, the income is recognised on a systematic basis over the period for which it is intended to compensate an expense and is disclosed under âOther operating revenueâ or netted off against corresponding expenses wherever appropriate. Receivables of such grants are shown under âOther Financial Assetsâ. Export benefits are accounted for in the year of exports based on eligibility and when there is no uncertainty in receiving the same. Receivables of such benefits are shown under âOther Financial Assetsâ.
Government grants related to assets, including non-monetary grants at fair value, shall be presented in the balance sheet by setting up the grant as deferred income. The grant set up as deferred income is recognised in profit or loss on a systematic basis over the useful life of the asset.
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 in the countries where the Company operates and generates taxable income.
Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity). Current tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity. 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.
Deferred tax is provided using the liability method 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 liabilities are recognised for all taxable temporary differences.
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 utilised. Where there is deferred tax assets arising from carry forward of unused tax losses and unused tax created, they are recognised to the extent of deferred tax liability.
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 utilised. 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 at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity). Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
l) Retirement and other employee benefits Short-term employee benefits
A liability is recognised for short-term employee benefit in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.
Retirement benefit in the form of provident fund is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the provident fund and super annuation fund. The Company recognizes contribution payable to the provident fund scheme as an expense, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the pre-payment will lead to, for example, a reduction in future payment or a cash refund.
The Company operates a defined benefit gratuity plan in India, which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.
Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
The Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each balance sheet date using projected unit credit method on the additional amount expected to be paid / availed as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur.
Other long term employee benefits
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 in respect of services provided by the employees up to the reporting date.
Acquisitions of business are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange of control of the acquiree. Acquisition-related costs are generally recognised in statement of profit and loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that
⢠deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with Ind AS 12 Income Taxes and Ind AS 19 Employee Benefits respectively;
⢠liabilities or equity instruments related to share based payment arrangements of the acquiree or share-based payment arrangements of the Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with Ind AS 102 Share based Payment at the acquisition date; and
⢠assets (or disposal groups) that are classified as held for sale in accordance with Ind AS 105 Noncurrent Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirerâs previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
In case of a bargain purchase, before recognising a gain in respect thereof, the Company determines whether there exists clear evidence of the underlying reasons for classifying the business combination as a bargain purchase. Thereafter, the Company reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and recognises any additional assets or liabilities that are identified in that reassessment. The Company then reviews the procedures used to measure the amounts that Ind AS requires for the purposes of calculating the bargain purchase. If the gain remains after this reassessment and review, the Company recognises it in other comprehensive income and accumulates the same in equity as capital reserve. This gain is attributed to the acquirer. If there does not exist clear evidence of the underlying reasons for classifying the business combination as a bargain purchase, the Company recognises the gain, after reassessing and reviewing (as described above), directly in equity as capital reserve.
When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill or capital reserve, as the case maybe. Measurement period adjustments are adjustments that arise from additional information obtained during the âmeasurement periodâ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classifie
Mar 31, 2018
1 Significant accounting policies
a) Current versus non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification.
An asset is treated as current when it is:
i) Expected to be realised or intended to be sold or consumed in normal operating cycle
ii) Held primarily for the purpose of trading
iii) Expected to be realised within twelve months after the reporting period, or
iv) 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 current when:
i) It is expected to be settled in normal operating cycle
ii) It is held primarily for the purpose of trading
iii) It is due to be settled within twelve months after the reporting period, or
iv) There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period All other liabilities are classified as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash and cash equivalents. The Company has identified 12 months as its operating cycle.
b) Fair value measurement
The Company has applied the fair value measurement wherever necessitated at each reporting period.
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. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
i) In the principal market for the asset or liability;
ii) In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participantâs ability to generate economic benefits by using the asset in its highest and the best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as 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 market 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; and
Level 3 : Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company has designated the respective team leads to determine the policies and procedures for both recurring and nonrecurring fair value measurement. External valuers are involved, wherever necessary with the approval of Companyâs board of directors. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.
For the purpose of fair value disclosure, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risk of the asset or liability and the level of the fair value hierarchy as explained above. The component wise fair value measurement is disclosed in the relevant notes.
c) Revenue recognition Sale of goods
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue on sale of goods is recognised when the risk and rewards of ownership is transferred to the buyer, which generally coincides with the delivery of the goods.
Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment. It comprises of invoice value of goods including excise duty and after deducting discounts, volume rebates and applicable taxes on sale. It also excludes value of self-consumption.
Sale of services
Income from sale of services is recognised when the services are rendered as per the terms of the agreement and when no significant uncertainty as to its determination or realisation exists.
Export entitlements
Export entitlements from Government authorities are recognised in the statement of profit and loss when the right to receive credit as per the terms of the scheme is established in respect of the exports made by the Company, and where there is no significant uncertainty regarding the ultimate collection of the relevant export proceeds.
Interest income
Interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but does not consider the expected credit losses.
Rental income
Rental income from operating lease is recognised on a straight line basis over the term of the relevant lease, if the escalation is not a compensation for increase in cost inflation index.
Dividend income
Dividend income is recognized when the companyâs right to receive dividend is established by the reporting date, which is generally when shareholders approve the dividend.
d) Property, Plant and Equipment and Capital work-in-progress Deemed cost option for first time adopter of Ind AS
Under the previous GAAP (Indian GAAP), property, plant and equipment were carried in the balance sheet at cost less accumulated depreciation. The Company has elected to consider the previous GAAP carrying amount of the Property, Plant and Equipment as the deemed cost as at the date of transition, viz.,1 April 2016.
Presentation
Property, Plant and Equipment and capital work-in-progress are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the plant and equipment and borrowing costs of a qualifying asset, if the recognition criteria are met. When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognised in profit or loss as incurred.
Advances paid towards the acquisition of tangible assets outstanding at each balance sheet date, are disclosed as capital advances under long term loans and advances and the cost of the tangible assets not ready for their intended use before such date, are disclosed as capital work in progress.
Component cost
All material/ significant components have been identified and have been accounted separately. The useful life of such component are analysed independently and wherever components are having different useful life other than plant they are part of, useful life of components are considered for calculation of depreciation.
The cost of replacing part of an item of property, plant and equipment is recognised 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 recognised in the statement of profit and loss as incurred.
Machinery spares/ insurance spares that can be issued only in connection with an item of fixed assets and their issue is expected to be irregular are capitalised. Replacement of such spares is charged to revenue. Other spares are charged as revenue expenditure as and when consumed.
Derecognition
Gains or losses arising from derecognition of property, plant and equipment are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
e) Depreciation on Property, Plant and Equipment
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less 5% being its residual value.
Depreciation is provided on Written Down Value method, over the useful lives specified in Schedule II to the Companies Act, 2013.
Depreciation for PPE on additions is calculated on pro-rata basis from the date of such additions. For deletion/disposals, the depreciation is calculated on pro-rata basis up to the date on which such assets have been discarded / sold.
The residual values, estimated useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
f) Inventories
Inventories are carried at the lower of cost and net realisable value. Cost includes cost of purchase and other costs incurred in bringing the inventories to their present location and condition. Costs are determined on weighted average method as follows:
(i) Raw materials, packing materials, stores and spares: At purchase cost including other cost incurred in bringing materials/ consumables to their present location and condition.
(ii) Work-in-progress: At material cost, conversion costs and appropriate share of production overheads
(iii) Finished goods: At material cost, conversion costs, appropriate share of production overheads and Excise Duty. Post implementation of GST from July 1, 2017 no excise duty is included in the closing stock of finished goods as at March 31, 2018.
(iv) Stock-in-trade and goods in transit: At purchase cost including other cost incurred in bringing materials/consumables to their present location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
g) Financial instruments Financial assets
Financial assets and financial liabilities are recognised when an entity becomes a party to the contractual provisions of the instruments.
Initial recognition and measurement
All financial assets are recognised initially at fair value including transaction costs that are attributable to the acquisition of the financial asset, in the case of financial assets not recorded at fair value through profit or loss. 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
For purposes of subsequent measurement, financial assets are classified on the basis of their contractual cash flow characteristics and the entityâs business model of managing them.
Financial assets are classified in four categories:
- Debt instruments at amortised cost
- Debt instruments at fair value through other comprehensive income (FVTOCI)
- Debt instruments, derivatives 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 amortised cost
The Company classifies a debt instrument as at amortised cost, if both the following conditions are met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and
b) 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.
Such financial assets are subsequently measured at amortised cost using the effective interest rate (EIR) 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 EIR. The EIR amortisation is included in finance income in the profit or loss. The losses arising from impairment are recognised in the profit or loss.
Debt instrument at FVTOCI
The Company classifies a debt instrument at FVTOCI, if both of the following criteria are met:
a) The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets, and
b) The assetâs contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured as at each reporting date at fair value. Fair value movements are recognized in the Other Comprehensive Income (OCI). However, the group recognizes interest income, impairment losses and reversals and foreign exchange gain or loss in the profit and loss statement. On derecognition of the asset, cumulative gain or loss previously recognised in OCI is reclassified from the equity to profit and loss. Interest earned whilst holding FVTOCI debt instrument is reported as interest income using the EIR method.
Financial instruments other than equity instruments at FVTPL
The Company classifies all debt instruments, which do not meet the criteria for categorization as at amortized cost or as FVTOCI, as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for trading are classified as at FVTPL. Where the Company makes an irrevocable election of equity instruments at FVTOCI, it recognises all subsequent changes in the fair value in other comprehensive income, without any recycling of the amounts from OCI to profit and loss, even on sale of such investments.
Equity instruments included within the FVTPL category are measured at fair value with all changes recognized in the profit and loss.
Financial assets are measured at FVTPL except for those financial assets whose contractual terms give rise to cash flows on specified dates that represents solely payments of principal and interest thereon, are measured as detailed below depending on the business model:
Derecognition
A financial asset is primarily derecognised 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 âpass-throughâ 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 Companyâs 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.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies Expected Credit Loss (ECL) model for measurement and recognition of impairment loss on the following financial assets and credit risk exposure:
a) Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities, deposits, trade receivables and bank balance.
b) Financial assets that are debt instruments and are measured at FVTOCI
c) 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 11 and Ind AS 18.
The Company follows âsimplified approachâ for recognition of impairment loss allowance on:
- Trade receivables or contract revenue receivables; and
- All lease receivables resulting from transactions within the scope of Ind AS 17
The application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognises impairment loss allowance based on lifetime Expected Credit Loss (ECL) at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased significantly, 12 months ECL is used to provide for impairment loss. However, if credit risk has increased significantly, lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising impairment loss allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12 months ECL is a portion of the lifetime ECL which results from default events that are possible within 12 months after the reporting date.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls), discounted at the original EIR. When estimating the cash flows, the Company considers all contractual terms of the financial instrument (including prepayment, extension, call and similar options) over the expected life of the financial instrument and Cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECL allowance (or reversal) recognized during the period is recognized as income/ expense in the statement of profit and loss. This amount is reflected under the head âother expensesâ in the profit and loss. The balance sheet presentation for various financial instruments is described below:
- Financial assets measured as at amortised cost, contractual revenue receivables and lease receivables: ECL is presented as an allowance, which reduces the net carrying amount. Until the asset meets write-off criteria, the Company does not reduce impairment allowance from the gross carrying amount.
- Debt instruments measured at FVTOCI: Since financial assets are already reflected at fair value, impairment allowance is not further reduced from its value. Rather, ECL amount is presented as âaccumulated impairment amountâ in the OCI.
For assessing increase in credit risk and impairment loss, the company combines financial instruments on the basis of shared credit risk characteristics with the objective of facilitating an analysis that is designed to enable significant increases in credit risk to be identified on a timely basis.
For impairment purposes, significant financial assets are tested on individual basis at each reporting date. Other financial assets are assessed collectively in groups that share similar credit risk characteristics. Accordingly, the impairment testing is done retrospectively on the following basis:
Financial liabilities Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at FVTPL and as at amortised cost.
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.
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 Companyâs financial liabilities include trade and other payables, loans and borrowings including bank overdrafts, financial guarantee contracts and derivative financial instruments.
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at FVTPL
Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognised in the profit or loss.
For liabilities designated as FVTPL, fair value gains/ losses attributable to changes in own credit risk are recognized in OCI. These gains/ loss are not subsequently transferred to profit and loss. However, the company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognised in the statement of profit or loss. The company has not designated any financial liability as at fair value through profit and loss.
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 profit or loss when the liabilities are derecognised as well as through the EIR amortisation process.
Derivative financial instruments
The Company holds derivative financial instruments such as foreign exchange forward and options contracts to mitigate the risk of changes in exchange rates on foreign currency exposures. The counterparty for these contracts is generally a bank.
Derivatives fair valued through profit or loss
This category has derivative financial assets or liabilities which are not designated as hedges.
Although the Company believes that these derivatives constitute hedges from an economic perspective, they may not qualify for hedge accounting under Ind AS 109, Financial Instruments. Any derivative that is either not designated a hedge, or is so designated but is ineffective as per Ind AS 109, is categorized as a financial asset or financial liability, at fair value through profit or loss.
Derivatives not designated as hedges are recognized initially at fair value and attributable transaction costs are recognized in net profit in the Statement of Profit and Loss when incurred. Subsequent to initial recognition, these derivatives are measured at fair value through profit or loss and the resulting exchange gains or losses are included in other income. Assets / liabilities in this category are presented as current assets / current liabilities if they are either held for trading or are expected to be realized within 12 months after the Balance Sheet date.
Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of profit or loss.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Companyâs senior management determines change in the business model as a result of external or internal changes which are significant to the Companyâs operations. Such changes are evident to external parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognised gains, losses (including impairment gains or losses) or interest.
The following table shows various reclassification and how they are accounted for:
Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet, if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously.
h) Foreign currency transactions and translations Transactions and balances
Transactions in currencies other than the entityâs functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. However, for practical reasons, the Company uses an average rate, if the average approximates the actual rate at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Exchange differences arising on settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).
i) Borrowing costs
Borrowing cost include interest computed using Effective Interest Rate method, amortisation of ancillary costs incurred and exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost.
Borrowing costs that are directly attributable to the acquisition, construction, production of a qualifying asset are capitalised as part of the cost of that asset which takes substantial period of time to get ready for its intended use. The Company determines the amount of borrowing cost eligible for capitalisation by applying capitalisation rate to the expenditure incurred on such cost. The capitalisation rate is determined based on the weighted average rate of borrowing cost applicable to the borrowings of the Company which are outstanding during the period, other than borrowings made specifically towards purchase of the qualifying asset. The amount of borrowing cost that the Company capitalises during the period does not exceed the amount of borrowing cost incurred during that period. All other borrowings costs are expensed in the period in which they occur.
Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the statement of profit and loss in the period in which they are incurred.
j) Government grants
Government grants are recognised at fair value where there is a reasonable assurance that the grant will be received and all the attached conditions are complied with.
In case of revenue related grant, the income is recognised on a systematic basis over the period for which it is intended to compensate an expense and is disclosed under âOther operating revenueâ or netted off against corresponding expenses wherever appropriate. Receivables of such grants are shown under âOther Financial Assetsâ. Export benefits are accounted for in the year of exports based on eligibility and when there is no uncertainty in receiving the same. Receivables of such benefits are shown under âOther Financial Assetsâ.
Government grants related to assets, including non-monetary grants at fair value, shall be presented in the balance sheet by setting up the grant as deferred income. The grant set up as deferred income is recognised in profit or loss on a systematic basis over the useful life of the asset.
k) Taxes
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 in the countries where the Company operates and generates taxable income.
Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity). Current tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity. 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.
Deferred tax
Deferred tax is provided using the liability method 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 liabilities are recognised for all taxable temporary differences.
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 utilised. Where there is deferred tax assets arising from carry forward of unused tax losses and unused tax created, they are recognised to the extent of deferred tax liability.
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 utilised. 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 at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive income or in equity). Deferred tax items are recognised in correlation to the underlying transaction either in OCI or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
l) Retirement and other employee benefits
Short-term employee benefits
A liability is recognised for short-term employee benefit in the period the related service is rendered at the undiscounted amount of the benefits expected to be paid in exchange for that service.
Defined contribution plans
Retirement benefit in the form of provident fund is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the provident fund and super annuation fund. The Company recognizes contribution payable to the provident fund scheme as an expense, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid. If the contribution already paid exceeds the contribution due for services received before the balance sheet date, then excess is recognized as an asset to the extent that the prepayment will lead to, for example, a reduction in future payment or a cash refund.
Defined benefit plans
The Company operates a defined benefit gratuity plan in India, which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.
Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognised immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods.
Compensated absences
The Company has a policy on compensated absences which are both accumulating and non-accumulating in nature. The expected cost of accumulating compensated absences is determined by actuarial valuation performed by an independent actuary at each balance sheet date using projected unit credit method on the additional amount expected to be paid / availed as a result of the unused entitlement that has accumulated at the balance sheet date. Expense on non-accumulating compensated absences is recognized in the period in which the absences occur.
Other long term employee benefits
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 in respect of services provided by the employees up to the reporting date.
m) Business Combinations
Acquisitions of business are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange of control of the acquiree. Acquisition-related costs are generally recognised in statement of profit and loss as incurred.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that
- deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with Ind AS 12 Income Taxes and Ind AS 19 Employee Benefits respectively;
- liabilities or equity instruments related to share based payment arrangements of the acquiree or share-based payment arrangements of the Company entered into to replace share-based payment arrangements of the acquiree are measured in accordance with Ind AS 102 Share based Payment at the acquisition date; and
- assets (or disposal groups) that are classified as held for sale in accordance with Ind AS 105 Non-Current Assets Held for Sale and Discontinued Operations are measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the consideration transferred and the fair value of the acquirerâs previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.
In case of a bargain purchase, before recognising a gain in respect thereof, the Company determines whether there exists clear evidence of the underlying reasons for classifying the business combination as a bargain purchase. Thereafter, the Company reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and recognises any additional assets or liabilities that are identified in that reassessment. The Company then reviews the procedures used to measure the amounts that Ind AS requires for the purposes of calculating the bargain purchase. If the gain remains after this reassessment and review, the Company recognises it in other comprehensive income and accumulates the same in equity as capital reserve. This gain is attributed to the acquirer. If there does not exist clear evidence of the underlying reasons for classifying the business combination as a bargain purchase, the Company recognises the gain, after reassessing and reviewing (as described above), directly in equity as capital reserve.
When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill or capital reserve, as the case maybe. Measurement period adjustments are adjustments that arise from additional information obtained during the âmeasurement periodâ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at fair value at subsequent reporting dates with the corresponding gain or loss being recognised in statement of profit and loss.
When a business combination is achieved in stages, the Companyâs previously held equity interest in the acquiree is remeasured to its acquisition-date fair value and the resulting gain or loss, if any, is recognised in statement of profit and loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to statement of profit and loss where such treatment would be appropriate if that interest were disposed of.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date.
n) Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
For arrangements entered into prior to April 1, 2016, the Company has determined whether the arrangement contain lease on the basis of facts and circumstances existing on the date of transition.
A lease that transfers substantially all the risks and rewards incidental to ownership to the Company is classified as a finance lease. All other leases are operating leases.
Finance leases are capitalised at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the statement of profit and loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Companyâs general policy on the borrowing costs. Contingent rentals are recognised as expenses in the periods in which they are incurred.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
o) 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 assetâs recoverable amount. An assetâs recoverable amount is the higher of an assetâs or Cash-Generating Unitâs (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. 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.
p) Provisions, contingent liabilities and contingent asset Provisions
Provisions involving substantial degree of estimation in measurement are recognised when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources embodying economic benefits in respect of which a reliable estimate can be made.
Provisions are discounted, if the effect of the time value of money is material, using pre-tax rates that reflects the risks specific to the liability. When discounting is used, an increase in the provisions due to the passage of time is recognised as finance cost. These provisions are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.
Necessary provision for doubtful debts, claims, etc., are made if realisation of money is doubtful in the judgement of the management.
Contingent liability
A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. Contingent liabilities are disclosed separately.
Show cause notices issued by various Government authorities are considered for evaluation of contingent liabilities only when converted into demand.
Contingent assets
Where an inflow of economic benefits is probable, the Company discloses a brief description of the nature of the contingent assets at the end of the reporting period, and, where practicable, an estimate of their financial effect. Contingent assets are disclosed but not recognised in the financial statements.
q) Cash and cash equivalents
Cash comprises cash on hand and demand deposits with banks. Cash equivalents are short-term balances with original maturity of less than 3 months, highly liquid investments that are readily convertible into cash, which are subject to insignificant risk of changes in value.
r) Cash flow statement
Cash flows are presented using indirect method, whereby profit / (loss) before tax is adjusted for the effects of transactions of non-cash nature and any deferrals or accruals of past or future cash receipts or payments.
Bank borrowings are generally considered to be financing activities. However, where bank overdrafts which are repayable on demand form an integral part of an entityâs cash management, bank overdrafts are included as a component of cash and cash equivalents for the purpose of cash flow statement.
s) Earnings per share
The basic earnings per share are computed by dividing the net profit for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period.
Diluted EPS is computed by dividing the net profit after tax by the weighted average number of equity shares considered for deriving basic EPS and also weighted average number of equity shares that could have been issued upon conversion of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as of the beginning of the period, unless issued at a later date. Dilutive potential equity shares are determined independently for each period presented. The number of equity shares and potentially dilutive equity shares are adjusted for bonus shares, as appropriate.
Mar 31, 2016
Elgi Rubber Company Limited (âCompanyâ or âERCLâ) was incorporated on 16th October 2006. ERCL is a leading Company providing solutions to Rubber Industry and engaged in the business of manufacture of Reclaimed Rubber, Retreading machinery, and Retread rubber.
1. a. Basis of Preparation of Financial Statements
The Company has prepared these financial statements to comply in all material respects with the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. The financial statements have been prepared on an accrual basis and under the historical cost convention.
The accounting policies adopted in the preparation of financial statements are consistent with those of previous year, except for the change in accounting policy explained below.
b. Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) in India requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent liabilities on the date of financial statements and the results of operations during the reporting period. Although these estimates are based upon managementâs best knowledge of current events and actions, actual results could differ from the estimates. Significant estimates used by the management in the preparation of these financial statements include, work in progress, provisions for bad and doubtful debts, estimates of the useful life of the fixed assets.
2. a Scheme of Amalgamation and Arrangement
As per the Scheme of Amalgamation and Arrangement (hereinafter referred to asâ Schemeâ, as approved by the Honâble High Court of Judicature at Madras on 22nd January 2016 among Elgi Rubber Company Limited (ERCL), Treadsdirect Limited(TDL) and Parani Steels Private Limited(PSPL) the whole of the undertaking of TDL and PSPL comprising of its business, all assets, both movables and immovableâs and liabilities of whatsoever nature and wheresoeverâs situated were transferred to and vested in ERCL as a going concern as from the appointed date ie. 1st April 2015.
b. Accounting Treatment
i. Elgi Rubber Company Limited (ERCL) has recorded the assets and liabilities of Treadsdirect Limited (TDL) and Parani Steels Private Limited (PSPL) vested in it pursuant to the scheme, at their respective book values in the same form as appearing in the books of TDL and Parani at the close of business of the immediately preceding the appointed date.
ii. Effect on account of Inter-corporate investments, loans or balances between ERCL, TDL and PSPL, inter se has been given in the books of accounts and records of ERCL for the reduction of assets and liabilities as the case may be.
iii. In respect of certain assets including land/fixed deposits etc., vested with the Company based on the aforesaid scheme, formalities regarding change of name in the relevant legal records/ title deeds in the name of the Company in accordance with the scheme are under progress.
3.1 Revenue Recognition
Sales are recognized upon delivery of products and are recorded exclusive of excise duty, service tax and sales tax.
Export benefits are accounted on accrual basis.
Dividend income from investment in Mutual Funds is recognized on declaration of the same by the respective agency Revenue is recognized when the shareholdersâ or unit holdersâ right to receive payment is established by the balance sheet date. Interest Income is recognized on a time proportionate basis taking into account the amount outstanding and the rate applicable
3.2 Fixed Assets
a. Tangible Assets
Tangible fixed assets are stated at cost, less accumulated depreciation and impairment losses, if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Any trade discounts and rebates are deducted in arriving at the purchase price.
Subsequent expenditure related to an item of fixed asset is added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance. All other expenses on existing fixed assets, including day-to-day repair and maintenance expenditure and cost of replacing parts, are charged to the statement of profit and loss for the period during which such expenses are incurred.
Borrowing costs directly attributable to acquisition of fixed assets which take substantial period of time to get ready for its intended use are also included to the extent they relate to the period till such assets are ready to be put to use.
Gains or losses arising from de-recognition of fixed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit and loss when the asset is derecognized.
b. Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets, comprising of software and intellectual property rights are amortized on a straight line basis over a period of 3 years, which is estimated to be the useful life of the asset.
Goodwill reflected to the extent of Rs, 30,000,000/- is on account of the excess consideration paid over and above the net asset value, while acquiring the shares of M/s. Parani Steels Private Limited. The same is being written off over the period of 10 years in the books of account.
c. Depreciation
i. Schedule II to the Companies Act, 2013, which prescribes requirements concerning depreciation of fixed assets is effective from 1st April 2014, in respect of companies located in India. Schedule II allows companies to use higher/ lower useful lives and residual values if such useful lives and residual values can be technically supported and justification for difference is disclosed in the financial statements.
ii. Considering the applicability of Schedule II, the management has re-estimated useful lives and residual values of all its fixed assets in line with Schedule II with effect from 1st April 2014 and the same is being followed in the current year also.
Depreciation on tangible assets for items other than referred to in item 3.2(c), is provided on written down value method on a pro-rata basis using the estimated life as prescribed under Schedule II, at the rates as specified in Schedule II of the Companies Act, 2013.
3.3 Research and Development
Any intangible / tangible asset generated out of the Research and Development activity is amortized / written off over the estimated life of the asset.
3.4 Investments
Investments are reflected at cost. However, provision for diminution in value is made to recognise a decline other than temporary in the value of the investments.
3.5 Inventories
Inventories are stated at the lower of cost or net realisable value. Cost in respect of inventories is determined at the weighted average method. The cost of finished goods and work in process comprises raw material, direct labour, other direct costs and related production overheads allocated on the basis of the normal capacity of production. Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses.
3.6 Exchange Fluctuation
a. Foreign Currency transactions are accounted at the exchange rates prevailing at the date of the transaction.
b. Gains and Losses resulting from the settlement of foreign currency transaction and from the translation of monetary assets and liabilities denominated in foreign currencies at the year-end rates are recognized in the statement of profit and loss.
c In the case of forward contract, the premium or discount arising at the inception of such a forward exchange contract is amortised as expense or income over the life of the contract.
3.7 Employee / Retirement Benefits
Provident Fund: Eligible employees receive benefits from a Provident Fund, which is a defined Contribution Plan. Aggregate contributions along with interest thereon, are paid at retirement, death, incapacitation or termination of employment. Both the employee and the Company make monthly contributions to the Government administered Provident Fund. The Company has no obligation beyond its contribution.
Gratuity: A defined benefit retirement plan (the âGratuity Planâ) is provided for all eligible employees. In accordance with the Payment of Gratuity Act, 1972, the Gratuity Plan provides a lumpsum amount to be vested to employees at retirement, death, incapacitation or termination of employment, of an amount based on the respective employeeâs salary and the tenure of employment. Liabilities with regard to the Gratuity Plan are determined by actuarial valuation as of the balance sheet date, based upon which, the Company contributes all the ascertained liabilities to the Elgi Rubber Company Limited Employees Gratuity Fund Trust and the contributions to the trust are invested in the Life Insurance Corporation of India administered Fund.
Superannuation: Certain employees of the Company are also participants in a defined contribution plan. The Company makes the contributions to the Superannuation Plan administered by the Elgi Rubber Company Employees Superannuation Fund Trust. The Company has no further obligations to the plan beyond its contributions.
Expenses on ex-gratia payment to employees, a defined contribution plan, is accounted as and when accepted by the management.
Compensated absence: A defined benefit plan is provided for all the eligible employees and the contributions of the company are invested in the Life Insurance Corporation of India administered Fund.
3.8 Lease
The Company is leasing out tyre re-treading machineries to customers. In respect of assets given under a finance lease, the same is recognized as a receivable at an amount equal to the net investment in the lease. Lease rentals are apportioned between principal and interest on the IRR method. The principal amount received reduces the net investment in the lease and interest is recognized as revenue.
3.9 Provisions
A provision is recognized when the Company has a present obligation as a result of past event, it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on the best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.
3.10 Cash and Cash equivalents
Cash and cash equivalents for the purposes of cash flow statement comprise cash at bank and in hand and short-term investments with an original maturity of three months or less.
3.11 Cash Flow Statement
Cash Flows are reported using the indirect method, whereby profit before tax is adjusted for the effects of transactions of a non cash nature, any deferrals or accruals of past or future operating cash receipts or payments and items income or expense associated with investing or financing cash flows. Cash and cash equivalents include cash on hand and balance with banks in current and deposit accounts, with necessary disclosure of cash and cash equivalent balances that are not available for use by the company.
3.12 Earnings per share
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting preference dividends and attributable taxes, if any) by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for events of bonus issue.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares.
3.13 Borrowing Costs
Borrowing costs relating to acquisition 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 substantial period of time to get ready for its intended use/sale. All other borrowing costs not eligible for inventorisation / capitalization are charged to revenue.
3.14 Taxes
Tax expense comprises of current and deferred tax.
Deferred Tax
a. Deferred tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.
b. Deferred tax assets are recognized on unabsorbed capital losses only if it is reasonably certain that such deferred tax assets can be realized against future taxable capital gains.
3.15 Treatment of Contingent Liabilities
Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent liabilities are not recognized but are disclosed in the notes. Contingent assets are neither recognized nor disclosed in the financial statements.
Mar 31, 2015
1. a. Basis of preparation of financial statements
The Company has prepared these financial statements to comply in all
material respects with the accounting standards notified under section
133 of the Companies Act 2013, read together with paragraph 7 of the
Companies (Accounts) Rules 2014. The financial statements have been
prepared on an accrual basis and under the historical cost convention.
The accounting policies adopted in the preparation of financial
statements are consistent with those of previous year, except for the
change in accounting policy explained below.
b. Use of estimates
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles (GAAP) in India requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosures of contingent liabilities on
the date of financial statements and the results of operations during
the reporting period. Although these estimates are based upon
management's best knowledge of current events and actions, actual
results could differ from the estimates. Significant estimates used by
the management in the preparation of these financial statements
include, work in progress, provisions for bad and doubtful debts,
estimates of the useful life of the fixed assets.
2. Scheme of amalgamation and arrangement
a. As per the Scheme of amalgamation and arrangement (hereinafter
referred to as "Scheme", as approved by the Hon'ble High Court of
Judicature at Madras on 16th December 2010 between Elgi Rubber Company
Limited (ERCL) and Treads direct Limited (TDL) and Elgi Rubber
International Limited (ERIL) and Titan Tyrecare Products Limited (TTPL)
and Treadsdirect (India) Limited (TDIL), the whole of the undertaking
of ERCL and TDL comprising of its business, all assets, both movables
and immovables, and liabilities of whatsoever nature and wheresoever
situated were transferred to and vested in ERIL as a going concern as
from the appointed date ie. 1st April 2010.
b. Engineering undertaking of ERIL was vested in TTPL and tread rubber
undertaking of ERIL was vested with TDIL by way of slump sale with
effect from the appointed date (01.01.2011).
3.01 Change in accounting policy
Till the year ended 31st March 2014, schedule XIV to the Companies Act,
1956, prescribed requirements concerning depreciation of fixed assets.
From the current year, schedule XIV has been replaced by schedule II to
the Companies Act, 2013. The applicability of schedule II has resulted
in the following changes related to depreciation of fixed assets.
Useful lives/ depreciation rates
Till the year ended 31st March 2014, depreciation rates prescribed
under schedule XIV were treated as minimum rates and the Company was
not allowed to charge depreciation at lower rates even if such lower
rates were justified by the estimated useful life of the asset,
schedule II to the Companies Act, 2013 prescribes useful lives for
fixed assets which, in many cases, are different from lives prescribed
under the erstwhile schedule XIV. However, schedule II allows companies
to use higher/'lower useful lives and residual values if such useful
lives and residual values can be technically supported and
justification for difference is disclosed in the financial statements.
Considering the applicability of schedule II, the management has
re-estimated useful lives and residual values of all its fixed assets.
The management believes that depreciation rates currently used fairly
reflect its estimate of the useful lives and residual values of fixed
assets, though these rates in certain cases are different from lives
prescribed under schedule II. Accordingly, the carrying amount as at
1st April 2014 is being depreciated over the revised remaining useful
life of the asset. The carrying value of Rs. 12,567,219, in case of
assets with Nil revised remaining useful life as at 1st April 2014, is
reduced after tax adjustment from the retained earnings as at such
date. Further, had the Company continued with the previously assessed
useful lives, charge for depreciation for the year ended March 31, 2015
would have been lower by Rs. 7.25 million and the profit before tax for
the year ended 31st March, 2015 would have been higher by such amount,
with a corresponding impact on net block of fixed assets as at 3ta
March, 2015.
Depreciation on assets costing less than Rs. 5,000/-
Till year ended 31st March 2014, to comply with the requirements of
schedule XIV to the Companies Act, 1956, the Company was charging 100%
depreciation on assets costing less than Rs. 5,000/- in the year of
purchase. However, schedule II to the Companies Act 2013, applicable
from the current year, does not recognize such practice. Hence, to
comply with the requirement of schedule II to the Companies Act, 2013,
the Company has changed its accounting policy for depreciation of
assets costing less than Rs. 5,000/-. As per the revised policy, the
Company is depreciating such assets over their useful life as assessed
by the management. The management has decided to apply the revised
accounting policy prospectively from accounting periods commencing on
or after 1st April 2014.
The change in accounting for depreciation of assets costing less than
Rs. 5,000/- did not have any material impact on financial statements of
the Company for the current year.
3.02 Revenue Recognition
a. Sales are recognized upon delivery of products and are recorded
exclusive of Excise duty, Service tax and sales tax.
b. Export benefits are accounted on accrual basis.
c. Dividend income from investment in mutual funds is recognized on
declaration of the same by the respective agency
d. Revenue is recognised when the shareholders' or unit holders' right
to receive payment is established by the balance sheet date.
e. Interest Income is recognised on a time proportionate basis taking
into account the amount outstanding and the rate applicable
3.03 Fixed Assets
a. Tangible Assets
Tangible fixed assets are stated at cost, less accumulated depreciation
and impairment losses, if any. cost comprises the purchase price and
any attributable cost of bringing the asset to its working condition
for its intended use. Any trade discounts and rebates are deducted in
arriving at the purchase price.
Subsequent expenditure related to an item of fixed asset is added to
its book value only if it increases the future benefits from the
existing asset beyond its previously assessed standard of performance.
All other expenses on existing fixed assets, including day-to-day
repair and maintenance expenditure and cost of replacing parts, are
charged to the statement of profit and loss for the period during which
such expenses are incurred.
Borrowing costs directly attributable to acquisition of fixed assets
which take substantial period of time to get ready for its intended use
are also included to the extent they relate to the period till such
assets are ready to be put to use.
Gains or Losses arising from de-recognition of fixed assets are
measured as the difference between the net disposal proceeds and the
carrying amount of the asset and are recognized in the statement of
profit and loss when the asset is derecognized.
b. Intangible Assets
Intangible assets acquired separately are measured on initial
recognition at cost. Following initial recognition, intangible assets
are carried at cost less accumulated amortization and accumulated
impairment losses, if any. Intangible assets, comprising of software
and intellectual property rights are amortized on a straight line basis
over a period of 3 years, which is estimated to be the useful life of
the asset.
c. Depreciation
Depreciation on tangible assets for items other than referred to in
item 3.3.(c), is provided on written down value method on a pro-rata
basis using the estimated life as prescribed under schedule II, at the
rates as specified in schedule II of the Companies Act, 2013.
3.04 Research and Development
Any intangible / tangible asset generated out of the research'and
development activity is amortized / written off over the estimated life
of the asset.
3.05 Investments
Investments are reflected at cost. However, provision for diminution in
value is made to recognise a decline other than temporary in the value
of the investments.
3.06 Inventories / Stock of securities
Inventories / Stock of securities are stated at the lower of cost or
net realisable value. Cost in respect of inventories is determined at
the weighted average method. The cost of finished goods and
work-in-process comprises raw material, direct labour, other direct
costs and related production overheads allocated on the basis of the
normal capacity of production. Net realisable value is the estimate of
the selling price in the ordinary course of business, less the costs of
completion and selling expenses.
3.07 Exchange fluctuation
a. Foreign currency transactions are accounted at the exchange rates
prevailing at the date of the transaction.
b. Gains and losses resulting from the settlement of foreign currency
transaction and from the translation of monetary assets and liabilities
denominated in foreign currencies at the year-end rates are recognized
in the statement of profit and loss.
c. In the case of forward contract, the premium or discount arising at
the inception of such a forward exchange contract is amortised as
expense or income over the life of the contract.
3.08 Employee / Retirement Benefits
Provident fund: Eligible employees receive benefits from a provident
fund, which is a defined contribution plan. Aggregate contributions
along with interest thereon, are paid at retirement, death,
incapacitation or termination of employment. Both the employee and the
Company make monthly contributions to the government administered
provident fund. The Company has no obligation beyond its contribution.
Gratuity: A defined benefit retirement plan (the "Gratuity Plan") is
provided for all eligible employees. In accordance with the
Payment of Gratuity Act, 1972, the gratuity plan provides a lumpsum
amount to be vested employees at retirement, death, incapacitation or
termination of employment, of an amount based on the respective
employee's salary and the tenure of employment. Liabilities with regard
to the gratuity plan are determined by actuarial valuation as of the
balance sheet date, based upon which, the Company contributes all the
ascertained liabilities to the Elgi Rubber Company Limited Employees
gratuity fund trust and the contributions to the trust are invested in
the Life Insurance Corporation of India administered fund.
Superannuation: Certain employees of the Company are also participants
in a defined contribution plan. The Company makes the contributions to
the superannuation plan administered by the Elgi Rubber Company
Employees Superannuation Fund Trust. The Company has no further
obligations to the plan beyond its monthly contributions.
Expenses on ex-gratia payment to employees, a defined contribution
plan, is accounted as and when accepted by the management.
Compensated absence: A defined benefit plan is provided for all the
eligible employees and the contributions of the Company are , invested
in the Life Insurance Corporation of India administered fund.
3.09 Lease
The Company is leasing out tyre re-treading machineries to customers.
In respect of assets given under a finance lease, the same is
recognized as a receivable at an amount equal to the net investment in
the lease. Lease rentals are apportioned between principal and interest
on the IRR method. The principal amount received reduces the net
investment in the lease and interest is recognized as revenue.
3.10 Provisions
A provision is recognised when the Company has a present obligation as
a result of past event, it is probable that an outflow of resources
will be required to settle the obligation, in respect of which a
reliable estimate can be made. Provisions are not discounted to its
present value and are determined based on the best estimate required to
settle the obligation at the balance sheet date. These are reviewed at
each balance sheet date and adjusted to reflect the current best
estimates.
3.11 Cash and Cash equivalents
Cash and cash equivalents for the purposes of cash flow statement
comprise cash at bank and in hand and short-term investments with an
original maturity of three months or less.
3.12 Cash Flow Statement
Cash Flows are reported using the indirect method, whereby profit
before tax is adjusted for the effects of transactions of a non cash
nature, any deferrals or accruals of past or future operating cash
receipts or payments and items income or expense associated with
investing or financing cash flows. Cash and cash equivalents include
cash on hand and balance with banks in current and deposit accounts,
with necessary disclosure of cash and cash equivalent balances that are
not available for use by the company.
3.13 Earnings Per Share
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
preference dividends and attributable taxes, if any) by the weighted
average number of equity shares outstanding during the year. The
weighted average number of equity shares outstanding during the year is
adjusted for events of bonus issue.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
3.14 Borrowing Costs
Borrowing costs relating to acquisition are capitalised until the time
all substantial activities necessary to prepare the qualifying t assets
for their intended use are complete. A qualifying asset is one that
necessarily takes substantial period of time to get ready for
its intended use/sale. All other borrowing costs not eligible for
inventorisation / capitalisation are charged to revenue.
3.15 Taxes
Tax expense comprises of current and deferred tax. Deferred Tax
a. Deferred tax is recognized, subject to the consideration of
prudence in respect of deferred tax assets, on timing differences,
being the difference between taxable income and accounting income that
originate in one period and are capable of reversal in one or more
subsequent periods.
b. Deferred tax assets are recognized on unabsorbed capital losses
only if it is reasonably certain that such deferred tax assets can be
realised against future taxable capital gains.
3.16 Treatment of Contingent Liabilities
Provisions involving substantial degree of estimation in measurement
are recognized when there is a present obligation as a result of past
events and it is probable that there will be an outflow of resources.
Contingent liabilities are not recognized but are disclosed in the
notes. Contingent assets are neither recognized nor disclosed in the
financial statements.
Mar 31, 2014
Elgi Rubber Company Limited (''Company'' or ''ERCL'') was incorporated on
16.10.2006. ERCL is a leading Company providing solutions to Rubber
Industry and engaged in the business of manufacture of Reclaimed
Rubber, Retreading machinery, and Retread rubber.
a. Basis of preparation of financial statements
The financial statements have been prepared to comply in all material
respect with the accounting standards notified by Companies (Accounting
Standards) Rules 2006,(as amended) and the relevant provisions of
Companies Act, 1956 (''the Act''). The financial statements have been
prepared under the historical cost convention on an accrual basis in
accordance with accounting principles generally accepted in India.
Accounting policies have been consistently applied by the company and
are consistent with those used in the previous year and in case of any
such variations in the accounting policies as compared to the previous
year, such variations are disclosed separately as a part of notes to
accounts.
b. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) in India requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosures of contingent liabilities on
the date of financial statements and the results of operations during
the reporting period. Although these estimates are based upon
management''s best knowledge of current events and actions, actual
results could differ from the estimates. Significant estimates used by
the management in the preparation of these financial statements
include, work in progress, provisions for bad and doubtful debts,
estimates of the useful life of the fixed assets.
2. Scheme of amalgamation and arrangement
a. As per the Scheme of Amalgamation and Arrangement (hereinafter
referred to as" Scheme", as approved by the Hon''ble High Court of
Judicature at Madras on 16.12.2010 between Elgi Rubber Company Limited
(ERCL) and Treadsdirect Limited(TDL) and Elgi Rubber International
Limited(ERIL) and Titan Tyrecare Products Limited (TTPL) and
Treadsdirect (India) Limited (TDIL), the whole of the undertaking of
ERCL and TDL comprising of its business, all assets, both movables and
immovables, and liabilities of whatsoever nature and wheresoever
situated were transferred to and vested in ERIL as a going concern as
from the appointed date ie. 1st April 2010.
b. Engineering undertaking of ERIL was vested in TTPL and tread rubber
undertaking of ERIL was vested with TDIL by way of slump sale with
effect from the appointed date (01.01.2011).
3. Revenue recognition
a. Sales are recognized upon delivery of products and are recorded
exclusive of excise duty, service tax and sales tax.
b. Export benefits are accounted on accrual basis.
c. Dividend income from investment in Mutual Funds is recognized on
declaration of the same by the respective agency.
d. Dividend from other companies is accounted on confirmation in the
Annual General Meeting of the respective companies.
e. Interest Income is recognised on a time proportionate basis taking
into account the amount outstanding and the rate applicable.
4. Fixed assets
a. Fixed Assets are reflected at historical cost (net of Cenvat / VAT)
less depreciation to date.
b. At Balance Sheet date, an assessment is done to determine whether
there is any indication of impairment in the carrying amount of the
Company''s fixed assets. If any such indication exists, the asset''s
recoverable amount is estimated. An impairment loss is recognized
whenever the carrying amount of an asset exceeds its recoverable
amount.
An assessment is also done at each Balance Sheet date whether there is
any indication that an impairment loss recognized for an asset in prior
accounting periods may no longer exist or may have decreased. If any
such indication exists, the asset''s recoverable amount is estimated.
The carrying amount of the fixed asset is increased to the revised
estimate of its recoverable amount so that the increased carrying
amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognized for the asset in
prior years. A reversal of impairment loss is recognized in the
Statement of Profit and Loss.
After recognition of impairment loss or reversal of impairment loss as
applicable, the depreciation charge for the asset is adjusted in future
periods to allocate the asset''s revised carrying amount, less its
residual value (if any) on straight line basis over its remaining
useful life.
5. Depreciation
a. Depreciation on fixed assets for items other than referred to in
item 5(c), is provided on written down value method on a pro-rata
basis, at the rates as specified in Schedule XIV of the Companies Act,
1956.
b. Assets purchased, where the actual cost does not exceed Rs.5,000/-
is depreciated at the rate of 100%, in the year of purchase.
c. Intangible assets of software are amortized over a period of 3 years
on a pro-rata basis, which is estimated to be the life of the
intangible asset.
6. Research and Development
Any intangible / tangible asset generated out of the Research and
Development activity is amortized / written off over the estimated life
of the asset.
7. Investments
Investments are reflected at cost, except cases where provision is
considered necessary.
8. Inventories / Stock of securities
Inventories / Stock of Securities are stated at the lower of cost or
net realisable value. Cost in respect of inventories is determined at
the weighted average method. The cost of finished goods and
work-in-process comprises raw material, direct labour, other direct
costs and related production overheads allocated on the basis of the
normal capacity of production. Net realisable value is the estimate of
the selling price in the ordinary course of business, less the costs of
completion and selling expenses.
9. Cash flow statement
Cash Flows are reported using the indirect method, whereby profit
before tax is adjusted for the effects of transactions of a non cash
nature, any deferrals or accruals of past or future operating cash
receipts or payments and items of income or expense associated with
investing or financing cash flows. Cash and cash equivalents include
cash on hand and balance with banks in current and deposit accounts,
with necessary disclosure of cash and cash equivalent balances that are
not available for use by the company.
10. Exchange fluctuation
a. Foreign Currency transactions are accounted at the exchange rates
prevailing at the date of the transaction.
b. Gains and Losses resulting from the settlement of foreign currency
transaction and from the translation of monetary assets and liabilities
denominated in foreign currencies at the year-end rates are recognized
in the Statement of Profit and Loss.
c. In the case of forward contract, the premium or discount arising at
the inception of such a forward exchange contract is amortised as
expense or income over the life of the contract.
11. Employee / Retirement benefits
a. Provident Fund: Eligible employees receive benefits from a Provident
Fund, which is a defined Contribution Plan. Aggregate contributions
along with interest thereon, are paid at retirement, death,
incapacitation or termination of employment. Both the employee and the
Company make monthly contributions to the Government administered
Provident Fund. The Company has no obligation beyond its contribution.
b. Gratuity: A defined benefit retirement plan (the "Gratuity Plan") is
provided for all eligible employees. In accordance with the Payment of
Gratuity Act, 1972, the Gratuity Plan provides a lumpsum amount to
vested employees at retirement, death, incapacitation or termination of
employment, of an amount based on the respective employee''s salary and
the tenure of employment. Liabilities with regard to the Gratuity Plan
are determined by actuarial valuation as of the balance sheet date,
based upon which, the Company contributes all the ascertained
liabilities to the Elgi Rubber Company Limited Employees Gratuity Fund
Trust and the contributions to the trust are invested in the Life
Insurance Corporation of India administered Fund.
c. Superannuation: Certain employees of the Company are also
participants in a defined contribution plan. The Company makes the
contributions to the Superannuation Plan administered by the Elgi
Rubber Company Employees Superannuation Fund Trust. The Company has no
further obligations to the Plan beyond its monthly contributions.
d. Expenses on ex-gratia payment to employees, a defined contribution
plan, is accounted as and when accepted by the management.
e. Provision in respect of compensated absence is made, based on
actuarial valuation.
12. Lease
The Company is leasing out tyre re-treading machineries to customers.
In respect of assets given under a finance lease, the same is
recognized as a receivable at an amount equal to the net investment in
the lease. Lease rentals are apportioned between principal and interest
on the IRR method. The principal amount received reduces the net
investment in the lease and interest is recognized as revenue.
13. Earnings per share
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
preference dividends and attributable taxes, if any) by the weighted
average number of equity shares outstanding during the year. The
weighted average number of equity shares outstanding during the year is
adjusted for events of bonus issue.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
14. Borrowing costs
Borrowing costs relating to acquisition are capitalised 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 substantial period of time to get ready for its
intended use/sale. All other borrowing costs not eligible for
inventorisation / capitalisation are charged to revenue.
15. Taxes
Tax expense comprises of current and deferred tax.
Deferred tax
a. Deferred tax is recognized, subject to the consideration of prudence
in respect of deferred tax assets, on timing differences, being the
difference between taxable income and accounting income that originate
in one period and are capable of reversal in one or more subsequent
periods.
b. Deferred tax assets are recognized on unabsorbed capital losses only
if it is reasonably certain that such deferred tax assets can be
realised against future taxable capital gains.
16. Treatment of contingent liabilities
Provisions involving substantial degree of estimation in measurement
are recognized when there is a present obligation as a result of past
events and it is probable that there will be an outflow of resources.
Contingent liabilities are not recognized but are disclosed in the
notes. Contingent assets are neither recognized nor disclosed in the
financial statements.
Mar 31, 2013
1. a. Basis of preparation of financial statements
The financial statements have been prepared to comply in all material
respect with the accounting standards notified by Companies (Accounting
Standards) Rules 2006,(as amended) and the relevant provisions of
Companies Act, 1956 (''the Act''). The financial statements have been
prepared under the historical cost convention on an accrual basis in
accordance with accounting principles generally accepted in India.
Accounting policies have been consistently applied by the company and
are consistent with those used in the previous year and in case of any
such variations in the accounting policies as compared to the previous
year, such variations are disclosed separately as a part of notes to
accounts.
b. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) in India requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosures of contingent liabilities on
the date of financial statements and the results of operations during
the reporting period. Although these estimates are based upon
management''s best knowledge of current events and actions, actual
results could differ from the estimates. Significant estimates used by
the management in the preparation of these financial statements
include, work in progress, provisions for bad and doubtful debts,
estimates of the useful life of the fixed assets.
2. Scheme of amalgamation and arrangement
a. As per the Scheme of Amalgamation and Arrangement (hereinafter
referred to as "Scheme", as approved by the Hon''ble High Court of
Judicature at Madras on 16.12.2010 between Elgi Rubber Company Limited
(ERCL) and Treadsdirect Limited (TDL) and Elgi Rubber International
Limited (ERIL) and Titan Tyrecare Products Limited (TTPL) and
Treadsdirect (India) Limited (TDIL), the whole of the undertaking of
ERCL and TDL comprising of its business, all assets, both movables and
immovables, and liabilities of whatsoever nature and wheresoever
situated were transferred to and vested in ERIL as a going concern as
from the appointed date ie. 1st April 2010.
b. Engineering undertaking of ERIL was vested in TTPL and tread rubber
undertaking of ERIL Was vested with TDIL by way of slump sale with
effect from the appointed date (01.01.2011).
3. Revenue recognition
a. Sales are recognized upon delivery of products and are recorded
exclusive of excise duty, service tax and sales tax.
b. Export benefits are accounted on accrual basis.
c. Dividend income from investment in mutual funds is recognized on
declaration of the same by the respective agency.
d. Dividend from other companies is accounted on confirmation in the
annual general meeting of the respective companies.
e. Interest income is recognised on a time proportionate basis taking
into account the amount outstanding and the rate applicable.
4. Fixed assets
a. Fixed assets are reflected at historical cost (net of Cenvat / VAT)
less depreciation to date.
b. At Balance Sheet date, an assessment is done to determine whether
there is any indication of impairment in the carrying amount of the
Company''s fixed assets. If any such indication exists, the asset''s
recoverable amount is estimated. An impairment loss is recognized
whenever the carrying amount of an asset exceeds its recoverable
amount.
An assessment is also done at each Balance Sheet date whether there is
any indication that an impairment loss recognized for an asset in prior
accounting periods may no longer exist or may have decreased. If any
such indication exists, the asset''s recoverable amount is estimated.
The carrying amount of the fixed asset is increased to the revised
estimate of its recoverable amount so that the increased carrying
amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognized for the asset in
prior years. A reversal of impairment loss is recognized in the
Statement of Profit and Loss.
After recognition of impairment loss or reversal of impairment loss as
applicable, the depreciation charge for the asset is adjusted in future
periods to allocate the asset''s revised carrying amount, less its
residual value (if any) on straight line basis over its remaining
useful life.
5. Depreciation
a. Depreciation on fixed assets for items other than referred to in
item 5(c), is provided on written down value method on a pro-rata
basis, at the rates as specified in Schedule XIV of the Companies Act,
1956.
b. Assets purchased, where the actual cost does not exceed Rs.5,000/-
is depreciated at the rate of 100%, in the year of purchase.
c. Intangible assets of software are amortized over a period of 3
years on a pro-rata basis, which is estimated to be the life of the
intangible asset.
6. Research and Development
Any intangible / tangible asset generated out of the Research and
Development activity is amortized / written off over the estimated life
of the asset.
7. Investments
Investments are reflected at cost, except cases where provision is
considered necessary.
8. Inventories / Stock of securities
Inventories / Stock of securities are stated at the lower of cost or
net realisable value. Cost in respect of inventories is determined at
the weighted average method. The cost of finished goods and work in
process comprises raw material, direct labour, other direct costs and
related production overheads allocated on the basis of the normal
capacity of production. Net realisable value is the estimate of the
selling price in the ordinary course of business, less the costs of
completion and selling expenses.
Cash flow statement
Cash flows are reported using the indirect method, whereby profit
before tax is adjusted for the effects of transactions of a non cash
nature, any deferrals or accruals of past or future operating cash
receipts or payments and items income or expense associated with
investing or financing cash flows. Cash and cash equivalents include
cash on hand and balance with banks in current and deposit accounts,
with necessary disclosure of cash and cash equivalent balances that are
not available for use by the company.
10. Exchange fluctuation
a. Foreign currency transactions are accounted at the exchange rates
prevailing at the date of the transaction.
b. Gains and Losses resulting from the settlement of foreign currency
transaction and from the translation of monetary assets and liabilities
denominated in foreign currencies at the year end rates are recognized
in the Statement of Profit and Loss.
c. In the case of forward contract, the premium or discount arising at
the inception of such a forward exchange contract is amortised as
expense or income over the life of the contract.
11. Employee / Retirement benefits
a. Provident Fund: Eligible employees receive benefits from a
provident fund, which is a defined Contribution Plan. Aggregate
contributions along with interest thereon, are paid at retirement,
death, incapacitation or termination of employment. Both the employee
and the Company make monthly contributions to the government
administered provident fund. The Company has no obligation beyond its
contribution.
b. Gratuity: A defined benefit retirement plan (the "Gratuity Plan")
is provided for all eligible employees. In accordance with the Payment
of Gratuity Act, 1972, the Gratuity Plan provides a lumpsum amount to
vested employees at retirement, death, incapacitation or termination of
employment, of an amount based on the respective employee''s salary and
the tenure of employment. Liabilities with regard to the Gratuity Plan
are determined by actuarial valuation as of the balance sheet date,
based upon which, the Company contributes all the ascertained
liabilities to the Elgi Rubber Company Limited Employees Gratuity Fund
Trust and the contributions to the trust are invested in the Life
Insurance Corporation of India administered Fund.
c. Superannuation: Certain employees of the Company are also
participants in a defined contribution plan. The Company makes the
contributions to the Superannuation Plan administered by the Elgi
Rubber Company Employees Superannuation Fund Trust. The Company has no
further obligations to the Plan beyond its monthly contributions.
d. Expenses on ex gratia payment to employees, a defined contribution
plan, is accounted as and when accepted by the management.
e. Provision in respect of compensated absence is made, based on
actuarial valuation.
12. Lease
The Company is leasing out tyre retreading machineries to customers. In
respect of assets given under a finance lease, the same is recognized
as a receivable at an amount equal to the net investment in the lease.
Lease rentals are apportioned between principal and interest on the IRR
method. The principal amount received reduces the net investment in the
lease and interest is recognized as revenue.
13. Earnings per share
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
preference dividends and attributable taxes, if any) by the weighted
average number of equity shares outstanding during the year. The
weighted average number of equity shares outstanding during the year is
adjusted for events of bonus issue.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
14. Borrowing costs
Borrowing costs relating to acquisition are capitalised 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 substantial period of time to get ready for its
intended use / sale. All other borrowing costs not eligible for
inventorisation / capitalisation are charged to revenue.
15.Taxes
Tax expense comprises of current and deferred tax. Deferred tax
a. Deferred tax is recognized, subject to the consideration of
prudence in respect of deferred tax assets, on timing differences,
being the difference between taxable income and accounting income that
originate in one period and are capable of reversal in pne or more
subsequent periods.
b. Deferred tax assets are recognized on unabsorbed capital losses
only if it is reasonably certain that such deferred tax assets can be
realised against future taxable capital gains.
16. Treatment of contingent liabilities
Provisions involving substantial degree of estimation in measurement
are recognized when there is a present obligation as a result of past
events and it is probable that there will be an outflow of resources.
Contingent liabilities are not recognized but are disclosed in the
notes. Contingent assets are neither recognized nor disclosed in the
financial statements.
Mar 31, 2012
1. a. Basis of Preparation of Financial Statements
The financial statements have been prepared to comply in all material
respect with the accounting standards notified by Companies (Accounting
Standards) Rules 2006,(as amended) and the relevant provisions of
Companies Act, 1956 (the Act). The financial statements have been
prepared under the historical cost convention on an accrual basis in
accordance with accounting principles generally accepted in India.
Accounting policies have been consistently applied by the company and
are consistent with those used in the previous year and in case of any
such variations in the accounting policies as compared to the previous
year, such variations are disclosed separately as a part of notes to
accounts.
b. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) in India requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosures of contingent liabilities on
the date of financial statements and the results of operations during
the reporting period. Although these estimates are based upon
management's best knowledge of current events and actions, actual
results could differ from the estimates. Significant estimates used by
the management in the preparation of these financial statements
include, work in progress, provisions for bad and doubtful debts,
estimates of the useful life of the fixed assets.
2. Scheme of Amalgamation and Arrangement
a. As per the Scheme of Amalgamation and Arrangement (hereinafter
referred to as 'Scheme', as approved by the Hon'ble High Court of
Judicature at Madras on 16.12.2010 between Elgi Rubber Company Limited
(ERCL) and Treadsdirect Limited(TDL) and Elgi Rubber International
Limited(ERIL) and Titan Tyrecare Products Limited (TTPL) and
Treadsdirect (India) Limited (TDIL), the whole of the undertaking of
ERCL and TDL comprising of its business, all assets, both movables and
immovables, and liabilities of whatsoever nature and wheresoever
situated were transferred to and vested in ERIL as a going concern as
from the appointed date ie. 1st April 2010.
b. Engineering undertaking of ERIL was vested in TTPL and tread rubber
undertaking of ERIL was vested with TDIL by way of slump sale with
effect from the appointed date (01.01.2011).
3. Income Recognition
a. Sales are recognized upon delivery of products and are recorded
exclusive of excise duty, service tax and sales tax.
b. Export benefits are accounted on accrual basis.
c. Dividend income from investment in Mutual Funds is recognized on
declaration of the same by the respective agency.
d. Dividend from other companies is accounted on confirmation in the
Annual General Meeting of the respective companies.
e. Interest income is recognised on a time proportionate basis taking
into account the amount outstanding and the rate applicable
4. Fixed Assets
a. Fixed Assets are reflected at historical cost (net of Cenvat / VAT)
less depreciation to date.
b. At Balance Sheet date, an assessment is done to determine whether
there is any indication of impairment in the carrying amount of the
Company's fixed assets. If any such indication exists, the asset's
recoverable amount is estimated. An impairment loss is recognized
whenever the carrying amount of an asset exceeds its recoverable
amount.
An assessment is also done at each Balance Sheet date whether there is
any indication that an impairment loss recognized for an asset in prior
accounting periods may no longer exist or may have decreased. If any
such indication exists, the asset's recoverable amount is estimated.
The carrying amount of the fixed asset is increased to the revised
estimate of its recoverable amount so that the increased carrying
amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognized for the asset in
prior years. A reversal of impairment loss is recognized in the
Statement of Profit and Loss.
After recognition of impairment loss or reversal of impairment loss as
applicable, the depreciation charge for the asset is adjusted in future
periods to allocate the asset's revised carrying amount, less its
residual value (if any) on straight line basis over its remaining
useful life.
5. Depreciation
a. Depreciation on fixed assets for items other than referred to in
item 5(c), is provided on written down value method on a pro-rata
basis, at the rates as specified in Schedule XIV of the Companies Act,
1956.
b. Assets purchased, where the actual cost does not exceed Rs.5,000/-
is depreciated at the rate of 100%, in the year of purchase.
c. Intangible assets of software are amortized over a period of 3
years on a pro-rata basis, which is estimated to be the life of the
intangible asset.
6. Research and Development
Any intangible / tangible asset generated out of the Research and
Development activity is amortized / written off over the estimated life
of the asset.
7. Investments
Investments are reflected at cost, except cases where provision is
considered necessary.
8. Inventories / Stock of Securities
Inventories / Stock of Securities are stated at the lower of cost or
net realisable value. Cost in respect of inventories is determined at
the weighted average method. The cost of finished goods and
work-in-process comprises raw material, direct labour, other direct
costs and related production overheads allocated on the basis of the
normal capacity of production. Net realisable value is the estimate of
the selling price in the ordinary course of business, less the costs of
completion and selling expenses.
9. Cash Flow Statement
Cash Flows are reported using the indirect method, whereby profit
before tax is adjusted for the effects of transactions of a non cash
nature, any deferrals or accruals of past or future operating cash
receipts or payments and items income or expense associated with
investing or financing cash flows. Cash and cash equivalents include
cash on hand and balance with banks in current and deposit accounts,
with necessary disclosure of cash and cash equivalent balances that are
not available for use by the company.
10. Exchange Fluctuation
a. Foreign Currency transactions are accounted at the exchange rates
prevailing at the date of the transaction.
b. Gains and Losses resulting from the settlement of foreign currency
transaction and from the translation of monetary assets and liabilities
denominated in foreign currencies at the year end rates are recognized
in the Statement of Profit and Loss.
c. In the case of forward contract, the premium or discount arising at
the inception of such a forward exchange contract is amortised as
expense or income over the life of the contract.
11. Employee / Retirement Benefits
a. Provident Fund: Eligible employees receive benefits from a
Provident Fund, which is a defined Contribution Plan. Aggregate
contributions along with interest thereon, are paid at retirement,
death, incapacitation or termination of employment. Both the employee
and the Company make monthly contributions to the Government
administered Provident Fund. The Company has no obligation beyond its
contribution.
b. Gratuity: A defined benefit retirement plan (the "Gratuity
Plan") is provided for all eligible employees. In accordance with the
Payment of Gratuity Act, 1972, the Gratuity Plan provides a lumpsum
amount to be vested employees at retirement, death, incapacitation or
termination of employment, of an amount based on the respective
employee's salary and the tenure of employment. Liabilities with
regard to the Gratuity Plan are determined by actuarial valuation as of
the balance sheet date, based upon which, the Company contributes all
the ascertained liabilities to the Elgi Rubber Company Limited
Employees Gratuity Fund Trust and the contributions to the trust are
invested in the Life Insurance Corporation of India administered Fund.
c. Superannuation: Certain employees of the Company are also
participants in a defined contribution plan. The Company makes the
contributions to the Superannuation Plan administered by the Elgi
Rubber Company Employees Superannuation Fund Trust. The Company has no
further obligations to the Plan beyond its monthly contributions.
d. Expenses on ex-gratia payment to employees, a defined contribution
plan, is accounted as and when accepted by the management.
e. Provision in respect of compensated absence is made, based on
actuarial valuation.
12. Lease
The Company is leasing out tyre re-treading machineries to customers.
In respect of assets given under a finance lease, the same is
recognized as a receivable at an amount equal to the net investment in
the lease. Lease rentals are apportioned between principal and interest
on the IRR method. The principal amount received reduces the net
investment in the lease and interest is recognized as revenue.
13. Earnings per share
Basic earnings per share are calculated by dividing the net profit or
loss for the year attributable to equity shareholders (after deducting
preference dividends and attributable taxes, if any) by the weighted
average number of equity shares outstanding during the year. The
weighted average number of equity shares outstanding during the year is
adjusted for events of bonus issue.
For the purpose of calculating diluted earnings per share, the net
profit or loss for the year attributable to equity shareholders and the
weighted average number of shares outstanding during the year are
adjusted for the effects of all dilutive potential equity shares.
14. Borrowing Costs
Borrowing costs relating to acquisition are capitalised 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 substantial period of time to get ready for its
intended use/sale. All other borrowing costs not eligible for
inventorisation / capitalisation are charged to revenue.
15. Taxes
Tax expense comprises of current and deferred tax.
Deferred Tax
a. Deferred tax is recognized, subject to the consideration of
prudence in respect of deferred tax assets, on timing differences,
being the difference between taxable income and accounting income that
originate in one period and are capable of reversal in one or more
subsequent periods.
b. Deferred tax assets are recognized on unabsorbed capital losses
only if it is reasonably certain that such deferred tax assets can be
realised against future taxable capital gains.
16. Treatment of Contingent Liabilities
Provisions involving substantial degree of estimation in measurement
are recognized when there is a present obligation as a result of past
events and it is probable that there will be an outflow of resources.
Contingent liabilities are not recognized but are disclosed in the
notes. Contingent assets are neither recognized nor disclosed in the
financial statements.
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