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Moneycontrol.com India | Accounting Policy > Electrodes & Graphite > Accounting Policy followed by Ador Fontech - BSE: 530431, NSE: N.A
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Ador Fontech

BSE: 530431|ISIN: INE853A01022|SECTOR: Electrodes & Graphite
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Dec 13, 16:00
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Ador Fontech is not listed on NSE
Mar 17
Accounting Policy Year : Mar '18

REVENUE RECOGNITION

Revenue from sale of goods is recognised on transfer of all significant risks and rewards of ownership to the buyer. The amounts recognised as sale is exclusive of goods and services tax. Income from conversion job is recognised on its completion and on its acceptance by the customers.

OTHER INCOME

Interest income for all debt instruments, is recognised using the effective interest rate method. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the gross carrying amount of a financial asset. When calculating the effective interest rate, the Company estimates the expected cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options), but does not consider the expected credit losses.

Dividends are recognised in profit or loss only when the right to receive payment is established and it is probable that the economic benefits associated with the dividend will flow to the Company and the amount of the dividend can be measured reliably. Management and marketing fees are recognised as and when the services are rendered.

POST-SALE-CLIENT SUPPORT AND WARRANTIES

The Company provides its clients with a fixed-period-warranty for corrections of errors and support on its fixed-price, fixed-time frame contracts, particularly to support equipment and job works related transactions.

Costs associated with such support services are accrued at the time when related revenues are recorded and included in the Statement of Profit and Loss.

PROPERTY PLANT AND EQUIPMENT (INCLUDING CAPITAL WORK-IN-PROGRESS)

Freehold land is carried at historical cost. All other items of property, plant and equipment are stated at historical cost less depreciation. Historical cost are stated at cost of acquisition inclusive of all attributable cost of bringing the assets to their working condition, accumulated depreciation and accumulated impairment losses, if any.

Subsequent expenditure related to an item of tangible asset are added to its book value only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance.

Items of property, plant and equipment that have been retired from active use and are held for disposal are stated at the lower of their net book value & net realisable value and are shown separately in the financial statements. Any expected loss is recognised immediately in the Statement of Profit and Loss. Losses arising from the retirement of and gains or losses arising from disposal of tangible assets which are carried at cost are recognised in the Statement of Profit and Loss.

Schedule II to the Companies Act, 2013 prescribes useful lives for property, plant and equipment and 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 life and residual values of all its fixed assets. The Management believes that the depreciation rates currently used fairly reflect its estimate of the useful lives and residual values of property, plant and equipment.

The Company provides depreciation on all assets (except leasehold land) on written down basis and the leasehold land is being amortised on straight line basis over the period of lease.

Assets not yet ready for use are recognised as capital work-in-progress.

On transition to Ind-AS, the Company has elected to continue with the carrying value of all of its property, plant and equipment recognised as at April 1, 2016 and measured as per the previous GAAP as the deemed cost of property, plant and equipment.

INTANGIBLE ASSETS (INCLUDING UNDER DEVELOPMENT)

Intangible assets relating to product development are recorded at actual cost incurred on the development of products and are capitalised once the products receive approval from relevant authorities and the same are carried at cost less accumulated amortisation.

Intangible assets are amortised on a straight line basis over their estimated useful life of approximately four years, so as to effectively depreciate the assets over the specified useful life. Intangible assets are derecognised on disposal or when no future economic benefits are expected from its use or disposal.

Gains or losses arising from the retirement or disposal of an intangible asset are determined as the difference between the net disposal proceeds and carrying amount of the asset and recognised as income or expense in the Statement of Profit and Loss.

On transition to Ind-AS, the Company has elected to derecognise the carrying value of all of its existing intangible assets as at April 1, 2017 measured as per the previous GAAP.

IMPAIRMENT OF NON-FINANCIAL ASSETS

The carrying amount of non-financial assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal/external factors. An impairment loss, if any, is recognised in the statement of profit and loss, whenever the carrying amount of an asset or a cash generating unit exceeds its recoverable amount.

The recoverable amount of the assets (or where applicable, that of the cash generating unit to which the asset belongs) is estimated as the higher of its net selling price and its value in use.

After impairment, depreciation/amortisation is provided on the revised carrying amount of the asset over its remaining useful life.

A previously recognised impairment loss, if any, is increased or reversed depending on changes in circumstances. However, the carrying value after reversal, if any, is not increased beyond the carrying value that would have prevailed by charging usual depreciation/amortisation, if there were no impairment.

FINANCIAL INSTRUMENTS

A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

INVESTMENTS AND FINANCIAL ASSETS

Classification

The company classifies its financial assets in the following measurement categories:

- Those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and

- Those measured at amortised cost.

The classification depends on the entity’s business model for managing financial assets and contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. For investments in equity instruments, this will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for equity investment at fair value through other comprehensive income.

The Company reclassifies debt investments when and only when its business model for managing those assets changes.

Derecognition of financial assets

A financial asset is derecognised only when:

- The Company has transferred the rights to receive cash flows from the financial asset or

- Retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients.

Impairment of financial assets

The Company assesses on a forward looking basis the expected credit losses associated with its assets carried at amortised cost and FVOCI debt instruments. The impairment methodology applied depends on whether there has been a significant increase in the credit risk.

For trade receivables only, the Company applies the simplified approach permitted by Ind-AS-109-Financial Instruments, which requires expected lifetime losses to be recognised from initial recognition of the receivables.

INVESTMENT IN SUBSIDIARIES AND JOINT VENTURES

Subsidiaries are entities that are controlled by the Company. The Company controls an entity when the Company is exposed or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the investee. Investments in subsidiaries are accounted at cost less impairment, if any.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Investments in joint ventures are accounted at cost less impairment, if any.

Investments in subsidiary and joint venture are accounted at cost less impairment, if any, in accordance with Ind AS 27 -Separate financial statements.

BORROWINGS AND OTHER FINANCIAL LIABILITIES

Borrowings and other financial liabilities, if any, are initially recognised at fair value (net of transaction costs incurred). Difference between fair value and transaction proceeds on initial stage, if any, is recognised as an asset/ liability based on the underlying reason for the difference.

All financial liabilities, if any, are measured at amortised cost using the effective interest rate method.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents in the Balance Sheet comprise cash at bank and on hand besides term deposits, which are subject to an insignificant risk of changes in value.

INVENTORIES

- Traded goods, raw materials and packing materials:

At cost or net realisable value, whichever is lower.

- Process stock: At cost or estimated realisable value, whichever is lower.

- Finished goods: At cost or net realisable value, whichever is lower. Note: Cost is determined on a weighted average basis.

TAXATION

Current tax

The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.

Deferred tax

Deferred income tax is provided in full, using the Balance Sheet approach, on temporary differences arising between the tax bases of assets & liabilities and their carrying amounts in the financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination that at the time of the transaction affects neither accounting profit nor taxable profit (tax loss). Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply, when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for all deductible temporary differences and unused tax losses, only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets & liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise asset and settle liability, simultaneously.

Current and deferred tax are recognised in the profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In which case, tax is also recognised in other comprehensive income or directly in equity, respectively.

RETIREMENT AND OTHER EMPLOYEE BENEFITS

Short-term employee benefits

Employee benefits payable wholly within twelve months of receiving employee services are classified as short-term employee benefits. These benefits include salaries and wages, bonus, performance incentives and compensated absences which are expected to occur in the next twelve months. The undiscounted amount of short-term employee benefits to be paid in exchange for employee services are recognised as an expense as the related service is rendered by employees.

Post-employment benefits

Post-employment benefits are employee benefits (other than termination benefits and short term employee benefits) that are payable after the completion of employment. There are two types:

- Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which an entity pays specified contribution to a separate entity and has no obligation to pay any further amounts.

- Defined benefit plans

The entity’s obligation is to provide the agreed benefits to current and former employees.

The Company’s defined contribution plans include:

(i) Provident fund

Both the eligible employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the employee''s salary. Employer’s contribution to provident fund is charged to the Statement of Profit and Loss.

(ii) Gratuity

Provides a lump sum payment to employees who have completed five years or more of service at retirement, disability or termination of employment, being an amount based on the respective employee’s last drawn salary and the number of years of employment with the Company. Presently the Company’s gratuity plan is funded and managed through a trust, specially created and being managed for this purpose.

The liability or asset recognised in the Balance Sheet in respect of gratuity plan is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, if any. The defined benefit obligation is calculated annually by actuaries using the projected unit credit method.

Re-measurement gains and losses arising from experience adjustments and changes in actuarial assumptions are recognised in the period in which they occur, directly in other comprehensive income and are never reclassified to profit or loss. Changes in the present value of the defined benefit obligation resulting from plan amendments or curtailments are recognised immediately in the statement of profit and loss as past service cost.

(iii) Superannuation

Employees in the managerial cadre are covered under Superannuation fund. It is a fund in which only the Company makes contribution to employees and managed through a specially created trust fund.

The Company’s defined benefit plan comprise:

Compensated absences

Compensated absences accruing to employees and which can be carried to future periods, but where there are restrictions on availment or encashment or where the availment or encashment is not expected to occur wholly in the next twelve months, the liability on account of the benefit is determined actuarially using the projected unit credit method. The Company undertakes actuarial valuation and provides for the liability in its books of accounts. Presently the scheme is unfunded but going forward, the Company is contemplating to manage it through the aegis of the Life Insurance Corporation of India and defray the contribution in tranches over a period of time.

For the purpose of presentation, the allocation between short term and the long term provisions has been made as determined by the Actuarial valuation.

PROVISIONS AND CONTINGENT LIABILITIES

Provisions are recognised when the Company has

- a present legal or constructive obligation as a result of past events

- it is probable that an outflow of resources will be required to settle the obligation and

- the amount can be reliably estimated. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the Management’s best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value is a pre-tax-rate that reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

Contingent liabilities are disclosed when there is a possible obligation arising from past events, the existence of which will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Company or a present obligation that arises from past events where it is either not probable that an outflow of resources will be required to settle or a reliable estimate of the amount cannot be made.

FOREIGN CURRENCY TRANSACTIONS

Foreign currency transactions are recorded at the exchange rates prevailing on the date of such transactions. Monetary assets and liabilities as at the Balance Sheet date are translated at the rates of exchange prevailing at the date of the Balance Sheet. Gains and losses arising on account of differences in foreign exchange rates on settlement/ translation of monetary assets and liabilities are recognised in the Statement of Profit and Loss. Non-monetary foreign currency items are carried at cost.

EARNINGS PER SHARE

Basic earnings per share are calculated by dividing the net profit or loss (excluding other comprehensive income) for the year attributable to equity shareholders 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 such as bonus issue, bonus element in a right issue, shares split and reserve share splits (consolidation of shares) that have changed the number of equity shares outstanding, without a corresponding change in resources. For the purpose of calculating diluted earnings per share, the net profit or loss (excluding other comprehensive income) 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.

SEGMENT REPORTING

Operating segments, if any, are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The Board of Directors has been identified as being the chief operating decision maker.

The Board of Directors of Ador Fontech Limited assesses the financial performance and position of the group and makes strategic decisions.

LEASES

The determination of whether an arrangement is a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is 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. Further, the classification of a lease as either a finance lease or an operating lease is based on whether the risks and rewards of ownership shall pass to the lessee.

CASH FLOW STATEMENT

For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities in the Balance Sheet.

Cash flows are reported using indirect method, whereby profit before tax is adjusted for the effects of transactions of non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. Cash flows are reported using indirect method, whereby profit before tax is adjusted for the effects of transactions of non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows.

A. FIRST TIME ADOPTION OF IND-AS

Recognition in the financial statements

These are the Company’s first separate financial statements prepared in accordance with Ind-AS applicable as at March 31, 2018.

The accounting policies set out in note 1 have been applied in preparing the financial statements for the year ended March 31, 2018; the comparative information presented in these financial statements for the year ended March 31, 2017 and in the preparation of opening Ind-AS Balance Sheet as at April 1,2016 (the date of transition). In preparing its opening Ind-AS Balance Sheet, the Company has adjusted amounts reported previously in financial statements prepared in accordance with the accounting standards notified under the Companies (Accounting Standards) Rules, 2006 (as amended) and other relevant provisions of the Act (previous GAAP or Indian GAAP).

An explanation of transition from the previous GAAP to Ind-AS, has affected the Company’s financial position, financial performance and cash flows which are as follows:

OPTIONAL EXEMPTIONS AVAILED

Business combinations

The Company has availed business combination exemption on the first time adoption of Ind-AS and accordingly business combinations prior to the date of transition have not been restated to the accounting prescribed under Ind-AS-103.

The Company will apply the requirements of Ind-AS-103 — Business combinations occurring after the date of transition to Ind-AS.

Deemed cost

Ind-AS-101 permits a first-time adopter to elect to continue with the carrying value for all of its property, plant and equipment as recognised in the financial statements as at the date of transition to Ind-AS, measured as per the previous GAAP and use that as its deemed cost as on the date of transition, after making necessary adjustments for de-commissioning liabilities. This exemption can also be used for intangible assets covered by Ind-AS-38-intangible assets and investment property covered by Ind-AS-40-Investment Properties.

Accordingly, the Company has elected to measure all of its property, plant and equipment, intangible assets and investment properties at their previous GAAP carrying value.

Investment in subsidiaries and jointly controlled entities

Ind-AS-101 permits a first-time adopter to elect to continue with the carrying value of all of its subsidiaries and joint controlled entities as recognised in the financial statements, as at the date of transition to Ind-AS, measured as per the previous GAAP and use that as its deemed cost as at the date of transition.

Accordingly, the Company has elected to measure all of its investments in subsidiaries and joint venture at their previous GAAP carrying value.

MANDATORY EXCEPTIONS APPLIED

Estimates

An entity’s estimates in accordance with Ind-AS as at the date of transition to Ind-AS shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

Ind-AS estimates as at April 1,2016 are consistent with the estimates as at the same date made in conformity with previous GAAP, except where Ind-AS required a different basis for estimates as compared to the previous GAAP.

De-recognition of financial assets and liabilities

Ind-AS-101 requires a first-time adopter to apply de-recognition provisions of Ind-AS-109 prospectively for transactions occurring on or after the date of transition to Ind-AS. However, Ind-AS-101 allows a first-time adopter to apply de-recognition requirements of Ind-AS-109 retrospectively from the date of the entity choosing to do so, provided information needed to apply Ind-AS-109 to financial assets and financial liabilities, as a result of past transactions has been obtained and is available, as at the time of initially accounting for those transactions.

The Company has applied de-recognition provisions of Ind-AS-109 prospectively from the date of transition to Ind-AS.

Classification and measurement of financial assets

Ind- AS-101 requires an entity to assess classification and measurement of financial assets on the basis of the facts and circumstances that exist on the date of transition to Ind-AS.

Explanations to reconciliations

B.1 IMPACT ON ACCOUNT OF REVERSAL OF PROPOSED DIVIDEND (INCLUDING TAX)

Previous GAAP

Proposed dividends were recognised as a liability as an adjusting event occurring after the Balance Sheet date.

Ind-AS

Proposed dividends of previous year are recognised as liability in the form of an adjusting event occurring after the Balance Sheet date as per Ind-AS-37 read with para 107 of Ind-AS-1. However, from the current year, it is a non-adjusting event occurring after the Balance Sheet date and hence not recognised in the books.

B.2 IMPACT OF ACCOUNTING FOR INVESTMENT AT FAIR VALUE THROUGH PROFIT AND LOSS ACCOUNT

Previous GAAP

Non-current investment are measured at cost and current investments are measured at lower of cost or fair value.

Ind-AS

For the purposes of Ind-AS-109, mutual fund investments will be accounted at fair value through profit and loss and other financial instruments on a fair value basis, at each reporting date.

B.4 IMPACT ON ACCOUNT OF CREATION OF PROVISION BASED ON EXPECTED CREDIT LOSS

Previous GAAP

The Company provides for doubtful debts based on realisation period and policy framed by the Company, which in turn is based on incurred loss model i.e. when there is an objective evidence of impairment.

Ind-AS

As per Ind-AS- 109, impairment loss shall be recognised as per the expected credit loss model on all financial assets (other than those measured at fair value).

B.5 IMPACT ON ACCOUNT OF DEFERRED TAXES

The impact of transition adjustments together with Ind-AS mandate of using the Balance Sheet approach (against profit and loss approach in the previous GAAP) for computation of deferred tax has not impacted the reserves as on date of transition as also the Statement of Profit and Loss account.

Source : Dion Global Solutions Limited
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