Accounting Policies of Munish Forge Ltd. Company

Mar 31, 2024

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 BASIS OF PREPARATION:

a) The financial statements of the Company have been prepared in accordance with and
in compliance, in all material aspects, with Indian Accounting Standards (IND AS)
notified under section 133 of the Companies Act 2013 read with the Companies
(Indian Accounting Standards) Rules, as amended and other provisions of the act. The
presentation of the financial statements is based on IND AS Schedule III of the
Companies Act 2013.The financial statements have been prepared on a historical cost
basis, except for certain financial instruments that are measured at fair value at the
end of each reporting period

b) The financial statements are presented in Indian Rupees (‘INR’) and all values are
rounded to nearest lacs (INR 00,000), except when otherwise indicated.

2.2 USE OF ESTIMATES

The preparation of financial statements in conformity with Indian GAAP, which
requires the management to make judgements, estimates and assumptions that affect
the reported amount of revenues, expenses, assets and liabilities and the disclosure of
contingent liabilities , at the end of the reporting period. Although these estimates are
based on the management’s best knowledge of current events and actions, uncertainty
about these assumptions and estimates could not result in the outcomes requiring the
material adjustments to the carrying amount of assets or liabilities in future periods.

2.3 Revenue recognition

Revenue is recognised at fair value of the consideration received or receivable. The
amount disclosed as revenue is inclusive of and net of returns, trade discounts, Goods
& Service Tax related taxes and amount collected on behalf of third parties.

The company recognizes revenue when the amount of revenue can be measured
reliably and it is probable that the economic benefits associated with the transaction
will flow to the entity.

i) Sale of goods

Revenue from sale of goods is recognized when significant risk and rewards of
ownership have been transferred to the buyer, recovery of the consideration is
probable, the associated cost can be reliably estimated and there is no
continuing effective control or managerial involvement with the goods and the
amount of revenue can be measured reliably. Revenue is recognized in respect
of export sales on the basis of bill of lading.

ii) Export Incentives

Revenue in respect of export incentives / benefits are accounted for on post
export basis.

iii) Interest

Interest income from a financial asset is recognised when it is probable that
the economic benefits will flow to the Company and the amount of income
can be measured reliably. Interest income is accrued on a time basis, by
reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to that asset’s net
carrying amount on initial recognition.

iv) Insurance Claim

Claims with insurance companies are accounted on accrual basis to the extent,
no significant uncertainty exists and these are measurable and ultimate
collection is reasonably certain.

v) Compensation Received

Keeping in view the certainty factor about the payment to be received,
company has decided to consider the same as income on receipt basis.

2.4 INVENTORIES

a) Basis of valuation:

i) Inventories other than scrap materials are valued at lower of cost and net
realizable value after providing cost of obsolescence, if any. The comparison of
cost and net realizable value is made on an item-by-item basis.

ii) Inventory of scrap materials have been valued at net realizable value,

b) Method of Valuation:

i) Cost of raw materials has been determined by using First In First Out (FIFO)
method comprising of all costs of purchase, duties, taxes (other than those
subsequently recoverable from tax authorities) and all other costs incurred in bringing
the inventories to their present location and condition.

ii) Stores and spares are valued at lower of historical cost or net realizable value.
However materials & other items held for use in the production of inventories are not
written below cost if the finished products in which they will be incorporated are
expected to be sold at or above cost.

iii) Work in progress is valued at raw material cost plus conversion cost depending upon
the stage of completion.

iv) Finished goods are valued at lower of historical cost or net realizable value. Cost of
inventories comprises of cost of purchase, cost of conversion and other costs incurred
in bringing them to their respective present location and condition. By products are
valued at net realizable value.

v) Cost of traded goods has been determined by using First In First Out (FIFO) method
and comprises all costs of purchase, duties, taxes (other than those subsequently
recoverable from tax authorities) and all other costs incurred in bringing the
inventories to their present location and condition.

2.5 FINANCIAL INSTRUMENTS

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

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)

• Those measured at amortised cost

Initial recognition and measurement

On initial recognition, all the financial assets and liabilities are recognized at their fair
value plus or minus transaction costs that are directly attributable to the acquisition or
issue of the financial asset or financial liability except financial asset or financial
liability measured at fair value through profit or loss account. Transaction costs of
financial asset and liabilities carried at fair value through profit and loss are
immediately recognized in the Statement of Profit or Loss.

Subsequent Measurement (Non Derivative Financial Instrument)

a) Financial assets carried at amortised cost

A financial asset is subsequently measured at amortised cost if it is held within a
business model whose objective is to hold the asset in order to collect contractual
cash flows and the contractual terms of the financial asset give rise on specified
date to cash flows that are solely payments on principal and interest on the
principal amount outstanding.

b) Financial Asset At Fair Value Through Other Comprehensive Income (FVTOCI)
A financial asset is subsequently measured at fair value through other
comprehensive income if it is held within a business model whose objective is
achieved by both collecting contractual cash flows and selling financial assets and
the contractual terms of the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest on the principal amount
outstanding.

c) Financial Assets At Fair Value Through Profit or Loss (FVTPL)

A financial asset is measured at fair value through profit and loss unless it is
measured at amortized cost or at fair value through other comprehensive income.

d) Financial Liabilities The financial liabilities are subsequently carried at amortized
cost using the effective interest method. For trade and other payables maturing
within one year from the balance sheet date, the carrying amounts approximate
fair value due to the short maturity of these instruments.

e) Derecognition of financial liabilities

The Company derecognises financial liabilities when, and only when, the
company’s obligations are discharged, cancelled or have expired. An exchange
between with a lender of debt instruments with substantially different terms is
accounted for as an extinguishment of the original financial liability and the
recognition of new financial liability. Similarly, a substantial modification of the
terms of an existing financial liability (whether or not attributable to the financial
difficulty of the debtor) is accounted for as an extinguishment of the original
financial liability and the recognition of a new financial liability. The difference
between the carrying amount of the financial liability derecognised and the
consideration paid and payable is recognised in profit or loss.

2.6 Property, plant and equipment

Land is carried at cost and all other items of property plant, equipments and fixtures
are stated at cost less accumulated depreciation. The cost of property, plant and
equipment includes:

i. Its purchase price including import duties and non-refundable taxes after reducing
trade discount and rebate if any.

ii. Any attributable expenditure directly attributable to bring an assets to the location and
the working condition for its intended use.

An item of property, plant and equipment is derecognised upon disposal or when no
future economic benefits are expected to arise from the continued use of the asset.
Any gain or loss arising on the disposal or retirement of an item of property, plant and
equipment is determined as the difference between the sales proceeds and the carrying
amount of the asset and is recognised in profit or loss.

Property that is held for long-term rental yields or for capital appreciation or both, and
that is not used in the production of goods and services or for the administrative
purposes is classified as investment property. Investment property is measured
initially at cost, including transaction costs. Subsequent to initial recognition,
investment properties are stated at cost less accumulated depreciation and
accumulated impairment loss, if any. Subsequent expenditure related to investment
properties are added to its book value only when it is probable that future economic
benefits associated with the item will flow to the Company and the cost of the item
can be measured reliably. Investment properties are depreciated using the straight line
method over the estimated useful lives.

2.7 Intangible assets

Intangible assets are stated at cost less accumulated amortization and impairment.
Intangible assets are amortized over expected useful life on a straight line basis from
the date they are available for use.

2.8 Impairment of assets

i. Financial Assets

The company recognizes loss allowances using the expected credit loss (ECL)
model for the financial assets which are not fair valued through profit or loss.

Loss allowance for trade receivables with no significant financing component
is measured at an amount equal to lifetime ECL. For all other financial assets
expected credit losses are measured at an amount equal to the 12 month ECL
unless there has been a significant increase in credit risk from initial
recognition in which case those are measured at lifetime ECL. The amount of
expected credit losses (or reversal) that is required to adjust the loss allowance
at the reporting date to the amount that is required to be recognised is
recognized as an impairment gain or loss in statement of profit or loss.

ii) Non-Financial Assets

Intangible assets and property, plant and equipment

Intangible assets and property, plant and equipment are evaluated for
recoverability whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. For the purpose of impairment
testing, the recoverable amount (i.e. the higher of the fair value less cost to sell
and the value-in-use) is determined on an individual asset basis unless the
asset does not generate cash flows that are largely independent of those from
other assets. In such cases, the recoverable amount is determined for cash
generating unit to which the asset belongs.

If such assets are considered to be impaired, the impairment to be recognized
in the statement of profit and loss is measured by the amount by which the
carrying value of the assets exceeds the estimated recoverable amount of the
asset. An impairment loss is reversed in the statement of profit and loss if
there has been a change in the estimates used to determine the recoverable
amount, provided that this amount does not exceed the carrying amount that
would have been determined (net off any accumulated amortization or
depreciation) had no impairment loss been recognized for the asset in prior
year.

2.9 Foreign exchange transactions/translation

a) Initial recognition

Foreign currency transactions are recorded in the reporting currency, by
applying to the foreign currency amount the exchange rate between the
reporting currency and the foreign currency at the date of the transaction.

b) Conversion

Foreign currency monetary items are reported using the closing rate. Non¬
monetary items which are carried in terms of historical cost denominated in a
foreign currency are reported using the exchange rate at the date of the
transaction; and non-monetary items which are carried at fair value or other
similar valuation denominated in a foreign currency are reported using the
exchange rates that existed when the values were determined.

c) Forward exchange contracts not intended for trading or speculation
purposes

The premium or discount arising at the inception of forward exchange
contracts is amortized as expense or income over the life of the contract.
Exchange differences on such contracts are recognized in the statement of profit and loss in the year in which the exchange rates change. Any profit or
loss arising on cancellation or renewal of forward exchange contract is
recognized as income or as expense for the year.

2.10 Employee benefits

i. Short Term Employee Benefits

Short Term Employee Benefits are recognized as an expense on an
undiscounted basis in the statement of Profit and loss of the year in which the
related service is rendered.

ii. Post Employee Benefits

a) Defined Contribution Plans

i) Provident Fund & ESI

The company makes contribution to Statutory Provident Fund and
Employee State Insurance in accordance with Employees Provident
Fund and Miscellaneous Provisions Act, 1952 and Employee State
Insurance Act, 1948 which is a defined contribution plan and
contribution paid or payable is recognized as an expense in the period
in which services are rendered by the employee.

b) Defined Benefit Plans
Gratuity

The company provides for gratuity, a defined benefit retirement plan (“The
Gratuity Plan”) covering eligible employees of the company. The gratuity plan
provides a lump-sum payment 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 with the company.

For defined benefit retirement benefit plans, the cost of providing benefits is
determined using the projected unit credit method, with actuarial valuations
being carried out at the end of each annual reporting period. Remeasurement,
comprising actuarial gains and losses, the effect of the changes to the asset
ceiling (if applicable) and the return on plan assets (excluding net interest), is
reflected immediately in the balance sheet with a charge or credit recognised
in other comprehensive income in the period in which they occur.
Remeasurement recognised in other comprehensive income is reflected
immediately in retained earnings and is not reclassified to profit or loss. Past
service cost is recognised in profit or loss in the period of a plan amendment.
Net interest is calculated by applying the discount rate at the beginning of the
period to the net defined benefit liability or asset. Defined benefit costs are
categorised as follows:

• service cost (including current service cost, past service cost, as well
as gains and losses on curtailments and settlements);

• net interest expense or income; and

• Remeasurement

The Company presents the first two components of defined benefit costs in
profit or loss in the line item ‘Employee benefits expense’. Curtailment gains
and losses are accounted for as past service costs.

The retirement benefit obligation recognised in the balance sheet represents
the actual deficit or surplus in the Company’s defined benefit plans. Any
surplus resulting from this calculation is limited to the present value of any
economic benefits available in the form of refunds from the plans or
reductions in future contributions to the plans.

A liability for a termination benefit is recognised at the earlier of when the
entity can no longer withdraw the offer of the termination benefit and when the
entity recognises any related restructuring costs.

2.11Taxes on income

Income tax expense comprises current tax and deferred tax. Income tax expense is
recognized in net profit in the Statement of Profit and Loss except to the extent that it
relates to items recognized directly in equity or other comprehensive income, in
which case, it is also recognized in equity or other comprehensive income
respectively.

Current tax comprises the expected tax payable or receivable on the taxable income or
loss for the year and any adjustment to the tax payable or receivable in respect of
previous years. It is measured using tax rates enacted or substantively enacted at the
reporting date.

Deferred tax is recognized in respect of temporary differences arising between the
carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes (including those arising from consolidation
adjustments such as unrealized profit on inventory etc.). Deferred tax assets are
recognized for unused tax losses, unused tax credits and deductible temporary
differences to the extent that it is probable that future taxable profits will be available
against which they can be used. Deferred tax assets are reviewed at each reporting
date and are reduced to the extent that it is no longer probable that the related tax
benefit will be realized; such reductions are reversed when the probability of future
taxable profits improves.

Unrecognized deferred tax assets are reassessed at each reporting date and recognized
to the extent that it has become probable that future taxable profits will be available
against which they can be used.

2.12Borrowing cost

Borrowing costs directly attributable to the acquisition, construction or production of an
asset that necessarily takes a substantial period of time to get ready for its intended use
or sale are capitalized as part of the cost of the respective asset. All other borrowing
costs are expensed in the period they occur. Borrowing costs consist of interest and
other costs that an entity incurs in connection with the borrowing of funds.

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.