x) Provisions, contingent liabilities and contingent assets
a) Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive)
where, as a result of a past event, it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation and a reliable estimate can be made
to the amount of the obligation. When the Company expects some or all of a provision to be
reimbursed, the reimbursement is recognised as a separate asset, but only when the
reimbursement is virtually certain. The expense relating to a provision is presented in the
statement of profit and loss net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current
pre-tax rate that reflects, when appropriate, the risk specific to the liability. when discounting is
used, the increase in the provision due to the passage of time is recognized as a finance cost.
Provisions are reviewed at each reporting date and adjusted to reflect the current best
estimate. If it is no longer probable that an outflow of resources embodying economic benefits
will be required to settle the obligation, the provision is reversed.
b) Contingent liabilities and contingent assets
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 which 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. Information on contingent liabilities is disclosed in the
notes to the financial statements, unless the possibility of an outflow of resources embodying
economic benefits is remote.
Contingent assets usually arise from unplanned or other unexpected events that give rise to the
possibility of an inflow of economic benefits to the entity. Contingent assets are not recognised
in financial statements since this may result in the recognition of income that may never be
realised. Contingent assets are disclosed if the inflow of economic benefits is probable.
xi) Leases
For arrangements entered into prior to 1st April, 2015, the Company has determined whether
the arrangement contains lease on the basis of facts and circumstances existing on the date of
transition.
Operating Lease :
Lease of assets under which all the risks and rewards of ownership are effectively retained by
the lesser are classified as operating lease. Operating lease payments are recognized as an
expense in the statement of profit and loss on a straight-line basis over the lease term. 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.
xii) 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.
A. Financial assets
a) Initial recognition and measurement
Financial assets are recognized when the Company becomes a party to the contractual
provisions of the instrument. The Company determines the classification of its financial assets
at initial recognition. All financial assets are recognized initially at fair value plus transaction
costs that are directly attributable to the acquisition of the financial asset except for financial
assets classified as 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 recognized
on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
b) Subsequent measurement
For the purposes of subsequent measurement, financial assets are classified in four categories:
i) Debt instruments measured at amortised cost
ii) Debt instruments measured at fair value through other comprehensive income (FVTOCI)
iii) Debt instruments measured at fair value through profit or loss (FVTPL)
iv) Equity instruments measured at FVTOCI or FVTPL
Debt instruments
The subsequent measurement of debt instruments depends on their classification. The
classification depends on the Company's business model for managing the financial assets and
the contractual terms of the cash flows.
i) Debt instruments measured at amortised cost
Debt instruments that are held for collection of contractual cash flows where those cash flows
represent solely payments of principal and interest are measured at amortised cost. A gain or
loss on a debt investment that is subsequently measured at amortised cost and is not part of a
hedging relationship is recognised in the statement of profit and loss when the asset is
derecognised or impaired. Interest income from these financial assets is included in finance
income using the effective interest rate method.
ii) Debt instruments measured at FVTOCI
Debt instruments that are held for collection of contractual cash flows and for selling the
financial assets, where the assets cash flows represent solely payment of principal and interest,
are measured at FVTOCI. Movements in the carrying amount are taken through OCI, except for
the recognition of impairment gains or losses and interest income which are recognised in
statement of profit and loss. When the financial asset is derecognised, the cumulative gain or
loss previously recognised in the OCI is reclassified from equity to statement of profit and loss.
Interest income from these financial assets is included in finance income using the effective
interest rate method.
iii) Debt instruments measured at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet
the criteria for categorization as at amortized cost or as FVTOCI, is classified as at FVTPL.
In addition, the group may elect to designate a debt instrument, which otherwise meets
amortized cost or FVTOCI criteria, as at FVTPL. However, such election is allowed only if doing
so reduces or eliminates a measurement or recognition inconsistency (referred to as
'accounting mismatch'). The group has not designated any debt instrument as at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all
changes recognized in the P&L.
iv) Equity instruments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments
which are held for trading are classified as FVTPL. The Company may make an irrevocable
election to present in other comprehensive income subsequent changes in the fair value. The
Company makes such election on an instrument-by-instrument basis. The classification is made
on initial recognition and is irrevocable.
If the Company decides to classify an equity instrument as at FVTOCI, then all fair value changes
on the instrument, excluding dividends, are recognized in the OCI. There is no recycling of the
amounts from OCI to profit or loss, even on sale of investment. However, the Company may
transfer the cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are measured at fair value with all
changes recognized in the statement of profit and Loss.
B. Derecognition of financial assets
A financial asset is derecognised only when
i) The Company has transferred the rights to receive cash flows from the financial asset or
ii) retains the contractual rights to receive the cash flows of the financial asset, but assumes a
contractual obligation to pay the cash flows to one or more recipients.
Where the entity has transferred an asset, the Company evaluates whether it has transferred
substantially all risks and rewards of ownership of the financial asset. In such cases, the
financial asset is derecognised. Where the entity has not transferred substantially all risks and
rewards of ownership of the financial asset, the financial asset is not derecognised.
Where the entity has neither transferred a financial asset nor retains substantially all risks and
rewards of ownership of the financial asset, the financial asset is derecognised if the Company
has not retained control of the financial asset. Where the Company retains control of the
financial asset, the asset is continued to be recognised to the extent of continuing involvement
in the financial asset.
C. Impairment of financial assets
The Company assesses impairment based on expected credit losses (ECL) model to the
following:
i) Financial assets measured at amortised cost
ii) Financial assets measured at fair value through other comprehensive income (FVTOCI)
Expected credit losses are measured through a loss allowance at an amount equal to
i) the twelve months expected credit losses (expected credit losses that result from those
default events on the financial instrument that are possible within twelve after the reporting
date) or
ii) full lifetime expected credit losses (expected credit losses that result from all possible default
events over the life of the financial instrument)
The Company follows 'simplified approach' for impairment loss allowance on trade receivables.
Under the simplified approach, the Company does not track changes in credit risk. Rather, it
recognises impairment loss allowance based on lifetime ECLs 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, twelve 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 Company reverts to
recognising impairment loss allowance based on twelve months ECL.
D. Financial liabilities
a) Initial recognition and measurement
Financial liabilities are recognised when the Company becomes a party to the contractual
provisions of the instrument. The Company determines the classification of its financial liability
at initial recognition. All financial liabilities are recognised initially at fair value plus transaction
costs that are directly attributable to the acquisition of the financial liability except for financial
liabilities classified as fair value through profit or loss.
b) Subsequent measurement
For the purposes of subsequent measurement, financial liabilities are classified in two
categories:
i) Financial liabilities measured at amortised cost
ii) Financial liabilities measured at FVTPL (fair value through profit or loss)
i) Financial liabilities measured at amortised cost
After initial recognition, financial liabilities are subsequently measured at amortized cost using
the EIR method. Gains and losses are recognised in the statement of profit and loss when the
liabilities are derecognised as well as through the EIR amortization process. Amortized cost is
calculated by taking into account any discount or premium on acquisition and fee or costs that
are an integral part of the EIR. The EIR amortisation is included in finance costs in the statement
of profit and loss.
ii) Financial liabilities measured at fair value through profit or loss (FVTPL)
Financial liabilities at FVTPL include financial liabilities held for trading and financial liabilities
designated upon initial recognition as at FVTPL. Financial liabilities are classified as held for
trading if they are incurred for the purpose of repurchasing in the near term. Derivatives,
including separated embedded derivatives are classified as held for trading unless they are
designated as effective hedging instruments. Financial liabilities at fair value through profit or
loss are carried in the statement of financial position at fair value with changes in fair value
recognized in finance income or finance costs in the statement of profit and loss.
c) Derecognition
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 and loss.
xii) Fair value measurement
The Company measures financial instruments, such as, investment in debt and equity
instruments at fair value at each reporting date.
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:
• in the principal market for the asset or liability, or
• 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 to the Company.
The fair value of an asset or a 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.
The Company uses valuation techniques that are appropriate in the circumstances and for
which sufficient data are available to measure fair value, maximising 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 categorised 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 markets for identical assets or liabilities
• Level 2 —
Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
• Level 3 —
Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the
company determines whether transfers have occurred between levels in the hierarchy by re¬
assessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period
xiii) Inventory
Raw material, Work in progress, and Finish goods shall be measured at the lower of cost or net
realizable value. The cost of inventory shall be assigned by using weighted average cost
formula.
The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and condition.
Net realizable value is the estimated selling price in the ordinary course of business less the
estimated costs of completion and the estimated costs necessary to make the sale.
The accompanying notes are an integral part of the financial statements
As per our report of even date
For Chandabhoy & Jassoobhoy For and on behalf of the board
Chartered Accountants Pratiksha Chemicals Limited
FRN: 101648W CIN: L2411GJ1991PLC015507
sd/- sd/- sd/-
CA Nimai G. Shah Somabhai Patel Jayesh Patel
Partner Director Director & CFO
M.No.: 100932 DIN - 01188702 DIN - 00401109
UDIN : 24100932BJZYIQ6420
sd/-
Jigisha Kadia
Company Secretary
M.No. A52820
Place: Ahmedabad Place: Ahmedabad
Date: 28th May, 2024 Date: 28th May, 2024
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