Accounting Policies of Sanathan Textiles Ltd. Company

Mar 31, 2025

2.4 Summary of material accounting policies:

(i) Functional and presentation currency

Items included in the standalone financial
statements of the Company is measured using the
currency of the primary economic environment in
which the Company operates i.e., the ''functional
currency''. The standalone financial statements
are presented in INR, which is the functional and
presentation currency of the Company.

(ii) Foreign currency transactions and translations

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

Foreign currency monetary items outstanding
at the balance sheet date are converted to
functional currency using the closing rate.
Non-monetary items denominated in a foreign
currency which are carried at historical cost are
reported using the exchange rate at the date of
the transaction.

Exchange differences arising on monetary items
on settlement, or restatement as at reporting
date, at rates different from those at which they
were initially recorded, are recognised in the
standalone statement of profit and loss in the
period in which they arise.

(iii) Financial instruments

a. Initial recognition and measurement

The Company recognises financial assets
and liabilities when it becomes a party to the
contractual provisions of the instrument.

Financial assets are recognised at fair value
on initial recognition, except for trade

receivables which are initially measured at
transaction price. Transaction costs that are
directly attributable to the acquisition or
issue of financial assets that are not at fair
value through profit or loss (''FVTPL'') are
added to the fair value on initial recognition.
Regular way purchase and sale of financial
assets are recognised on the trade date.

Financial liabilities are classified as
measured at amortised cost or FVTPL. The
fair value of a financial liability at initial
recognition is normally the transaction
price. A financial liability is classified as at
FVTPL if it is classified as held-for-trading,
it is a derivative or it is designated as such
on initial recognition. Financial liabilities at
FVTPL are measured at fair value and net
gains and losses, including any interest
expense, are recognised in profit or loss.

In accordance with Ind AS 113 ''Fair Value
Measurements'', the fair value of a financial
liability with a demand feature is not less
than the amount payable on demand,
discounted from the first date that the
amount could be required to be paid.

The Company''s financial liabilities include
trade payables, other payables and loans
and borrowings including bank overdrafts.

b. Subsequent measurement

Non-derivative financial instruments

(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 dates to
cash flows that are solely payments of
principal and interest on the principal
amount outstanding.

(b) Financial assets at fair value through
other comprehensive income
(‘FVOCI’)

A financial asset is subsequently
measured at FVOCI 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 FVTPL

A financial asset which is not classified
in any of the above categories are
subsequently fair valued through
profit or loss.

(d) Financial liabilities

The measurement of financial liabilities
depends on their classification.

After initial recognition, interest¬
bearing loans and borrowings are
subsequently measured at amortised
cost using the Effective Interest Rate
(''EIR'') method. Gains and losses are
recognised in profit or loss when the
liabilities are de-recognised as well as
through the EIR amortisation process.

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 standalone statement of
profit and loss, unless and to the extent
capitalised as part of costs of an asset.

The EIR method is a method of
calculating the amortised cost of a
financial liability and of allocating
interest expense over the relevant
period. The EIR is the rate that exactly
discounts estimated future cash
payments (including all fees and points
paid or received that form an integral
part of the EIR, transaction costs and
other premiums or discounts) through
the expected life of the financial
liability, or (where appropriate) a
shorter period, to the net carrying
amount on initial recognition.

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) Financial guarantee contracts

A financial guarantee contract is a
contract that requires the issuer to
make specified payments to reimburse
the holder for a loss it incurs because
a specified debtor fails to make
payments when due in accordance
with the terms of a debt instrument.

Financial guarantee contracts
liabilities, if any, issued by the
Company to its subsidiary companies,
are measured initially at their fair
values and recognised as income in
the Statement of Profit and Loss over
the period of guarantee.

Where guarantees in relation to loans
or other payables of group companies
are provided for no compensation,
the fair value are accounted for as
contributions and recognised as part
of cost of investment.

(f) Derivative financial instruments

Derivative financial instruments
such as forward contracts, to hedge
foreign currency risks are initially
recognised at fair value on the date
a derivative contract is entered into
and are subsequently re-measured
at their fair value with changes in fair
value recognised in the standalone
statement of profit and loss in the
period when they arise.

c. De-recognition of financial instruments

The Company de-recognises a financial
asset when the contractual right to receive
the cash flows from the financial asset
expire or it transfers the financial asset. A
financial liability is de-recognised when the
obligation under the liability is discharged,
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 standalone
statement of profit and loss.

d. Offsetting financial instruments

Financial assets and liabilities are offset,
and the net amount is reported in the
balance sheet where there is a legally
enforceable right to offset the recognised
amounts and there is an intention to settle
on a net basis or realise the asset and settle
the liability simultaneously. The legally
enforceable right must not be contingent
on future events and must be enforceable
in the normal course of business and in the
event of default, insolvency or bankruptcy
of the Company or the counterparty.

(iv) Current versus non-current classification

(i) An asset is considered as current when it is:

a. Expected to be realised or intended
to be sold or consumed in the normal
operating cycle; or

b. Held primarily for the
purpose of trading; or

c. Expected to be realised within twelve
months after the reporting period; or

d. Cash or cash equivalents 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.

(ii) Liability is considered as current when it is:

a. Expected to be settled in the normal
operating cycle; or

b. Held primarily for the
purpose of trading; or

c. Due to be settled within twelve
months after the reporting period; or

d. 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.

(iii) Deferred tax assets and liabilities
are classified as non-current assets
and liabilities.

All assets and liabilities have been
classified as current or non-current as per
the Company''s operating cycle and other
criteria set out in Schedule III to the Act.
Based on the nature of products and the
time between the acquisition of assets
for processing and their realisation in
cash and cash equivalents, the Company
has ascertained its operating cycle as not
exceeding twelve months for the purpose
of current and non-current classification of
assets and liabilities.

(v) Property, plant and equipment (''PPE’)
Recognition and initial measurement

PPE are stated at their cost of acquisition. The
cost comprises purchase price, borrowing cost
if capitalisation criteria are met and directly
attributable cost of bringing the asset to its
working condition for the intended use. Any
trade discount and rebates are deducted in
arriving at the purchase price.

Subsequent costs and disposal

Subsequent costs are included in the asset''s
carrying amount or recognised as a separate
asset, as appropriate, 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. The
carrying amount of any component accounted
for as a separate asset is de-recognised when
replaced. All other repair and maintenance costs
are recognised in the standalone statement of
profit and loss as incurred.

Items such as spare parts are recognised as PPE
when they meet the definition of PPE. Otherwise,
such items are classified as inventory.

An item of PPE initially recognised is de¬
recognised upon disposal or when no future
economic benefits are expected from its use.
Any gain or loss arising on de-recognition of the
asset (calculated as the difference between the
net disposal proceeds and the carrying amount
of the asset) is recognised in the standalone
statement of profit and loss when the asset
is de-recognised.

Capital work-in-progress includes PPE under
construction and not ready for intended use as
on the balance sheet date.

Subsequent measurement (depreciation and
useful lives)

Freehold land is carried at historical cost (after
adjustment of fair value at the time of transition
to Ind AS) and is a non-depreciable asset. All
other items of PPE are subsequently measured
at cost less accumulated depreciation and
impairment losses. Depreciation on PPE is
provided on a straight-line basis, computed
on the basis of useful lives (as set out below)
prescribed in Schedule II to the Act, except
for plant and equipment wherein based on
the technical evaluation, useful life has been
estimated to be 8 to 25 years.

The estimated useful lives of different classes of
PPE are as follows:

The residual values are not more than 5% of the
original cost of the PPE. The residual values,
useful lives and method of depreciation of are
reviewed at each reporting date.

(vi) Intangible assets under development

Intangible assets under development (''IAUD'')
includes intangible assets which are not ready
for intended use as on balance sheet date.

(vii) Intangible assets

Recognition and initial measurement

Intangible assets are recognised when it is
possible that the future economic benefits
that are attributable to the asset will flow to
the Company and the cost of the asset can be
measured reliably.

Subsequent measurement (amortisation
and useful lives)

Intangible assets are stated at original costs,
if any, less accumulated amortisation and
cumulative impairment, if any.

Intangible assets are amortised over their
useful life, as determined by the management.
Amortisation on addition to intangible assets
or on disposal of intangible assets is calculated
pro-rata from the month of such addition or up
to the month of such disposal as the case may
be. The estimated useful life of the Company''s
intangible asset is as follows:

(viii)Leases

The Company as a lessee - Right of use (‘ROU’)
assets and lease liabilities

A lease is defined as ''a contract, or part of a
contract, that conveys the right to use an asset
(the underlying asset) for a period of time in
exchange for consideration''.

Classification of leases

The Company enters into leasing arrangements
for various assets. The assessment of the lease
is based on several factors, including, but not
limited to, transfer of ownership of leased
asset at end of lease term, lessee''s option to
extend/purchase etc.

Recognition and initial measurement of ROU
assets

At lease commencement date, the Company
recognises a ROU asset and a lease liability on
the standalone balance sheet. The ROU asset
is measured at cost, which is made up of the
initial measurement of the lease liability, any
initial direct costs incurred by the Company,
an estimate of any costs to dismantle and
remove the asset at the end of the lease (if
any), and any lease payments made in advance
of the lease commencement date (net of any
incentives received).

Subsequent measurement of ROU assets

The Company depreciates the ROU assets
on a straight-line basis from the lease
commencement date to the earlier of the end of
the useful life of the ROU asset or the end of the
lease term. The Company also assesses the ROU
asset for impairment when such indicators exist.

Lease liabilities

At lease commencement date, the Company
measures the lease liability at the present value

of the lease payments unpaid at that date,
discounted using the interest rate implicit in
the lease if that rate is readily available or the
Company''s incremental borrowing rate. Lease
payments included in the measurement of the
lease liability are made up of fixed payments
(including in substance fixed payments)
and variable payments based on an index or
rate. Subsequent to initial measurement, the
liability will be reduced for payments made
and increased for interest. It is re-measured
to reflect any reassessment or modification,
or if there are changes in in-substance fixed
payments. When the lease liability is re¬
measured, the corresponding adjustment is
reflected in the ROU asset.

The Company has elected to account for short¬
term leases and low value leases using the
practical expedients. Instead of recognising
a ROU asset and lease liability, the payments
in relation to these short-term leases and low
value leases are recognised as an expense in
the standalone statement of profit and loss on a
straight-line basis over the lease term.

The Company as a lessor

Leases in which the Company does not
transfer substantially all the risks and rewards
of ownership of an asset are classified as
operating leases. Rental income is recognised
on accrual basis.

(ix) Impairment of assets

(a) Non-financial assets

Assessment is done at each balance sheet
date as to whether there is any indication
that an asset may be impaired. For the
purpose of assessing impairment, the
smallest identifiable group of assets that
generates cash inflows from continuing
use that are largely independent of the
cash inflows from other assets or groups of
assets, is considered as a cash generating
unit. If any such indication exists, an estimate
of the recoverable amount of the asset/
cash generating unit is made. Assets whose
carrying value exceeds their recoverable
amount are written down to the recoverable
amount. Recoverable amount is higher of an
asset''s or cash generating unit''s net selling
price and its value in use. Value in use is the
present value of estimated future cash flows
expected to arise from the continuing use

of an asset and from its disposal at the end
of its useful life. Assessment is also done
at each balance sheet date as to whether
there is any indication that an impairment
loss recognised for an asset in prior
accounting periods may no longer exist or
may have decreased.

(b) Financial assets

The Company assesses on a forward¬
looking basis the expected credit losses
associated with its financial assets and
the impairment methodology depends
on whether there has been a significant
increase in credit risk.

Trade receivables

In respect of trade receivables, the Company
applies the simplified approach of Ind AS
109 ''Financial Instruments'', which requires
measurement of loss allowance at an amount
equal to lifetime expected credit losses. Lifetime
expected credit losses are the expected credit
losses that result from all possible default events
over the expected life of a financial instrument.

Other financial assets

In respect of its other financial assets, the
Company assesses if the credit risk on those
financial assets has increased significantly since
initial recognition. If the credit risk has not
increased significantly since initial recognition,
the Company measures the loss allowance at
an amount equal to 12-month expected credit
losses, else at an amount equal to the lifetime
expected credit losses.

When making this assessment, the Company
uses the change in the risk of a default occurring
over the expected life of the financial asset. To
make that assessment, the Company compares
the risk of a default occurring on the financial
asset as at the balance sheet date with the risk
of a default occurring on the financial asset as
at the date of initial recognition and considers
reasonable and supportable information, that is
available without undue cost or effort, that is
indicative of significant increases in credit risk
since initial recognition. The Company assumes
that the credit risk on a financial asset has not
increased significantly since initial recognition
if the financial asset is determined to have low
credit risk at the balance sheet date.

(x) Employee benefits

(a) Long-term employee benefits

(i) Defined contribution plan

The Company has defined contribution
plan for post-employment benefits
in the form of provident fund and
employees'' state insurance fund.
Under the defined contribution plan,
the Company has no further obligation
beyond making the contributions.
Such contributions are charged to the
standalone statement of profit and
loss as incurred.

(ii) Defined benefit plan

The Company has defined benefit plan
for post-employment benefits in the
form of gratuity for its employees in
India. Liability for defined benefit plan
is provided on the basis of actuarial
valuations, as at the balance sheet date,
carried out by an independent actuary.
The actuarial valuation method used
by independent actuary for measuring
the liability is the projected unit credit
method. The liability recognised in
the standalone financial statements
in respect of gratuity is the present
value of the defined benefit obligation
at the reporting date, together with
adjustments for unrecognised actuarial
gains or losses and past service costs.

Discount factors are determined
close to each period-end by reference
to market yields on government
bonds that have terms to maturity
approximating the terms of the related
liability. Service cost and net interest
expense on the Company''s defined
benefit plan is included in employee
benefits expense.

Actuarial gains or losses are recognised
in other comprehensive income
(''OCI''). Interest expense recognised
in the standalone statement of profit
and loss is calculated by applying
the discount rate used to measure
the defined benefit obligation to the
defined benefit liability.

(b) Short-term employee benefits

Liabilities for wages and salaries, including
non-monetary benefits that are expected
to be settled wholly within 12 months
after the end of the period in which the
employees render the related service
are classified as short-term employee
benefits. These benefits include salaries
and wages, short-term bonus, incentives
etc. These are measured at the amounts
expected to be paid when the liabilities
are settled. The liabilities are presented as
current employee benefit obligations in the
standalone balance sheet.

(c) Share-based payments

The fair value of options granted under
Sanathan Textiles Limited Employee Stock
Option Plan (''ESOP 2021'') recognised
as an employee benefit expense with a
corresponding increase in equity. The total
amount to be expensed is determined
by reference to the fair value of the
options granted:

• Including any market performance
conditions (e.g., the entity''s share price);

• Excluding the impact of any service
and non-market performance vesting
conditions (e.g. profitability, sales
growth targets and remaining an
employee of the entity over a specified
time period); and

• Including the impact of any non-vesting
conditions (e.g. the requirement for
employees to save or holding shares
for a specified period of time).

Total expense is recognised over the
vesting period, which is the period over
which all the specified vesting conditions
are to be satisfied. At the end of each
period, the Company revises its estimates
of the number of options that are expected
to vest based on the non-market vesting
and service conditions. It recognises the
impact of revision to original estimates, if
any, in profit or loss, with a corresponding
adjustment to equity.

When the Company modifies the terms
or conditions of the equity instruments
granted in a manner is not otherwise
beneficial to the employee, the Company
continues to account for the services
received as consideration for the equity
instruments granted as if that modification
had not occurred.