Accounting Policies of SFC Environmental Technologies Ltd. Company

3 Material accounting policies

The accounting policies set out below have been applied consistently to the periods presented in the Financials Statements.

3.1 Revenue from operations

Revenue from contracts with customers

Revenue is recognized on the basis of approved contracts regarding the transfer of goods or services to a customer for
an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services.

Revenue towards satisfaction of a performance obligation is measured at the amount of transaction price (net of
variable consideration) allocated to that performance obligation. The transaction price of goods sold and services
rendered is net of variable consideration. Revenue excludes taxes collected from customers on behalf of the
government. Any amount receivable from customer are recognized as revenue at the point in time when control
of the goods sold are transferred to the customer, generally on delivery of the goods.

3.2 Recognition of Dividend Income, Interest income or expense

Interest income or expense is recognized using the effective interest method.

The ‘effective interest rate’ is the rate that exactly discounts estimated future cash payments or receipts through
the expected life of the financial instrument to:

- the gross carrying amount of the financial asset; or

- the amortized cost of the financial liability

In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the
asset (when the asset is not credit-impaired) or to the amortized cost of the liability. However, for financial assets that
have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective
interest rate to the amortized cost of the financial asset. If the asset is no longer credit-impaired, then the calculation
of interest income reverts to the gross basis.

Other income

Interest income from other financial assets is recognized 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 recognized on time proportion basis taking into account the amount outstanding and the interest
rate applicable.

Dividend Income

Dividend Income is recognised when the Company’s right to receive the amount has been established.

3.3 Property, Plant & Equipment (PPE)

PPE is recognised 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 initial cost of PPE comprises its purchase price, including
import duties and non-refundable purchase taxes, and any directly attributable costs of bringing an asset to working
condition and location for its intended use, less accumulated depreciation and accumulated impairment losses, if any.
Cost includes professional fees related to the acquisition of PPE and for qualifying assets, borrowing costs capitalised
in accordance with the Company’s accounting policy.

Expenditure incurred after the PPE have been put into use such as repairs and maintenance, are charged to the
Statement of Profit and Loss in the period in which the costs are incurred.

Subsequent costs are included in the assets’s carrying amount or recognized 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. All other repairs and maintenance cost are charged to the Statement of Profit and
Loss during the period in which they were incurred.

If significant parts of an item of PPE have different useful lives, then they are accounted for as separate items (major
components) of PPE.

Capital work in Progress:

Expenditure during construction period (including financing cost related to borrowed funds for construction or
acquisition of qualifying PPE if any) is included under Capital Work-in-Progress, and the same is allocated to the
respective PPE on the completion of their construction. Advances given towards acquisition or construction of PPE
outstanding at each reporting date are disclosed as Capital Advances under “Other non-current Assets”.

Depreciation:

Depreciation is the systematic allocation of the depreciable amount of PPE over its useful life and is provided using
written down value method, so as to write off the cost of the assets less their residual values over their useful lives
specified in Schedule II to the Companies Act, 2013, or in the case of assets where the useful life was determined by
technical evaluation, over the useful life so determined. Depreciation method is reviewed at each financial year end to
reflect the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated
useful life and residual values are also reviewed at each financial year end and the effect of any change in the
estimates of useful life/residual value is accounted on prospective basis. In respect of additions to/deletions from the
PPE, depreciation is provided on pro-rata basis with reference to the month of addition/deletion of the Assets.

Gains or losses arising from de-recognition of a Property, Plant and Equipment are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognised in the Statement of Profit
and Loss when the asset is derecognised.

3.4 Investment Property

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for
sale in the ordinary course of business, use in the production or supply of goods or services or for administrative
purposes. Upon initial recognition, an investment property is measured at cost. After initial recognition, the company
measures investment property by using cost model. Subsequent to initial recognition, investment property is measured
at cost less accumulated depreciation and accumulated impairment losses, if any.

The company depreciates the investment properties on written down value which is in line with the indicative useful
life of relevant type of building mentioned in Part C of Schedule II to the Act.

Though investment property is measured using cost model, the fair value of investment property is disclosed in the
notes.

3.5 Leases

The company assesses whether a contract is or contains a lease, at inception of the contract. That is, if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Company as lessor

Leases for which the company is a lessor are classified as finance or operating leases. Leases in which the company
does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating
leases. Rental income arising is accounted for on a straight-line basis over the lease terms. Initial direct costs incurred
in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised
over the lease term on the same basis as rental income. Leases are classified as finance leases when substantially all
of the risks and rewards of ownership transfer from the company to the lessee. Amounts due from lessees under
finance leases are recorded as receivables at the company’s net investment in the leases. Finance lease income is
allocated to accounting periods so as to reflect a constant periodic rate of return on the company’s net investment
outstanding in respect of the lease. Subsequent to initial recognition, the company regularly reviews the estimated
unguaranteed residual value and applies the impairment requirements of Ind AS 109, recognizing an allowance for
expected credit losses on the lease receivables. Finance lease income is calculated with reference to the gross
carrying amount of the lease receivables, except for credit impaired financial assets for which interest income is
calculated with reference to their amortised cost (i.e. after a deduction of the loss allowance).

Company as lessee

The company applies a single recognition and measurement approach for all leases, except for short-term leases
(defined as leases with a lease term of 12 months or less) and leases of low-value assets. The company recognises
lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

Right-of-use assets

The company recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying
asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of use assets includes the
amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the company is reasonably certain to obtain ownership
of the leased asset at the end of the lease term, the recognised right-of-use assets are depreciated on a straight-line
basis over the shorter of its estimated useful life and the lease term. The lease term of company’s ROU assets which
comprises Land and Buildings and Vehicles varies from 2 to 10 years. If ownership of the leased asset transfers to the
company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated
using the estimated useful life of the asset. Right-of-use assets are subject to impairment test. The Company accounts
for sale and leaseback transaction, recognising right-of-use assets and lease liability, measured in the same way as
other right of use assets and lease liability. Gain or loss on the sale transaction is recognised in statement of profit and
loss.

Lease liabilities

At the commencement date of the lease, the company recognises lease liabilities measured at the present value of
lease payments to be made over the lease term and are not paid at the commencement date, discounted by using the
rate implicit in the lease. The lease payments include fixed payments (including in-substance fixed payments) less any
lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be
paid under residual value guarantees. The variable lease payments that do not depend on an index or a rate are
recognised as expense in the period on which the event or condition that triggers the payment occurs. In calculating
the present value of lease payments, the company uses the incremental borrowing rate at the lease commencement
date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of
lease liabilities is increased to reflect the accretion of interest (using the effective interest method) and reduced for
the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a
change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in
an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the
underlying asset.

Short-term leases and leases of low-value assets

The company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a
lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies
the lease of low-value assets recognition exemption to leases that are considered of low value. Lease payments on
short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease
term unless another systematic basis is more representative of the time pattern in which economic benefits from the
leased assets are consumed. Most of the contracts that contains extension terms are on mutual agreement between
both the parties and hence the potential future rentals cannot be assessed. Certain contracts where the extension
terms are unilateral are with unrelated parties and hence there is no certainty about the extension being exercised.

The company uses weighted average incremental borrowing rate for lease liabilities measurement.

3.6 Financial instruments

i) Recognition and initial measurement

The Company recognizes financial assets and financial liabilities when it becomes a party to the contractual
provisions of the instrument. All financial assets and liabilities are recognized 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 and financial liabilities, which are not at fair value through
profit or loss, are adjusted to the fair value on initial recognition.

ii) Classification and subsequent measurement
Financial assets at amortised cost

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

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

Financial assets are measured at fair value through other comprehensive income if these financial assets are held
within a business whose objective is achieved by both collecting contractual cash flows on specified dates that are
solely payments of principal and interest on the principal amount outstanding and selling financial assets.

Financial assets at fair value through profit or loss (FVTPL)

Financial assets are measured at fair value through profit or loss unless they are measured at amortised cost or at
fair value through other comprehensive income. The transaction costs directly attributable to the acquisition of
financial assets and liabilities at fair value through profit or loss are immediately recognised in statement of profit
and loss. This includes all derivative financial assets (refer note 49).

Financial liabilities

Financial liabilities are subsequently measured at amortised cost using the EIR method. Financial liabilities carried
at fair value through profit or loss are measured at fair value with all changes in fair value recognised in the
standalone statement of profit and loss.

a) Financial Assets

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial
asset expire, or it transfers the contractual rights to receive the cash flows from the asset or has assumed an
obligation to pay the received cash flows to one or more recipient.

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 retained
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.

b) Financial Liabilities

A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or
expired. The difference between the carrying value of the financial liability and the consideration paid is
recognised in standalone statement of profit and loss.

3.7 Impairment of assets

The carrying amounts of the Company’s assets are reviewed at each Balance Sheet date to determine whether there is
any impairment. Impairment loss, if any, is provided to the extent, the carrying amount of assets exceeds their
recoverable amount. Recoverable amount is higher of an asset’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. Impairment loss is recognized in the statement of profit and loss or against
revaluation surplus, where applicable. If at the balance sheet date there is an indication that previously assessed
impairment loss no longer exists the recoverable amount is reassessed and the asset is reflected at the recoverable
amount subject to maximum of depreciated historical cost.

i) Non-derivative financial assets

In accordance with Ind AS 109, the Company uses ‘Expected Credit Loss’ (ECL) model, for evaluating impairment of
all financial assets subsequent to initial recognition other than financial assets measured at fair valued through
profit and loss (FVTPL). For Trade Receivables the Company applies ‘simplified approach’ which requires expected
lifetime losses to be recognised from initial recognition of the receivables. The Company uses historical default
rates to determine impairment loss on the portfolio of trade receivables. At every reporting date these historical
default rates are reviewed and changes in the forward-looking estimates are analysed. For other financial assets,
the Company uses 12 month ECL to provide for impairment loss where there is no significant increase in credit risk
since its initial recognition. If there is significant increase in credit risk since its initial recognition full lifetime ECL
is used.

The impairment losses and reversals are recognised in Statement of Profit and Loss.

ii) Impairment of non-financial Asset

At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than
inventories, contract assets and deferred tax assets) to determine whether there is any indication of impairment. If
any such indication exists, the recoverable amount of an asset or Cash Generating Unit (CGU) is estimated to
determine the extent of impairment, if any. When it is not possible to estimate the recoverable amount of an
individual asset, the Company estimates the recoverable amount of the CGU to which the asset belong. A CGU is
the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash
inflows from other assets or groups of assets.

The recoverable amount of an individual asset or CGU is the greater of its value in use and its fair value less costs
of disposal. Value in use is based on the estimated future cash flows, 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 or CGU.

An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount.

Impairment losses are recognized in profit or loss to the extent, asset’s carrying amount exceeds its recoverable
amount.

3.8 Inventories

Inventories are valued after providing for obsolescence, as under:

a) Raw materials, components, stores and spares at lower of cost or net realisable value. However, these items are
considered to be realisable at cost if the finished products in which they will be used, are expected to be sold at or
above cost.

b) Work-in-progress and Finished goods are valued at lower of cost or net realisable value. Cost includes cost of raw
materials, cost of conversion and other costs incurred in bringing the inventories to their present location and
condition.

Cost is determined on weighted average basis which includes expenditure incurred for acquiring inventories like
purchase price, import duties, taxes (net of tax credit) and other costs incurred in bringing the inventories to their
present location and condition.

Net realisable 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. Assessment of net realisable value is made in each
subsequent period and when the circumstances that previously caused inventories to be written-down below cost no
longer exist or when there is clear evidence of an increase in net realisable value because of changed economic
circumstances, the write-down, if any, in the past period is reversed to the extent of the original amount written-down
so that the resultant carrying amount is the lower of the cost and the revised net realisable value.