2.1 Material accounting policies
a) Basis of preparation
"The standalone financial statements have
been prepared in accordance with Indian
Accounting Standards (Ind AS) notified under
Section 133 read with Companies (Indian
Accounting Standards) (Amendment) Rules,
2016 and the relevant provisions of the Act.
Accounting policies have been consistently
applied except where a newly issued accounting
standard is initially adopted or a revision to
an existing accounting standard requires a
change in the accounting policy hitherto in use.
The financial statements are presented in INR
and all values are rounded to the nearest million
except where otherwise indicated. "
Historical cost convention
The standalone financial statements have
been prepared on a historical cost convention
on a going concern basis except for certain
financial assets and financial liabilities which are
measured at fair value.
b) Use of estimates
The preparation of financial statement in
conformity with Ind AS requires the management
to make judgements, estimates and assumptions
that affect the reported amounts 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 result in the
outcomes requiring a material adjustment to
the carrying amounts of assets or liabilities in
future periods.
c) Operating cycle
Based on the nature of the operations and
the time between the acquisition of assets for
processing and their realisation in cash or cash
equivalents, the Company has ascertained its
operating cycle as twelve months for the purpose
of current/non-current classification of assets
and liabilities.
d) Revenue from contracts with customers
Revenue from contracts with customers is
recognised when control of the goods or services
are transferred to the customer at an amount
that reflects the consideration to which the
company expects to be entitled in exchange for
those goods or services. Revenue excludes taxes
collected on behalf of government.
(i) Rendering of services
The Company generates revenue from
rendering of services including engineering,
procurement and construction services,
operation and maintenance and
management services. Consideration
received for services is recognised as revenue
in the year when the service is performed
by reference to the stage of competition
at the reporting date, when outcome can
be assessed reliably. A contract's stage of
completion is assessed by management
by comparing the work completed with the
scope of work.
(ii) Engineering, procurement and
construction contract
Construction revenue and costs are
recognised by reference to the stage of
completion of the construction activity at
the balance sheet date, as measured by the
proportion that contract costs incurred for
work performed to date bear to the estimated
total contract costs. Where the outcome
of the construction cannot be estimated
reliably, revenue is recognised to the extent
of the construction costs incurred if it is
probable that they will be recoverable. When
the outcome of the contract is ascertained
reliably, contract revenue is recognised at
cost of work performed on the contract plus
proportionate margin, using the percentage
of completion method i.e. over the period of
time. The estimated outcome of a contract
is considered reliable when all the following
conditions are satisfied:
i. The amount of revenue can be
measured reliably,
ii. It is probable that the economic benefits
associated with the contract will flow to
the Company,
iii. The stage of completion of the contract
at the end of the reporting period can
be measured reliably,
iv. The costs incurred or to be incurred
in respect of the contract can be
measured reliably Provision is made for
all losses incurred to the balance sheet
date. Variations in contract work, claims
and incentive payments are recognised
to the extent that it is probable that
they will result in revenue and they are
capable of being reliably measured.
Expected loss, if any, on a contract is
recognised as expense in the period in
which it is foreseen, irrespective of the
stage of completion of the contract.
For contracts where progress billing
exceeds the aggregate of contract costs
incurred to-date and recognised profits
(or recognised losses, as the case may
be), the surplus is shown as the amount
due to customers. Amount received
before the related work is performed
are disclosed in the financial statement
as a liability towards advance received.
Amounts billed for work performed but
yet to be paid by the customers are
disclosed in the financial statement
as trade receivables. Work performed
but yet not billed to the Customer are
disclosed as unbilled revenue."
(iii) Interest income
Interest income is recorded using the
effective interest rate (EIR). EIR is the rate that
exactly discounts the estimated future cash
payments or receipts over the expected
life of the financial instrument or a shorter
period, where appropriate, to the gross
carrying amount of the financial asset or to
the amortised cost of the financial liability.
When calculating the effective interest rate,
the Company estimates the expected cash
flows by considering all the contractual
terms of the financial instrument but does
not consider the expected credit losses.
Interest income is included in other income
in the Statement of Profit and Loss.
(iv) Income from services (O&M solar)
Revenue from O&M service contracts
are recognised on monthly basis, after
completion of project on pro rata basis, over
the period of contract.
e) Borrowing costs
Borrowing costs directly attributable to the
acquisitions, construction or production of a
qualifying asset are capitalised during the
period of time that is necessary to complete
and prepare the asset for its intended use or
sale. Other borrowing costs are expensed in the
period in which they are incurred and reported in
finance costs.
f) Impairment of non-financial assets
For impairment assessment purposes, assets
are grouped at the lowest levels for which there
are largely independent cash inflows (cash¬
generating units). As a result, some assets are
tested individually for impairment and some are
tested at cash-generating unit level. All individual
assets or cash-generating units are tested for
impairment whenever events or changes in
circumstances indicate that the carrying amount
may not be recoverable.
An impairment loss is recognised for the amount
by which the asset's (or cash-generating unit's)
carrying amount exceeds its recoverable
amount, which is the higher of fair value less costs
of disposal and value-in-use. To determine the
value-in-use, management estimates expected
future cash flows from each cash-generating
unit and determines a suitable discount rate
in order to calculate the present value of those
cash flows. The date used for impairment testing
procedures are directly linked to the Company's
latest approved budget, adjusted as necessary
to exclude the effects of future reorganisations
and asset enhancements. Discount factors
are determined individually for each cash¬
generating unit and reflect current market
assessments of the time value of money and
asset-specific risk factors.
Impairment losses are charged in the Statement
of Profit and Loss. Further, impairment loss is
reversed if the asset's or cash-generating unit's
recoverable amount exceeds its carrying amount.
The reversal is limited so that the carrying of the
asset does not exceed its recoverable amount,
nor exceed the carrying amount that would have
been determined, net of depreciation, had no
impairment loss been recognised for the asset
in prior years. Such reversal is recognised in the
Statement of Profit and Loss unless the asset is
carried at a revalued amount, in which case, the
reversal is treated as an increase in revaluation.
g) Financial instruments
Recognition, initial measurement and
derecognition
Financial assets and financial liabilities are
recognised when the Company becomes a party
to the contractual provisions of the financial
instrument, and, except for trade receivables
which do not contain a significant financing
component, these are measured initially at:
a) fair value, in case of financial instruments
subsequently carried at fair value through
profit or loss (FVTPL);
b) fair value adjusted for transaction costs, in
case of all other financial instruments.
Trade receivables that do not contain a significant
financing component or for which the Company
has applied the practical expedient are measured
at the transaction price determined under Ind AS
115. Refer to the accounting policies in section (d)
Revenue from contracts with customers.
Financial assets are derecognised when the
contractual rights to the cash flows from the
financial asset expire, or when the financial asset
and substantially all the risks and rewards are
transferred. A financial liability is derecognised
when the underlying obligation specified in the
contract is discharged, cancelled or expires.
Classification and subsequent measurement
of financial assets
Different criteria to determine impairment are
applied for each category of financial assets,
which are described below.
For purposes of subsequent measurement,
financial assets are classified in three categories:
• Financial assets at amortised cost
• Financial assets at fair value through other
comprehensive income (FVOCI)
• Financial assets, derivatives and equity
instruments at FVTPL
(l) Financial assets at amortised cost
Classification and subsequent measurement
of financial liabilities
The Company's financial liabilities include
borrowings, trade and other payables and
derivative financial instruments.
Financial liabilities are measured subsequently
at amortised cost using the effective interest
method except for derivatives and financial
liabilities designated at FVTPL, which are carried
subsequently at fair value with gains or losses
recognised in profit or loss.
A 'Financial asset' is measured at the amortised
cost if both the following conditions are met:
(i) The asset is held within a business model
whose objective is to hold assets for
collecting contractual cash flows, and
(ii) Contractual terms of the asset give rise on
specified dates to cash flows that are solely
payments of principal and interest (SPPI) on
the principal amount outstanding.
After initial measurement, such financial assets
are subsequently measured at amortised cost
using the effective interest rate (EIR) method.
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 in finance
income in the profit or loss. The losses arising
from impairment are recognised in the profit or
loss. 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.
Impairment of financial assets
In accordance with Ind-AS 109, the Company
applies expected credit loss (ECL) model for
measurement and recognition of impairment
loss for financial assets carried at amortised cost.
ECL is the difference between all contractual
cash flows that are due to the Company in
accordance with the contract and all the cash
flows that the Company expects to receive.
When estimating the cash flows, the Company is
required to consider :
- All contractual terms of the financial assets
(including prepayment and extension) over
the expected life of the assets.
Cash flows from the sale of collateral held or
other credit enhancements that are integral to
the contractual terms.
Trade receivables
The Company applies simplified approach
permitted by Ind AS 109 Financial Instruments,
which requires expected lifetime losses to be
recognised from initial recognition of receivables.
Other financial assets
For recognition of impairment loss on other
financial assets and risk exposure, the Company
determines whether there has been a significant
increase in the credit risk since initial recognition
and if credit risk has increased significantly, life
time impairment loss is provided otherwise
provides for 12 month expected credit losses.
Classification and subsequent measurement
of financial liabilities
Financial liabilities are measured subsequently
at amortised cost using the effective interest
method except for derivatives and financial
liabilities designated at FVTPL, which are carried
subsequently at fair value with gains or losses
recognised in profit or loss. If the company
revises its estimates of payments, it shall adjust
the amortised cost of a financial liability to reflect
actual and revised estimated contractual cash
flows. The company recalculates the amortised
cost of the financial liability as the present value
of the estimated future contractual cash flows
that are discounted at the financial instrument's
original effective interest rate. The adjustment is
recognised in the statement of profit and loss as
Income or Expense.
Offsetting of financial assets and financial
liabilities
Financial assets and financial liabilities are offset
and the net amount is reported in the balance
sheet if there is a currently enforceable legal right
to offset the recognised amounts and there is an
intention to settle on a net basis, to realise the
assets and settle the liabilities simultaneously.
Derivative financial instruments
Initial recognition and subsequent
measurement
The Company uses derivative financial
instruments, such as forward currency contracts,
cross currency rate swaps to hedge its foreign
currency risks. Such derivative financial
instruments are initially recognised at fair value
on the date on which a derivative contract is
entered into and are subsequently re-measured
at fair value. Derivatives are carried as financial
assets when the fair value is positive and as
financial liabilities when the fair value is negative.
Compound financial instruments
Compound financial instruments are separated
into liability and equity components based
on the terms of contract. On the issuance of
compound financial instruments, the fair value of
liability component is determined using a market
rate for an equivalent instrument. This amount
is classified as a financial liability measured at
amortised cost (net of transaction costs) until it
is extinguished on conversion or redemption. The
equity component is classified under other equity.
(2) Financial assets at fair value through other
comprehensive income (FVOCI)
Financial assets at fair value through other
comprehensive income (FVOCI). Financial
assets that meet the following conditions are
measured initially as well as at the end of each
reporting date at fair value, recognised in other
comprehensive income (OCI).
a) The objective of the business model is
achieved both by collecting contractual cash
flows and selling the financial assets, and
b) The contractual terms of the asset give rise on
specified dates to cash flows that represent
solely payment of principal and interest.
(3) Financial assets, derivatives and equity
instruments at FVTPL
Financial assets at fair value through profit or
loss (FVTPL). Financial assets that do not meet
the amortised cost criteria or FVTOCI criteria are
measured at FVTPL. Financial assets at FVTPL
are measured at fair value at the end of each
reporting period, with any gains or losses arising
on remeasurement recognised in profit or loss.
The net gain or loss recognised in profit or loss
incorporates any dividend or interest earned on
the financial asset.
h) Income taxes
Tax expense recognised in profit or loss comprises
the sum of deferred tax and current tax. Current
and deferred tax is recognised in profit or loss,
except to the extent that it relates to items
recognised in other comprehensive income
or directly in equity. In this case, the tax is also
recognised in other comprehensive income or
directly in equity, respectively.
Current tax
Current tax is measured at the amount expected
to be paid using the tax laws that have been
enacted or substantively enacted by the end of
the reporting period and includes any adjustment
to tax payable in respect of previous years. The
carrying amounts of deferred tax are reviewed
at the end of each reporting period on the basis
of its most likely amount and adjusted if needed.
Assessing the most likely amount of current and
deferred tax in case of uncertainties (e.g. as a
result of the need to interpreting the requirements
of the applicable tax law), requires the Company
to apply judgements in considering whether
it is probable that the taxation authority will
accept the tax treatment retained. The Company
measures its tax balances either based on
the most likely amount or the expected value,
depending on which method provides a better
prediction of the resolution of the uncertainty."
Deferred tax
Deferred income taxes are calculated using the
liability method on temporary differences arising
between the tax bases of assets and liabilities
and their carrying amounts in the financial
statements. Deferred income tax is measured
using tax rates and tax laws that have been
enacted or substantively enacted by the end of
the reporting period and are expected to apply
when the related asset is realised or the liability
is settled. Deferred income tax is 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 tax assets are recognised to the extent
it is probable that the underlying tax loss or
deductible temporary difference will be utilised
against future taxable income. This is assessed
based on the Company's forecast of future
operating results, adjusted for significant non¬
taxable income and expenses and specific
limits on the use of any unused tax loss or credit.
The carrying amounts of deferred tax assets
(including minimum alternate tax( MAT) credit
entitlement) are reviewed at the end of each
reporting period and adjusted to the extent that it
is no longer probable that sufficient taxable profit
will be available to allow the benefit of part or all
of that deferred tax asset to be utilised.
Deferred tax liabilities are generally recognised
in full, although Ind AS 12 specifies limited
exemptions. As a result of these exemptions
the Company does not recognise deferred tax
on temporary differences relating to goodwill.
Deferred tax liabilities are recognised on taxable
temporary differences arising on investments
in subsidiaries, joint ventures and associates,
except where the Company is able to control
the reversal of the temporary difference and it is
probable that the temporary difference will not
reverse in the foreseeable future. The Company
does not offset deferred tax assets and liabilities
unless it has a legally enforceable right to set off
current tax assets against current tax liabilities
and the deferred tax relates to the same taxable
entity and levied by same taxation authority.
i) Cash and cash equivalents
Cash and cash equivalents comprise cash on
hand and demand deposits, together with other
short-term, highly liquid investments maturing
within 3 months from the date of acquisition.
Cash and cash equivalent are readily convertible
into known amounts of cash and are subject to
an insignificant risk of changes in value.
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