c. SUMMARY OF MATERIAL ACCOUNTING POLICIES
1. Inventories:
Inventories is valued at lower of cost and net
realisable value. Cost include purchase price
as well as incidental expenses. Cost formula
used is either 'Specific Identification’ or 'FIFO'.
The net realisable value is the estimated selling
price in the ordinary course of business less the
estimated costs of completion and estimated
costs necessary to make the sale.
2. Cash and cash equivalents:
For the purpose of presentation in the
statement of cash flows, cash and cash
equivalents includes cash on hand, deposits
held at call with financial institutions, other
short-term, highly liquid investments with
original maturities of three months or less that
are readily convertible to known amounts of
cash and which are subject to an insignificant
risk of changes in value, and bank overdrafts.
Bank overdrafts are shown within borrowings
in current liabilities in the balance sheet.
3. 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.
Financial assets
Recognition and initial measurement
Trade receivables and debt instruments are
initially recognised when they are originated.
All other financial assets are initially recognised
when the Company becomes a party to the
contractual provisions of the instrument. All
financial assets are initially measured at fair
value plus, for an item not at fair value through
Statement of profit and loss, transaction costs
that are attributable to its acquisition or use.
Classification
For the purpose of initial recognition, the
Company classifies its financial assets in
following categories:
- Financial assets measured at amortised cost;
- Financial assets measured at fair value
through other comprehensive income
(FVTOCI); and
- Financial assets measured at fair value
through profit and loss (FVTPL)
Financial assets are not reclassified
subsequent to their initial recognition, except
if and in the period the Company changes its
business model for managing financial assets.
A financial asset being 'debt instrument’ is
measured at the amortised cost if both of the
following conditions are met:
- The financial asset is held within a business
model whose objective is to hold assets for
collecting 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
(SPPI) on the principal amount outstanding.
A financial asset being 'debt instrument’ is
measured at the FVTOCI if both of the following
criteria are met:
- The asset is held within the business
model, whose objective is achieved both by
collecting contractual cash flows and selling
the financial assets, and
- The contractual terms of the financial asset
give rise on specified dates to cash flows that
are SPPI on the principal amount outstanding.
A financial asset being equity instrument is
measured at FVTPL.
All financial assets not classified as measured
at amortised cost or FVTOCI as described
above are measured at FVTPL.
Subsequent measurement
Financial assets at amortised cost
These assets are subsequently measured at
amortised cost using the effective interest
method. The amortised cost is reduced by
impairment losses, if any. Interest income and
impairment are recognised in the Statement of
profit and loss.
Financial assets at FVTPL
These assets are subsequently measured
at fair value. Net gains and losses, including
any interest income, are recognised in the
Statement of profit and loss.
Derecognition
The Company derecognises a financial asset
when the contractual rights to the cash flows
from the financial asset expire, or it transfers
the rights to receive the contractual cash flows
in a transaction in which substantially all of the
risks and rewards of ownership of the financial
asset are transferred or in which the Company
neither transfers nor retains substantially all of
the risks and rewards of ownership and it does
not retain control of the financial asset. Any
gain or loss on derecognition is recognised in
the Statement of profit and loss.
Impairment of financial assets (other than at
fair value)
The Company recognises loss allowances
using the Expected Credit Loss (ECL) model for
the financial assets which are not fair valued
through profit and 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 financial assets are measured at lifetime
ECL. The changes (incremental or reversal) in
loss allowance computed using ECL model, are
recognised as an impairment gain or loss in the
Statement of profit and loss.
Write-off
The gross carrying amount of a financial asset
is written off (either partially or in full) to the
extent that there is no realistic prospect of
recovery. This is generally the case when the
Company determines that the counterparty
does not have assets or sources of income that
could generate sufficient cash flows to repay
the amounts subject to write-off. However,
financial assets that are written off could still
be subject to enforcement activities in order
to comply with the Company’s procedures for
recovery of amounts due.
Financial liabilities
Recognition and initial measurement
All financial liabilities are initially recognised
when the Company becomes a party to the
contractual provisions of the instrument. All
financial liabilities are initially measured at
fair value minus, for an item not at fair value
through profit and loss, transaction costs that
are attributable to the liability.
Classification and subsequent measurement
Financial liabilities are classified as measured
at amortised cost or FVTPL.
A financial liability is classified as FVTPL if
it is classified as held-for-trading, or 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 the Statement of profit and loss.
Financial liabilities other than classified
as FVTPL, are subsequently measured at
amortised cost using the effective interest
method. Interest expense are recognised in
Statement of profit and loss. Any gain or loss
on derecognition is also recognised in the
Statement of profit and loss.
Derecognition
The Company derecognises a financial asset
when the contractual rights to the cash flows
from the financial asset expire, or it transfers
the rights to receive the contractual cash flows
in a transaction in which substantially all of the
risks and rewards of ownership of the financial
asset are transferred or in which the Company
neither transfers nor retains substantially all of
the risks and rewards of ownership and it does
not retain control of the financial asset. Any
gain or loss on derecognition is recognised in
the Statement of profit and loss.
Offsetting of financial instruments
Financial assets and financial liabilities are
offset, and the net amount presented in the
Balance Sheet when, and only when, the
Company currently has a legally enforceable
right to set off the amounts and it intends either
to settle them on a net basis or to realise the
assets and settle the liabilities simultaneously.
Fair value measurement
The Company measures financial instruments
at fair value in accordance with the accounting
policies mentioned above. Fair value is the
price that would be received on sell of 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.
All assets and liabilities for which fair value
is measured or disclosed in the financial
statements are categorized within the fair value
hierarchy that categorizes into three levels,
described as follows, the inputs to valuation
techniques used to measure value. The fair value
hierarchy gives the highest priority to quoted
prices in active markets for identical assets or
liabilities(Level 1 inputs) and the lowest priority
to unobservable inputs (Level 3 inputs).
Level 1: Quoted (unadjusted) prices in active
markets for identical assets or liabilities.
Level 2 — inputs other than quoted prices
included within Level 1 that are observable for
the asset or liability, either directly or indirectly.
Level 3 inputs that are unobservable for the
asset or liability.
For assets and liabilities that are recognized
in the financial statements at fair value on a
recurring basis, the Company determines
whether transfers have occurred between
levels in the hierarchy by re-assessing
categorization at the end of each reporting
period and discloses the same.
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