2C Summary of material accounting policies
1. Use of estimates
Estimates and assumptions used in the preparation of the financial statements and disclosures are based
upon Management's evaluation of the relevant facts and circumstances as of the date of the financial
statements, which may differ from the actual results at a subsequent date. Accounting estimates and
judgments are used in various line items in the financial statements, including:
• Business model assessment
• Fair value of financial instruments
• Impairment of financial and non financial assets
• Provisions for tax expense and deferred tax
• Post employment benefits
• Provisions and contingent liabilities
2. Revenue recognition
Income
Revenue is recognised to the extent that it is probable that the economic benefit will flow to the Company
and the revenue can be reliably measured and there exists reasonable certainty of its recovery.
A. Interest income
Interest income from debt instruments is recognised using the effective interest rate (EIR) method on all
financial assets subsequently measured under amortised cost or fair value through other comprehensive
income (FVTOCI). The EIR is the rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset to the gross carrying amount of a financial asset. 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.
The EIR (and therefore, the amortised cost of the asset) is calculated by considering any discount or
premium on acquisition, fees and costs that are an integral part of the EIR. The Company recognises
interest income using a rate of return that represents the best estimate of a constant rate of return
over the expected life of the instrument.
Interest on financial assets subsequently measured at fair value through profit or loss (FVTPL) is
recognised at the contractual rate of interest.
B. Dividends
Dividends are recognised in the Statement of Profit and Loss only when the right to receive income
is established.
C. Rent and other income
Rental income is accounted on a straight-line basis over the lease term of operating leases.
Other income is recognised at transaction price net of variable consideration as per agreed terms
of contracts.
3. Investment properties
Land and buildings which are held for long-term rental yields or for capital appreciation or both, and those
are not occupied by the Company, are classified as investment properties. Investment properties are
measured initially at its cost, including related transaction costs. Subsequent expenditure is capitalised
to the asset's carrying amount only when it is probable that future economic benefits associated with
the expenditure will flow to the Company and the cost of the item can be measured reliably. Repairs and
maintenance costs are expensed when incurred. Depreciation on investment properties are provided on a
pro rata basis on straight line method over the estimated useful lives. Useful life of assets, as assessed
by the Management, corresponds to those prescribed by Schedule II of the Companies Act, 2013.
Impairment of non financial assets
An assessment is done at each balance sheet date as to whether there are any indications that an asset
may be impaired. If any such indication exists, an estimate of the recoverable amount of the asset/cash
generating unit (CGU) is made. Where the carrying value of the asset/CGU exceeds the recoverable
amount, the carrying value is written down to the recoverable amount.
4. Investments and financial assets
A. Investment in subsidiaries and associates
Interest in subsidiaries, associates and joint venture are recognised at cost and not adjusted to fair
value at the end of each reporting period as permitted by Ind AS 27. Cost represents amount paid for
acquisition of the said investments.
The Company assesses at the end of each reporting period, if there are any indications that the said
investments may be impaired. If so, the Company estimates the recoverable value/amount of the
investment and provides for impairment, if any i.e. the deficit in the recoverable value over cost.
B. Other investments and financial assets
i. Recognition and initial measurement
Financial assets are initially recognised on the trade date, i.e., the date that the Company
becomes a party to the contractual provisions of the instrument. All financial assets are
recognised initially at fair value. Further, in the case of financial assets not recorded at fair value
through profit or loss, transaction costs, that are attributable to the acquisition of the financial
asset, are added to the fair value. However, trade receivables that do not contain a significant
financing component are measured at transaction price.
ii. Subsequent measurement
Subsequent measurement of financial assets depends on the Company's business model for
managing the financial asset and the cash flow characteristics of the financial asset.
The Company classifies its financial assets in the following measurement categories:
• those to be measured subsequently at amortised cost,
• those to be measured subsequently at fair value through profit or loss (FVTPL), and
• those to be measured subsequently at fair value through other comprehensive income
(FVTOCI),
The classification is done depending upon the Company's business model for managing the
financial assets and the contractual terms of the cash flows.
For assets classified as 'measured at fair value', gain/(loss) will either be recorded in
profit or loss or other comprehensive income, as elected. For assets classified as 'measured at
amortised cost', this will depend on the business model and contractual terms of the cash flows.
iii. Business model assessment
The Company determines its business model at the level that best reflects how it manages
groups of financial assets to achieve its business objective.
The Company's business model is not assessed on an instrument-by-instrument basis, but at a
higher level of aggregated portfolios and is based on observable factors such as:
• How the performance of the business model and the financial assets held within that
business model are evaluated and reported to the entity's key management personnel
• The risks that affect the performance of the business model (and the financial assets held
within that business model) and, in particular, the way those risks are managed
• The expected frequency, value and timing of sales are also important aspects of the
Company's assessment
If cash flows after initial recognition are realised in a way that is different from the Company's
original expectations, the Company does not change the classification of the remaining financial
assets held in that business model, but incorporates such information when assessing newly
originated or newly purchased financial assets going forward.
iv. The SPPI test (Solely payments of principal and interest)
As a second step of its classification process the Company assesses the contractual terms of
financial instruments to identify whether they meet the SPPI test.
'Principal' for the purpose of this test is defined as the fair value of the financial asset at initial
recognition and may change over the life of the financial asset. 'Interest' is defined as consideration
for the time value of money and for the credit risk associated with the principal amount outstanding
during a particular period of time and for other basic lending risks and costs, as well as profit margin.
v. Subsequently measured at amortised cost
Financial assets 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 e.g.
debentures, bonds, certificate of deposits, open ended target maturity funds etc. A gain/(loss)
on a financial asset that is subsequently measured at amortised cost 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 investment income using the effective interest rate method.
vi. Subsequently measured at FVTPL
Financial assets that do not meet the criteria for amortised cost and FVTOCI, are measured at
FVTPL e.g. investments in mutual funds. A gain/(loss) on a financial asset that is subsequently
measured at FVTPL is recognised in profit or loss and presented net in the Statement of Profit
and Loss with other gain/(loss) in the period in which it arises.
vii. Equity instruments subsequently measured at FVTOCI
The Company subsequently measures all equity investments at FVTPL, unless the Company's
Management has elected to classify irrevocably some of its equity investments as equity
instruments at FVTOCI, when such instruments meet the definition of equity under Ind AS 32
'Financial Instruments'. Such classification is determined on an instrument-by-instrument basis.
Gain/(loss) on these equity instruments is never recycled to Statement of Profit and Loss.
Dividends are recognised in Statement of Profit and Loss as dividend income when the right
of the payment has been established, except when the Company benefits from such proceeds
as a recovery of part of the cost of the instrument, in which case, such gain is recorded in OCI.
Equity instruments at FVTOCI are not subject to an impairment assessment.
viii. Debt instruments subsequently measured at FVTOCI
Debt instruments such as Government securities, corporate debentures and alternate
investment funds. are measured at FVTOCI when both of the following conditions are met:
• The instrument is held within a business model, the objective of which is both collecting
contractual cash flows and selling financial assets;
• The contractual terms of the financial asset meet the SPPI test.
Movements in the carrying amount are taken through OCI, except for the recognition of
impairment gain/(loss) and interest income which are recognised in Statement of Profit and Loss.
ix. Impairment of financial assets
The Company assesses on a forward-looking basis the expected credit losses associated with
its assets carried at amortised cost. The impairment methodology applied depends on whether
there has been a significant increase in credit risk and if so, assess the need to provide for the
same in the Statement of Profit and Loss.
Since the Company makes investments in highly rated fixed income securities, which are
categorised as 'subsequently measured at amortised cost', the risk parameters such as tenor,
the probability of default corresponding to the credit rating by rating agency (viz. CRISIL, ICRA),
for each of these instruments is considered in estimating the probable credit loss over life time
of such securities.
ECL impairment loss allowance (or reversal) is recognised during the period only if material and
is recognised as income/expense in the Statement of Profit and Loss. This amount is reflected
under the head 'other expenses' in the Statement of Profit and Loss.
x. Reclassification of financial assets and liabilities
The Company does not reclassify its financial assets subsequent to their initial recognition,
apart from the exceptional circumstances in which the Company acquires, disposes of, or
terminates a business line.
xi. Derecognition of financial assets
A financial asset is derecognised only when:
• The rights to receive cash flows from the asset have expired or
• The Company has transferred its right to receive cash flows from the asset or has
assumed an obligation to pay the received cash flows in full without material delay to
a third party under a 'pass-through' arrangement; and either: (a) the Company has
transferred substantially all the risks and rewards of the asset; or (b) the Company has
neither transferred nor retained substantially all the risks and rewards of the asset, but has
transferred control of the assets
Any gain or loss on derecognition will be recognised in the Statement of Profit and Loss.
5. Financial liabilities
Financial liabilities are classified as measured at amortised cost or FVTPL. Financial liabilities at FVTPL are
measured at fair value and net gain and loss, including any interest expense, are recognised in Statement
of Profit and Loss. Other financial liabilities are subsequently measured at amortised cost using the
effective interest rate method. Interest expense and foreign exchange gain and loss are recognised in the
Statement of Profit and Loss. Any gain or loss on derecognition is also recognised in the Statement of
Profit and Loss.
A. Recognition and initial measurement
All financial liabilities are recognised initially at fair value and, in the case of payables, net of directly
attributable transaction costs.
B. Subsequent measurement
After initial recognition, all financial liabilities are subsequently measured at amortised cost using the
effective interest rate method. Any gain or loss arising on derecognition of liabilities are recognised in
the Statement of Profit and Loss.
C. Derecognition
The Company derecognises financial liability when the obligation under the liability is discharged,
cancelled or expired.
6. Employee benefits
A. Short-term employee benefits and defined contribution plan and long-term incentive plan
Liabilities for salaries, including non-monetary benefits and accumulating leave balance in
respect of employees' services up to the end of the reporting period, are recognised as liabilities
(and expensed), and are measured at the amounts expected to be paid when the liabilities are settled.
The Company also recognises a liability and records an expense for bonuses (including performance-
linked bonuses) where contractually obliged or where there is a past practice that has created a
constructive obligation.
The Company has made contribution to superannuation fund, provident fund and pension scheme as
per the scheme of the Company or to Government authority.
B. Long-term incentive plan
The Company's liability towards long-term incentive plan, being a defined benefit plan, is accounted
for on the basis of an independent actuarial valuation. Contributions to these schemes are made by
the Company on an periodic basis and charged to the Statement of Profit and Loss. The Company
has no further obligation beyond these contributions. The value for defined benefit obligation is
calculated annually by actuaries using the projected unit credit method.
C. Defined benefits plan (Gratuity obligation)
The liability or asset recognised in the Balance Sheet in respect of defined benefit gratuity plans is
the present value of the defined benefit obligation at the end of the reporting period less the fair
value of plan assets. The value for defined benefit obligation is calculated annually by actuaries using
the projected unit credit method. The calculation includes assumptions with regard to discount rate,
salary escalation rate, attrition rate and mortality rate. Management determines these assumptions in
consultation with the plan's actuaries and past trend.
Remeasurements as a result of experience adjustments and changes in actuarial assumptions are
recognised in other comprehensive income.
Payment for present liability of future payment of gratuity is being made to approved gratuity fund viz,
Life Insurance Corporation of India (LIC) and Bajaj Life Insurance Ltd. (Bajaj Life) (formerly known as
Bajaj Allianz Life Insurance Company Ltd.). However, any deficits in plan assets managed by LIC and Bajaj
Life as compared to actuarial liability determined by an appointed actuary are recognised as a liability.
D. Compensated absences
Compensated absences entitlements are recognised as a liability, in the calendar year of rendering
of service, as per the rules of the Company. As accumulated leave can be availed and/or encashed at
any time during the tenure of employment the liability is recognised on the basis of an independent
actuarial valuation. The compensated absences liability is calculated annually by actuaries using the
projected unit credit method.
7. Taxation
A. Current tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from
or paid to the taxation authorities, in accordance with the Income Tax Act, 1961 and the Income
Computation and Disclosure Standards prescribed therein. The tax rates and tax laws used to compute
the amount are those that are enacted or substantively enacted, at the reporting date.
Management periodically evaluates positions taken in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Current income tax relating to items recognised outside profit or loss is recognised outside profit
or loss (either in other comprehensive income or in equity). Current tax items are recognised in
correlation to the underlying transaction either in other comprehensive income or directly in equity.
B. Deferred tax
Deferred tax is provided on temporary differences at the reporting date between the tax bases of
assets and liabilities, and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year
when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the reporting date. The carrying amount of deferred tax assets is
reviewed at each reporting date by the Company and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set
off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable
entity and the same taxation authority.
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