2. Material Accounting Policies
A) Basis of Preparation and Presentation of Financial Statements
The financial statements of Bhudevi Infra Projects Limited (the Company) have been prepared
and presented in accordance with the Indian Accounting Standards (Ind AS) notified under
the Companies (Indian Accounting Standards) Rules 2015, as amended and as per other
relevant provisions of the Act. The presentation of financial statements is based upon Ind AS
Schedule III of Companies Act, 2013.
Except for the changes below, the Company has consistently applied accounting policies to
all applicable periods. Ind AS 116 Leases:
Effective April 1, 2019, the Company has adopted Ind AS 116 Leases and applied to its Lease
contracts existing on April 1, 2019, using the modified retrospective method and has taken
the cumulative adjustment to retained earnings, on the date of initial application. The Company
has evaluated the effect of this amendment on the financial statements and concluded that
there is no significant impact.
Basis of Measurement
These financial statements have been prepared on the historical cost convention and on an
accrual basis, except for the following material items in the balance sheet:
All assets and liabilities are classified into current and non-current based on the operating
cycle of less than twelve months or based on the criteria of realization/settlement within
twelve months period from the balance sheet date.
Use of estimates and judgments:
The preparation of financial statements in conformity with Ind AS requires management to
make judgments, estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses. These estimates and
associated assumptions are based on historical experiences and various other factors that are
believed to be reasonable under the circumstances. Actual results may differ from these
estimates.
Estimates and underlying assumptions are reviewed on an on-going basis. Revisions to
accounting estimates are recognized in the period in which the estimates are revised and in
any future periods affected. In particular, the areas involving critical estimates or Judgments
are:
Depreciation and amortization: Depreciation and amortization is based on management
estimates of the future useful lives of certain class of property, plant and equipment and
intangible assets.
Provision and contingencies: Provisions and contingencies are based on the Managements
best estimate of the liabilities based on the facts known at the balance sheet date.
Fair valuation: Fair value is the market based measurement of observable market transaction
or available market information. All financial instruments are measured at fair value as at
the balance sheet date, as provided in Ind AS 109 and 113. Being a critical estimate, judgment
is exercised to determine the carrying values. The fair value of financial instruments that are
unlisted and not traded in an active market is determined at fair values assessed based on
recent transactions entered into with third parties, based on valuation done by external
appraisers etc.,
Functional and presentation currency
These financial statements are presented in Indian rupees, which is also the functional currency
of the Company. All financial information presented in Indian rupees has been rounded to
the nearest Lakhs.
Current and noncurrent classification
All the assets and liabilities have been classified as current or noncurrent as per the Company’s
normal operating cycle and other criteria set out in the Schedule III to the Companies Act,
2013and Ind AS 1, Presentation of financial statements.
B) Classification of assets and liabilities as current and non-current
Assets:
An asset is classified as current when it satisfies any of the following criteria:
a. It is expected to be realized in,
b. or is intended for sale or consumption in, the Company’s normal operating cycle;
c. It is held primarily for the purpose of being traded;
d. It is expected to be realized within twelve months after the reporting date; or
e. It is cash or cash equivalent unless it is restricted from being exchanged or used to
settle a liability for at least twelve months after the reporting date.
Liabilities: A liability is classified as current when it satisfies any of the following criteria:
a. It is expected to be settled in the Company’s normal operating cycle;
b. It is held primarily for the purpose of being traded;
c. It is due to be settled within twelve months after the reporting date; or
d. The Company does not have an unconditional right to defer settlement of the liability
for at least twelve months after the reporting date. Terms of a liability that could, at the
option of the counterparty, result in its settlement by the issue of equity instruments do
not affect its classification.
Current assets/ liabilities include the current portion of noncurrent assets/ liabilities
respectively. All other assets/ liabilities are classified as noncurrent. Deferred tax assets
and liabilities are always disclosed as non-current.
Foreign Currency Transactions:
Transactions in foreign currencies are translated to the respective functional currencies of
entities within the Company at exchange rates at the dates of the transactions. Monetary
assets and liabilities denominated in foreign currencies at the reporting date are translated
into the functional currency at the exchange rate at that date. Exchange differences arising
on the settlement of monetary items or on translating monetary items at rates different from
those at which they were translated on initial recognition during the period or in previous
financial statements are recognized in the statement of profit and loss in the period in which
they arise.Non-monetary assets and liabilities denominated in a foreign currency and measured
at historical cost are translated at the exchange rate prevalent at the date of transaction, if
any.
C) Property, plant and equipment:
Recognition and measurement
Property, Plant and Equipment are stated at cost of acquisition or construction less accumulated
depreciation and impairment loss, if any. Cost includes expenditures that are directly
attributable to the acquisition of the asset i.e., freight, duties and taxes applicable and other
expenses related to acquisition and installation. The cost of self-constructed assets includes
the cost of materials and other costs directly attributable to bringing the asset to a working
condition for its intended use. Borrowing costs that are directly attributable to the construction
or production of a qualifying asset are capitalized as part of the cost of that asset.
Directly attributable costs include:
a. Cost of Employee Benefits arising directly from Construction or acquisition of PPE.
b. Cost of Site Preparation.
c. Initial Delivery & Handling costs.
d. Professional Fees and
e. Costs of testing whether the asset is functioning properly, after deducting the net
proceeds from selling any items produced while bringing the asset to that location
and condition (such as samples produced when testing equipment).
When parts of an item of property, plant and equipment have different useful lives, they
are accounted for as separate items (major components) of property, plant and equipment.
Gains and losses upon disposal of an item of property, plant and equipment are
determined by comparing the proceeds from disposal with the carrying amount of
property, plant and equipment and are recognized net within in the statement of profit
and loss.
The cost of replacing part of an item of property, plant and equipment is recognized in
the carrying amount of the item if it is probable that the future economic benefits
embodied within the part will flow to the Company and its cost can be measured reliably.
The costs of repairs and maintenance are recognized in the statement of profit and loss
as incurred.
Items of property, plant and equipment acquired through exchange of non-monetary
assets are measured at fair value, unless the exchange transaction lacks commercial
substance or the fair value of either the asset received or asset given up is not reliably
measurable, in which case the asset exchanged is recorded at the carrying amount of
the asset given up.
Depreciation and Amortization:
Depreciation is recognized in the statement of profit and loss on a straight line basis over the
estimated useful lives of property, plant and equipment based on Schedule II to the Companies
Act, 2013 (Schedule), which prescribes the useful lives for various classes of tangible assets.
For assets acquired or disposed of during the year, depreciation is provided on pro - rata
basis. Land is not depreciated.
Depreciation methods, useful lives and residual values are reviewed at each reporting date
and adjusted prospectively, if appropriate. The estimated useful lives are as follows:
Advances paid towards the acquisition of property, plant and equipment outstanding at each
reporting date is disclosed as capital advances under other noncurrent assets. The cost of
property, plant and equipment not ready to use before such date are disclosed under capital
work-in-progress. Assets not ready for use are not depreciated.
The Company assesses at each balance sheet date, whether there is objective evidence that an
asset or a group of assets is impaired. An assets carrying amount is written down immediately
to its recoverable amount if the assets carrying amount is greater than its estimated recoverable
amount. Recoverable mount is higher of the value in use or fair value less cost to sell.
D) 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.
a) Financial Assets
1) Initial Recognition and measurement
All financial assets are recognized initially at fair value plus, 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. Purchases or sales of financial
assets that require delivery of assets within a time frame established by regulation or
convention in the market place (regular way trades) are recognized on the trade date,
i.e., the date that the Company commits to purchase or sell the asset.
2) Subsequent Measurement
For purposes of subsequent measurement, financial assets are classified in following
categories:
Financial Assets at Amortized Cost
Financial assets are subsequently measured at amortized cost if these financial assets are
held within a business model with an objective to hold these assets 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.
Interest income from these financial assets is included in finance income using the effective
interest rate (EIR) method. Impairment gains or losses arising on these assets are recognized
in the Statement of Profit and Loss.
Financial Assets Measured at Fair Value
Financial assets are measured at fair value through OCI if these financial assets are held within a
business model with an objective to hold these assets in order to collect contractual cash flows or to
sell these 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.
Movements in the carrying amount are taken through OCI, except for the recognition of impairment
gains or losses, interest revenue and foreign exchange gains and losses which are recognized in the
Statement of Profit and Loss.
Impairment of Financial Assets
In accordance with Ind AS 109, expected credit loss (ECL) model for measurement and recognition
of impairment loss on the trade receivables or any contractual right to receive cash or another
financial asset that result from transactions that are within the scope of Ind AS 18. As Company
trade receivables are realized within normal credit period adopted by the company, hence the financial
assets are not impaired.
De-recognition of Financial Assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar
financial assets) is primarily derecognized (i.e., removed from the Company’s balance sheet) when:
The rights to receive cash flows from the asset have expired, or
The Company has transferred its rights 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 asset.
When the Company has transferred its rights to receive cash flows from an asset or has entered into
a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards
of ownership. When it has neither transferred nor retained substantially all of the risks and rewards
of the asset, nor transferred control of the asset, the Company continues to recognise the transferred
asset to the extent of the Company’s continuing involvement. In that case, the Company also
recognizes an associated liability. The transferred asset and the associated liability are measured on
a basis that reflects the rights and obligations that the Company has retained.
b) Financial Liabilities
• Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value
i.e., loans and borrowings, payables, or as derivatives designated as hedging instruments in
an effective hedge, as appropriate. All financial liabilities are recognized initially at fair
value and, in the case of loans and borrowings and payables, net of directly attributable
transaction costs.
The Company’s financial liabilities include trade and other payables, loans and borrowings
including bank overdrafts, financial guarantee contracts.
• Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured
at amortized cost using the EIR method. Gains and losses are recognized in the statement of
profit and loss when the liabilities are derecognized as well as through the EIR amortization
process.
Amortized 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 amortization is included as
finance costs in the statement of profit and loss.
Fair value measurement
The Company classifies the fair value of its financial instruments in the following hierarchy,
based on the inputs used in their valuation:
i) Level 1: The fair value of financial instruments quoted in active markets is based on
their quoted closing price at the balance sheet date.
ii) Level 2: The fair value of financial instruments that are not traded in an active market
is determined by using valuation techniques using observable market data. Such valuation
techniques include discounted cash flows, standard valuation models based on market
parameters for interest rates, yield curves or foreign exchange rates, dealer quotes for
similar instruments and use of comparable arms length transactions
iii) Level 3: The fair value of financial instruments that are measured on the basis of entity
specific valuations using inputs that are not based on observable market data
(unobservable inputs).
Derivative financial instruments and hedging activities:
A derivative is a financial instrument which changes value in response to changes in an
underlying asset and is settled at future date. Derivatives are recognized at fair value at the
end of reporting period and are subsequently re-measured at their fair value at each reporting
period. The method of recognizing the resulting gain or loss depends on whether the derivative
is designated as a hedging instrument, and if so, the nature of the item being hedged. The
Company designates certain derivatives as either:
a. hedges of the fair value of recognized assets or liabilities (fair value hedge); or
b. hedges of a particular risk associated with a firm commitment or a highly probable
forecasted transaction (cash flow hedge);
The Company documents at the inception of the transaction the relationship between
hedging instruments and hedged items, as well as its risk management objectives and
strategy for undertaking various hedging transactions. The Company also documents
its assessment, both at hedge inception and on an on-going basis, of whether the
derivatives that are used in hedging transactions are effective in offsetting changes in
cash flows of hedged items.
Movements in the hedging reserve are accounted in other comprehensive income and
are shown within the statement of changes in equity. The full fair value of a hedging
derivative is classified as a non-current asset or liability when the remaining maturity
of hedged item is more than 12 months and as a current asset or liability when the
remaining maturity of the hedged item is less than 12 months. Trading derivatives are
classified as a current asset or liability.
(a) Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value
hedges are recorded in the Statement of Profit and Loss, together with any changes in
the fair value of the hedged asset or liability that are attributable to the hedged risk.
(b) Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and
qualify as cash flow hedges is recognized in other comprehensive income. The ineffective
portion of changes in the fair value of the derivative is recognized in the statement of
profit and loss. Gains or losses accumulated in equity are reclassified to the statement
of profit and loss in the periods when the hedged item affects the statement of profit and
loss.
When a hedging instrument expires or swapped or unwound, or when a hedge no longer
meets the criteria for hedge accounting, any accumulated gain or loss existing in
statement of changes in equity is recognized in the Statement of Profit and Loss.
When a forecasted transaction is no longer expected to occur, the cumulative gains/
losses that were reported in equity are immediately transferred to the statement of profit
and loss.
Fair value measurement
Fair value of financial assets and liabilities is normally determined by references to the
transaction price or market price. If the fair value is not reliably determinable, the Company
determines the fair value using valuation techniques that are appropriate in the circumstances
and for which sufficient data are available, maximizing the use of relevant observable inputs
and minimizing the use of unobservable inputs.
De-recognition of Financial Liabilities
Financial liabilities are de-recognized when the obligation specified in the contract is
discharged, cancelled or expired. 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 de-recognition of the
original liability and recognition of a new liability. The difference in the respective carrying
amounts is recognized in the Statement of Profit and Loss.
E) Inventories
Inventories consist of raw materials, stores and spares, work-in-progress and finished goods
and are measured at the lower of cost and net realizable value. The cost of all categories of
inventories is based on the weighted average method. Cost includes expenditures incurred in
acquiring the inventories, production or conversion costs and other costs incurred in bringing
them to their existing location and condition. In the case of finished goods and work-in¬
progress, cost includes an appropriate share of overheads based on normal operating capacity.
Stores and spares, that do not qualify to be recognized as property, plant and equipment,
consists of packing materials, engineering spares (such as machinery spare parts) and
consumables which are used in operating machines or consumed as indirect materials in the
manufacturing process. Net realizable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and selling expenses.
F) Impairment of non-financial assets
Intangible assets and property, plant and equipment, Intangible assets and property, plant
and equipment are evaluated for recoverability whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. For the purpose of impairment
testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-
in-use) is determined on an individual asset basis unless the asset does not generate cash
flows that are largely independent of those from other assets. In such cases, the recoverable
amount is determined for the CGU to which the asset belongs. If such assets are considered
to be impaired, the impairment to be recognized in the statement of profit and loss is measured
by the amount by which the carrying value of the assets exceeds the estimated recoverable
amount of the asset. An impairment loss is reversed in the statement of profit and loss if there
has been a change in the estimates used to determine the recoverable amount. The carrying
amount of the asset is increased to its revised recoverable amount, provided that this amount
does not exceed the carrying amount that would have been determined (net of any accumulated
amortization or depreciation) had no impairment loss been recognized for the asset in prior
years.
G) Cash and Cash Equivalents
Cash and bank balances comprise of cash balance in hand, in current accounts with banks.
|