2. MATERIAL ACCOUNTING POLICIES
2.1 Basis of Preparation of Financial Statements:
(i) Compliance with Ind-AS
The financial statements of the Company have been prepared in accordance with Indian Accounting
Standards (Ind-AS) notified under Section 133 of the Companies Act, 2013 (the Act)
read with [Companies (Indian Accounting Standards) Rules, 2015] as amended by the
Companies (Indian Accounting Standards) Rules, 2016 and other relevant provisions of the Act.
Further, the Company follows the statutory requirements, circulars and guidelines issued
by the Reserve Bank of India (RBI) for Non-Banking Financial Companies (NBFC), from
time to time.
The financial statements have been approved by the Company Board of Directors and authorized
for issue on May 29, 2025.
(ii) Basis of Presentation
The Balance Sheet, the Statement of Changes in Equity and the Statement of Profit and Loss
are presented in the format prescribed under Division III of Schedule III of the Act, as amended
from time to time, for Non-Banking Financial Companies (‘NBFCs’) that are required to comply
with Ind AS. The Statement of Cash Flows has been presented as per the requirements of Ind
AS 7 Statement of Cash Flows.
(iii) Basis of measurement
The financial statements have been prepared on a historical cost basis, except for certain assets
and liabilities which have been measured at the fair value amount:
a) Certain financial assets and liabilities (including derivative instruments),
b) Defined benefit plans - plan assets
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.
(iv) Functional and presentation currencies:
Items included in the financial statements are measured using the currency of the primary
economic environment in which the Company operates (‘the functional currency’) i.e., in Indian
rupees (INR) and all values are rounded off to nearest lakhs except where otherwise indicated.
2.2 Use of estimates, judgements and assumptions :
(i) Critical estimates and assumptions
The preparation of the financial statements in conformity with Ind AS requires the Management
to make estimates, judgments and assumptions. These estimates, judgments and assumptions
affect the application of accounting policies and the reported amounts of assets and liabilities,
the disclosures of contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the period. The management believes that
the application of accounting policies require critical accounting estimates involving complex and
subjective judgments and the use of assumptions. Actual results could differ from those estimates.
Any revision to accounting estimates is recognised prospectively in the current and future period.
This note provides an overview of the areas that involved a higher degree of judgement
or complexity, and of items which are more likely to be materially adjusted due to
estimates and assumptions turning out to be different than those originally assessed.
Detailed information about each of these estimates and judgement is included in the relevant
notes together with information about the basis of calculation for each affected line item in the
financial statements.
(ii) Judgements
In the process of applying the Company’s accounting policies, management has made judgements,
which have a significant risk of causing material adjustment to the carrying amounts of assets
and liabilities within the next financial year.
The areas involving critical estimates and judgements are:
Estimation of Defined benefit obligation - refer note 2.4(ii)
Fair value of financial instruments - refer note 2.15
Effective Interest Rate (EIR) - refer note below
Impairment on financial assets - refer note 2.16(iii)
Provision for tax expenses - refer note 2.4(iii)
Business model assessment - refer note below
Business model assessment
Classification and measurement of financial assets depends on the results of business model
and the solely payments of principal and interest (“SpPI”) test. The Company determines the
business model at a level that reflects how groups of financial assets are managed together to
achieve a particular business objective. This assessment includes judgement reflecting all relevant
evidence including how the performance of the assets is evaluated and their performance
measured, the risks that affect the performance of the assets and how these are managed and
how the managers of the assets are compensated. The Company monitors financial assets
measured at amortised cost or fair value through other comprehensive income that are
derecognised prior to their maturity to understand the reason for their disposal and whether the
reasons are consistent with the objective of the business for which the asset was held. Monitoring
is part of the Company’s continuous assessment of whether the business model for which the
remaining financial assets are held continues to be appropriate and if it is not appropriate
whether there has been a change in business model and so a prospective change to the
classification of those assets.
Effective Interest Rate (EIR) Method
The Company recognizes interest income / expense using a rate of return that represents the
best estimate of a constant rate of return over the expected life of the loans given / taken. This
estimation, by nature, requires an element of judgement regarding the expected behaviour and
life-cycle of the instruments, as well as expected changes to other fee income/expense that are
integral parts of the instruments.
2.3 Revenue recognition
Interest income
Interest income is recognised using the Effective Interest Rate (EIR) method for all financial
assets measured at amortised cost. The EIR is the rate that exactly discounts estimated future
cash receipts through the expected life of the financial asset, to its gross carrying amount. The
calculation of the effective interest rate includes transaction costs and transaction income that
are directly attributable to the acquisition of a financial asset.
Income by way of additional interest on account of delayed payment by the customers is
recognised on realisation basis, due to uncertainty in collection.
Other Revenue from Operations
Fee and commission income such as documentation charges, guarantee commission, servicer
fee income that are not integral part of the effective interest rate on the financial asset are
recognised as the performance obligations are performed.
Income in the nature of cheque bounce and other related charges are recognised on realisation
basis, due to uncertainty in collection.
Dividends
Dividend income from investment is accounted for when the right to receive is established.
Rental Income
Income from operating leases is recognised in the Statement of profit and loss on a straight-line
basis over the lease term
2.4 Expenses
(i) Finance costs
Finance costs represents Interest expense recognised by applying the Effective Interest Rate (EIR)
to the gross carrying amount of financial liabilities other than financial liabilities classified as FVTPL.
The EIR in case of a financial liability is computed :
a. As the rate that exactly discounts estimated future cash payments through the expected life
of the financial liability to the gross carrying amount of the amortised cost of a financial
liability.
b. By considering all the contractual terms of the financial instrument in estimating the cash
flows.
c. Including all fees paid between parties to the contract that are an integral part of the effective
interest rate, transaction costs, and all other premiums or discounts.
Interest expense includes issue costs that are initially recognized as part of the carrying value
of the financial liability and amortized over the expected life using the effective interest method.
These include fees and commissions payable to advisers and other expenses such as external
legal costs, rating fee etc., provided these are incremental costs that are directly related to the
issue of a financial liability.
(ii) Employee benefits
a) Liabilities for wages and salaries, including non-monetary benefits that are expected to be
settled wholly within 12 months after the end of the period in which the employees render
the related service are recognised in respect of employees’ services up to the end of the
reporting period and are measured at the amounts expected to be paid when the liabilities
are settled.
b) The liabilities for earned leave are not expected to be settled wholly within 12 months after
the end of the period in which the employees render the related service. They are therefore
measured as the present value of the expected future payments to be made in
respect of services provided by employee up to the end of reporting period using the
projected unit credit method. The benefits are discounted using the market yields at the end
of the reporting period that have terms approximating to the terms of the related
obligation. Re-measurements as a result of experience adjustments and changes in
actuarial assumptions are recognised in profit or loss.
c) Post-employment obligation:
The Company operates the following post-employment schemes:
• Defined benefit plans such as gratuity for its eligible employees.
• Defined contribution plans such as provident fund.
(i) Defined benefit obligation:
The liability or asset recognised in the balance sheet in respect of defined benefit gratuity plan
is the present value of the defined benefit obligation at the end of the reporting period less the
fair value of plan assets. The defined benefit obligation is calculated annually by actuaries using
the projected unit credit method.
The present value of the defined benefit obligation denominated is determined by
discounting the estimated future cash outflows by reference to market yields at the end of the
reporting period on the government bonds that have terms approximating to the terms of the
related obligation.
The net interest cost is calculated by applying the discount rate to the net balance of the defined
benefit obligation and the fair value of plan assets. This cost is included in employee
benefit expense in the statement of profit and loss.
Re-measurement gains and losses arising from experience adjustments and changes in actuarial
assumptions are recognised in the period in which they occur, directly in other comprehensive
income. They are included in retained earnings in the statement of changes in equity and in the
balance sheet.
Changes in the present value of the defined benefit obligation resulting from plan amendments
or curtailments are recognised immediately in profit or loss as past service cost.
(ii) Provident fund:
Contributions to Provident Fund made to Regional Provident Fund Commissioner in respect of
Employees’ Provident Fund based on the statutory provisions are charged to Statement of Profit
and Loss on accrual basis.
(iii) Taxes
(a) The income tax expense or credit for the period is the tax payable on the current period’s
taxable income based on the applicable income tax rate for each jurisdiction adjusted by the
changes in deferred tax assets and liabilities attributable to temporary differences and to
unused tax losses. The current income tax charge is calculated on the basis of the tax laws
enacted on substantively enacted at the end of the reporting period. Management periodically
evaluates positions taken in tax returns with respect to situations in which applicable
tax regulation is subject to interpretation. It establishes provisions where appropriate on
the basis of amounts expected to be paid to the tax authorities.
Deferred income tax provided in full on temporary differences arising between the tax bases
of assets and liabilities and their carrying amounts in the financial statements. Deferred
income tax is determined using tax rates (and laws) that have been enacted or
substantially enacted by the end of the reporting period and are expected to apply
when the related deferred income tax asset is realised or the deferred income tax liability
is settled.
(b) Deferred tax assets are recognised only if it is probable that future taxable amounts
will be available to utilise those temporary differences and losses.
Deferred tax assets and liabilities are offset when there is a legally enforceable
right to offset current tax assets and liabilities and when the deferred tax balances relate
to the same taxation authority. Current tax assets and tax liabilities are offset where the entity
has a legally enforceable right to offset and intends either to settle on a net basis, or to realise
the asset and settle the liability simultaneously.
Current and deferred tax is recognised in the statement of 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.
A deferred tax asset is recognised for unclaimed tax credits that are carried forward as
deferred tax assets.
2.5 Cash and cash equivalents
For the purpose of presentation in the statement of cash flows, cash and cash equivalents
includes cash on hand, deposits with 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 the balance sheet.
2.6 Property, Plant and Equipment
Items of property, plant & equipment are stated at cost of acquisition or construction
less accumulated depreciation and impairment, if any. Historical cost includes expenditure that
is directly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised 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 repairs and
maintenance are charged to the statement of profit or loss during the reporting period in which
they are incurred.
Depreciation is provided on straight-line basis over the estimated useful lives of the assets.
Useful life estimated by the Company is in line with the useful life prescribed under Schedule
II of the Companies Act, 2013.
The estimated useful lives are, as follows:
Building - 60 years
Office Equipment - 5 years
Computers - 3 years
Furniture and Fixtures - 10 years
Vehicles - 8 to 10 years
Depreciation on property plant and equipment individually costing ' 5,000/- or less is provided
100% in the year of acquisition.
The cost of improvements made to rented property during the year and included under furniture
and fixtures, is depreciated over the primary lease period.
An asset’s carrying amount is written down immediately to its estimated recoverable amount, if
the asset’s carrying amount is greater than its estimated recoverable amount. Gain and
losses on disposals are determined by comparing proceeds with carrying amount. These are
included in the statement of profit or loss.
The residual values, useful lives and methods of depreciation of property, plant and equipment
are reviewed at each financial year end and adjusted prospectively, if appropriate.
Depreciation on fixed assets added / disposed off during the year is calculated on pro-rata basis
with reference to the date of addition / disposal.
The carrying amount of an item of property, plant and equipment is derecognized on disposal
or when no future economic benefits are expected from its use or disposal. The gain or loss
arising from the derecognition of an item of property, plant and equipment is measured as the
difference between the net disposal proceeds and the carrying amount of the item and is
recognized in the Statement of Profit and Loss when the item is derecognized.
2.7 Intangible assets
Intangible assets include the value of Software. Intangible assets acquired are recorded at their
acquisition cost and are amortised on straight line basis over its useful life.
The estimated useful lives are, as follows:
Computer Software - 5 years
An intangible asset is derecognised on disposal, or when no future economic benefits are
expected from use or disposal. Gains or losses arising from derecognition of an intangible asset,
measured as the difference between the net disposal proceeds and the carrying amount of the
asset are recognised in the Statement of Profit and Loss when the asset is derecognised.
2.8 Leases
Ind AS 116 requires lessees to determine the lease term as the non-cancellable period of a
lease adjusted with any option to extend or terminate the lease, if the use of such option is
reasonably certain. The Company makes an assessment on the expected lease term on a lease-
by-lease basis and thereby assesses whether it is reasonably certain that any options to extend
or terminate the contract will be exercised. In evaluating the lease term, the Company considers
factors such as any significant leasehold improvements undertaken over the lease term, costs
relating to the termination of the lease and the importance of the underlying asset to Company’s
operations taking into account the location of the underlying asset and the availability of suitable
alternatives. The lease term in future periods is reassessed to ensure that the lease term reflects
the current economic circumstances.
2.9 Borrowings
Borrowings are initially recognised at fair value, net of transaction cost incurred.
Borrowings are subsequently measured at amortised cost. Any difference between the proceeds
(net of transaction cost) and the redemption amount is recognised in profit or loss over the period
of the borrowings, using the effective interest method. Fees paid on the established loan
facilities are recognised as transaction cost of the loan, to the extent that it is probable that some
or all the facility will be drawn down.
Borrowings are removed from the balance sheet when the obligation specified in the
contract is discharged, cancelled or expired. The difference between the carrying amount of a
financial liability that has been extinguished or transferred to another party and the consideration
paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or
loss as other gain/(loss).
Finance charges are expensed in the period in which they are incurred.
2.10 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are
capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period
in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds. Borrowing cost also includes exchange differences to
the extent regarded as an adjustment to the borrowing costs.
General borrowing costs are capitalised at the weighted average of such borrowings outstanding
during the year.
2.11 Earnings Per Share
The basic earnings per share is computed by dividing the net profit / (loss) attributable to the
equity shareholders for the period by the weighted average number of equity shares outstanding
during the reporting period. The number of shares used in computing diluted earnings per share
comprises the weighted average number of shares considered for deriving earnings per
share, and also the weighted average number of equity shares, which could have been issued
on the conversion of all dilutive potential shares. In computing dilutive earnings per share, only
potential equity shares that are dilutive and that reduce profit per share are included.
2.12 Impairment of non financial assets
Assets 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 carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs of disposal and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash inflows which are largely independent of the cash inflows from other
assets or groups of assets (cash-generating units). Non-financial assets that suffered impairment
are reviewed for possible reversal of the impairment at the end of each reporting period.
2.13 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to
the chief operating decision maker.
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