3. Material accounting policy information
This note provides a list of the material accounting
policy information adopted in the preparation of these
standalone financial statements. These policies have
been consistently applied to all the years presented,
unless otherwise stated.
3.1 Revenue recognition
The Company's revenue primarily consists of interest
income on loans, distribution income on the sale of
other financial products and services to the borrowers.
3.1.1 Interest income
Interest income for all financial instruments which are
measured at amortised cost are recorded using the
the financial instrument or a shorter period, where
appropriate, to the gross carrying amount of the financial
liability. The calculation takes into account all contractual
terms of the financial instrument and includes any fees
(such as processing fee, stamp duty etc) and such other
incremental costs that are directly attributable and are
an integral part of the EIR.
3.3 Property, plant and equipment ('PPE')
Initial Recognition and measurement:
PPE are stated at cost (including incidental expenses
directly attributable to bringing the asset to its working
condition for its intended use) less accumulated
depreciation and impairment losses, if any. Cost comprises
the purchase price and any attributable cost of bringing
the asset to its working condition for its intended use.
Subsequent expenditure related to PPE is capitalized
only when it is probable that future economic benefits
associated with these will flow to the Company and the
cost of item can be measured reliably. Other repairs and
maintenance costs are expensed off as and when incurred.
3.4 Intangible assets
Intangible assets acquired separately are measured on
initial recognition at cost. Following initial recognition,
intangible assets are carried at cost less any accumulated
amortisation and accumulated impairment losses, if any.
3.5 Depreciation and amortization
3.5.1 Depreciation
Depreciation on property, plant and equipment
is measured using the straight line method as
per the useful lives of the assets estimated by the
management. The useful life estimated by the
management is as under:
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.
The calculation takes into account all contractual
terms of the financial instrument and includes any
fees (such as processing fee) or incremental costs
that are directly attributable and are an integral part
of the EIR, but not future credit losses.
The Company recognises interest income by
applying the EIR to the gross carrying amount of
financial assets other than credit-impaired assets.
When a financial asset becomes credit impaired and
is, therefore, regarded as 'Stage 3', the Company
recognises interest income by applying the effective
interest rate to the net carrying value of the financial
asset. If the financial assets cures and is no longer
credit impaired, the Company reverts to recognising
interest income on a gross basis.
3.1.2Fair value gain
The Company recognises gains on fair value change
of financial assets measured at fair value through
profit and loss (FVTPL) and realised gains on
derecognition of financial asset measured at fair
value through profit and loss (FVTPL) on net basis.
3.1.3The Company also distributes insurance policies
during the course of lending business. Distribution
income is earned by selling such products of other
entities under distribution arrangements. The
income so earned is recognised on successful sales
on behalf of other entities subject to there being no
significant uncertainty of its recovery.
3.1.4Income from assignment transactions
In case where transfer of a part of financial assets
qualifies for de-recognition, any difference between the
proceeds received on such sale and the carrying value
of the transferred asset is recognised as gain or loss
on derecognition of such financial asset. The Company
considers direct assignment or transfer of loan assets
as one of the alternative mode or source of fund raising.
Direct assignment policy restricts the direct assignment
transaction outstanding i.e. sold balance outstanding,
to be within 10% of Asset Under Management ('AUM').
3.2 Finance cost
Borrowing cost on financial liabilities including towards
securitisation transactions not derecognised by the
Company are recognised by applying the EIR. EIR is
the rate that exactly discounts the estimated future
cash payments or receipts over the expected life of
Leasehold improvement is amortised on a straight
line basis over the primary period of lease.
The management has estimated the useful life of
servers and two-wheeler vehicles as 3 years and
8 years respectively, which are lower than those
prescribed under Schedule II to the Act.
Property, plant and equipment costing upto H 5000
per unit are fully depreciated in the year of purchase.
3.5.2Amortisation of intangible assets
Intangible assets are amortised on a straight line
basis over the estimated useful economic life. The
management has determined its estimate of useful
economic life of computer software as five years.
Customer relationship is amortised over a period
of 10 years. The useful lives of intangible assets
are reviewed at each financial year and adjusted if
there are any such requirement.
3.5.3Impairment of Goodwill
Goodwill is initially recognised as an asset at cost
and is subsequently measured at cost less any
accumulated impairment losses.
For the purpose of impairment testing, goodwill
is allocated to each of the Company's cash¬
generating units or groups of cash generating units
that are expected to benefit from the synergies
of the combination. Cash-generating units to
which goodwill has been allocated are tested for
impairment annually, or more frequently when
there is an indication that the unit's value may be
impaired. If the recoverable amount of the cash¬
generating unit is less than the carrying value of
the unit, the impairment loss is allocated first to
reduce the carrying value of any goodwill allocated
to the unit and then to the other assets of the
unit in proportion to the carrying value of each
asset in the unit.
An impairment loss recognised for goodwill is not
reversed in a subsequent period. On disposal of
a subsidiary, the attributable amount of goodwill
is included in the determination of profit or
loss on disposal.
In the case of Company, since both Company &
erstwhile subsidiary were in similar business, entire
business has been treated as one Cash Generating
Unit (CGU). As required under the standard, this is
the lowest level at which the goodwill is monitored
for internal management purposes. In view of this,
Company as a whole is valued as one CGU for the
purpose of assessing the impairment of goodwill.
3.6 Impairment of non-financial assets
The Company assesses at each reporting date whether
there is an indication that an asset may be impaired.
If any indication exists, or when annual impairment
testing for an asset is required, the Company estimates
the asset's recoverable amount. An asset's recoverable
amount is the higher of an asset's net selling price and its
value in use. The recoverable amount is determined for
an individual asset, unless the asset does not generate
cash inflows that are largely independent of those from
other assets or groups of assets. Where the carrying
amount of an asset exceeds its recoverable amount,
the asset is considered impaired and is written down
to its recoverable amount. In assessing value in use,
the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects
current market assessments of the time value of money
and the risks specific to the asset. In determining net
selling price, recent market transactions are taken into
account, if available. If no such transactions can be
identified, an appropriate valuation model is used.
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