1.B Material accounting policies
1. Property. plant, and equipment
a. Recognition and measurement
Property, plant, and equipment is
recognised when it is probable that
future economic benefit associated
with the asset will flow to the
Company, and the cost of the asset
can be measured reliably.
Items of property, plant and
equipment are measured at
original cost less accumulated
depreciation and any accumulated
impairment losses.
The cost of an item of property,
plant and equipment comprises:
i. its purchase price, including
import duties and non¬
refundable purchase taxes,
after deducting trade discounts
and rebates.
ii. any costs directly attributable
to bringing the asset to the
location and condition
necessary for it to be capable
of operating in the manner
intended by the management.
Income and expenses related to
the incidental operations, not
necessary to bring the item to
the location and condition
necessary for it to be capable
of operating in the manner
intended by the management,
are recognised in the Statement
of Profit and Loss.
If significant parts of an item of
property, plant and equipment
have different useful lives, then
they are accounted for as
separate items (major
components) of property, plant
and equipment, and
depreciated over their
respective useful lives.
b. Subsequent expenditure
Subsequent expenditure is
capitalised only if it is probable
that the future economic benefits
associated with the expenditure will
flow to the Company.
c. Depreciation
The Company has followed the
Straight-Line method for charging
depreciation on all items of
property, plant, and equipment, at
the rates specified in Schedule Il to
the Act; these rates are considered
as the minimum rates. If
management's technical estimate
of the useful life of the property,
plant and equipment is different
than that envisaged in Schedule Il
to the Act, depreciation is provided
at a rate based on management's
estimate of the useful life. The
useful lives followed for various
categories of property, plant and
equipment are given below:
In respect of additions
to/deductions from the assets, the
depreciation on such assets is
calculated on a pro rata basis
from/upto the month of such
addition/deduction. Assets costing
less than Rs. 5,000 are fully
depreciated in the year of
purchase/acquisition.
Leasehold improvements are
amortised over the period of the
lease.
2. Intangible-assets
a. Recognition and measurement
Intangible assets, including
software, which is acquired by the
Company and have finite useful
lives are measured at cost less
accumulated amortisation and any
accumulated impairment losses.
b. Subsequent expenditure
Subsequent expenditure is
capitalised only if it is probable
that the future economic benefits
associated with the expenditure
will flow to the Company.
c. Amortisation
Intangible assets are amortised
over their estimated useful life on
straight line method.
3. Financial Instruments
Financial assets and financial liabilities
are recognised in the Company's
Balance Sheet when the Company
becomes a party to the contractual
provisions of the instrument.
a. Financial Assets
Initial recognition and
measurements:
i. The Company recognises a
financial asset in its balance sheet
when it becomes party to the
contractual provisions of the
instrument. All financial assets are
recognised initially at fair value,
plus in the case of financial assets
not recorded at fair value through
profit or loss (FVTPL), transaction
costs that are attributable to the
acquisition of the financial asset.
Where the fair value of the
financial asset at initial
recognition is different from its
transaction price, the difference
between the fair value and the
transaction price is recognised as
a gain or loss in the Statement of
Profit and Loss at initial
recognition if the fair value is
determined through a quoted
market price in an active market
for an identical asset (i.e. level 1
input) or through a valuation
technique that uses data from
observable markets (i.e. level 2
input).
In case the fair value is not
determined using a level 1 or level
2 input as mentioned above, the
difference between the fair value
and transaction price is deferred
appropriately and recognised as a
gain or loss in the Statement of
Profit and Loss only to the extent
that such gain or loss arises due
to change in factor that market
participants take into account
when pricing the financial asset.
However, trade receivables that do
not contain a significant financing
component are measured at
transaction price.
ii. Subsequent measurement:
For subsequent measurement, the
Company classifies a financial
asset in accordance with the below
criteria;
• The Company's business
model for managing the financial
asset and
• The contractual cash flow
characteristics of the financial
asset.
Based on the above criteria, the
Company classifies its financial
assets into the following
categories:
a) Financial assets measured at
amortised cost
b) Financial assets measured at
fair value through other
comprehensive income
('FVOCI')
c) Financial assets measured at
fair value through profit or loss
('FVTPL')
a. Financial assets measured at
amortised cost:
A financial asset is measured at
the amortised cost if both the
following conditions are met:
• The Company's business model
objective for managing the
financial asset is to hold financial
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.
This category applies to cash and
cash equivalents, other bank
balances, trade receivables, loans
and other financial assets of the
Company. Such financial assets
are subsequently measured at
amortised cost using the effective
interest method.
Under the effective interest rate
method, the future cash receipts
are discounted to the initial
recognition value using the
effective interest rate. The
cumulative amortisation using the
effective interest method of the
difference between the initial
recognition amount and the
maturity amount is added to the
initial recognition value (net of
principal/repayments, if any) of the
financial asset over the relevant
period of the financial asset to
arrive at the amortised cost at
each reporting date. The
corresponding effect of the
amortisation under effective
interest method is recognised as
interest income over the relevant
period of the financial asset. The
same is included under other
income in the Statement of Profit
and Loss.
The amortised cost of financial
asset is also adjusted for loss of
allowance, if any.
b. Financial asset measured at
FVOCI:
A financial asset is measured at
FVOCI if both of the following
conditions are met:
• The Company's business model
objective for managing the
financial asset is achieved both
by collecting contractual cash
flows and selling the financial
asset, and
• The contractual terms of the
financial asset give rise on
specified dates to cash flows that
are solely payment of principal
and interest on the principal
amount outstanding.
This category applies to certain
investments in debt instruments.
Such financial assets are
subsequently measured at fair
value at each reporting date. Fair
value changes are recognised in
the other Comprehensive Income
('OCI'). However, the Company
recognises interest income and
impairment losses and its reversals
in the Statement of Profit and Loss.
On derecognition of such financial
assets, cumulative gain or loss
previously recognised in OCI is
reclassified from equity to the
Statement of Profit and Loss.
However, the Company may
transfer such cumulative gain or
loss into retained earnings within
equity.
c. Financial asset measured at
FVTPL:
A financial asset is measured at
FVTPL unless it is measured at
amortised cost or at FVOCI as
explained above. This is a residual
category applied to all other
investments of the Company. Such
financial assets are subsequently
measured at fair value at each
reporting date. Fair value changes
are recognised in the Statement of
Profit and Loss.
iii. Derecognition:
A financial asset (or, where
applicable, a part of a financial
asset or part of a Company of
similar financial assets) is
derecognised (i.e. removed from
the Company's balance sheet)
when any of the following occurs:
a) The contractual rights to cash
flows from the financial asset
expires;
b) The Company transfers its
contractual rights to receive
cash flows of the financial asset
and has substantially
transferred all the risks and
rewards of ownership of the
financial asset;
c) The Company retains the
contractual rights to receive
cash flows but assumes a
contractual obligation to pay
the cash flows without material
delay to one or more recipients
thereby substantially
transferring all the risks and
rewards of ownership of the
financial asset; or
The Company neither transfers
nor retains substantially all risk
and rewards of ownerships and
does not retain control over the
financial assets.
In cases where Company has
neither transferred nor retained
substantially all of the risks and
rewards of the financial asset,
but retains control of the
financial asset, the Company
continues to recognise such
financial asset to the extent of
its continuing involvement in
the financial asset. In that case,
the Company also recognises
an associated liability. The
financial asset and the
associated liability are
measured on a basis that
reflects the rights and
obligations that the Company
has retained.
On Derecognition of a financial
asset, (except as mentioned in
b) above for financial assets
measured at FVOCI), the
difference between the carrying
amount and the consideration
received is recognised in the
Statement of Profit and Loss.
iv. Impairment of financial assets:
The Company applies expected
credit losses ('ECL') model for
measurement and recognition of
loss allowance on the following:
a) Trade receivables and Contract
assets
b) Financial assets measured at
amortised cost (other than Trade
receivables and Contract assets)
c) Financial assets measured at
fair value through other
comprehensive income (FVOCI)
In case of Trade receivables the
Company follows a simplified
approach wherein an amount
equal to lifetime ECL is measured
and recognised as loss allowance.
In case of other assets (listed as (ii)
and (iii) above), the Company
determines if there has been a
significant increase in credit risk of
the financial assets since initial
recognition, if the credit risk of
such assets has not increased
significantly, an amount equal to
12-month ECL is measured and
recognised as loss allowance.
However, if credit risk has
increased significantly, an amount
equal to lifetime ECL is measured
as recognised as loss allowance.
Subsequently, if the credit quality
of the financial asset improves
such that there is no longer a
significant increase in credit risk
since initial recognition, the
Company reverts to recognizing
impairment loss allowance based
on 12-month ECL.
ECL is the difference between all
contractual cash flows that are due
to the Company in accordance with
the contract and all the cash flows
that the Company expects to
receive (i.e. all cash shortfalls),
discounted at the original effective
interest rate.
Lifetime ECL are the expected
credit losses resulting from all
possible default events over the
expected life of a financial asset.
12-month ECL are a portion of the
lifetime ECL which result from
default events that are possible
within 12- month from the
reporting date.
ECL are measured in a manner
that they reflect unbiased and
probability weighted amounts
determined by a range of outcome,
taking into account the time value
of money and other reasonable
information available as a result of
past events, current conditions and
forecasts of future economic
conditions.
As a practical expedient, the
Company uses a provision matrix
to measure lifetime ECL on its
portfolio of trade receivables. The
provision matrix is prepared based
on historically observed default
rates over the expected life of trade
receivables is adjusted for forward¬
looking estimates. At each
reporting date, the historically
observed default rates and
changes in the forward-looking
estimates are updated.
ECL allowance (or reversal)
recognised during the period is
recognised as expense (or income)
in the Statement of Profit and Loss
under the head 'Other expenses (or
Other Income)'.
. Financial Liabilities
i. Initial recognition and
measurements:
The Company classifies all
financial liabilities as subsequently
measured at amortised cost, except
for financial liabilities at fair value
through profit or loss. Such
liabilities, shall be subsequently
measured at fair value.
Where the fair value of a financial
liability at initial recognition is
different from its transaction price,
the difference between the fair
value and the transaction price is
recognised as a gain or loss in the
Statement of Profit and Loss at
initial recognition if the fair value
is determined through a quoted
market price in an active market
for an identical asset (i.e. level 1
input) or through valuation
technique that uses data from
observable markets (i.e. level 2
input).
In case the fair value is not
determined using a level 1 or level
2 input as mentioned above, the
difference between the fair value
and transaction price is deferred
appropriately and recognised as a
gain or loss in the Statement of
Profit and Loss only to the extent
that such gain or loss arises due
to a change in factor that market
participants take into account
when pricing the financial liability.
. Subsequent measurement:
All financial liabilities of the
Company are subsequently
measured at amortised cost using
the effective interest method.
Under the effective interest
method, the future cash payments
are exactly discounted to the initial
recognition value using the
effective interest rate. The
cumulative amortisation using the
effective interest method of the
difference between the initial
recognition amount and the
maturity amount is added to the
initial recognition value (net of
principal repayments, if any) of
the financial liability over the
relevant period of the financial
liability to arrive at the amortised
cost at each reporting date. The
corresponding effect of the
amortization under effective
interest method is recognised as
interest expense over the relevant
period of the financial liability.
The same is included under
finance cost in the Statement of
Profit and Loss.
iii. Derecognition:
A financial liability is derecognised
when the obligation under the
liability is discharged or cancelled
or expires. When the existing
financial liability is replaced by
another from the same lender or
substantially different terms, or the
terms of an existing liability are
substantially modified, such an
exchange or modification is
treated as the derecognition of the
original liability and the
recognition of a new liability. The
difference between the carrying
amount of the financial liability
derecognised and the
consideration paid is recognised
in the Statement of Profit and Loss.
4. Cash and cash equivalents
The Company considers all highly
liquid investments, which are readily
convertible into known amounts of cash
as cash and cash equivalents. Cash
and cash equivalents in the Balance
Sheet comprise of cash on hand, bank
balances which are unrestricted for
withdrawal and usage and short-term
deposits with an original maturity of
three months or less, which are subject
to an insignificant risk of changes in
value.
5. Borrowing costs
Borrowing costs that are directly
attributable to the acquisition,
construction or production of
qualifying assets, which are assets
that necessarily takes a substantial
period of time to get ready for its
intended use are capitalised as
part of the cost of that asset till the
date it is ready for its intended use
or sale. Interest income earned on
the temporary investment of
specific borrowings pending their
expenditure on qualifying assets is
deducted from the borrowing costs
eligible for capitalization. Other
borrowing costs are recognised as
an expense in the period in which
they are incurred.
Finance costs are recorded using
the effective interest rate method.
All other borrowing costs are
recognised in the profit or loss in
the period in which they are
incurred.
|