2.2 Summary of material accounting policies
a. Business combinations
Business combinations are accounted for using
the acquisition method. The cost of an acquisition
is measured as the aggregate of the consideration
transferred measured at acquisition date fair value.
Acquisition-related costs are expensed in the
periods in which the costs are incurred and the
services are received, with the exception of the
costs of issuing debt or equity securities that are
recognised in accordance with Ind AS 32 and Ind
AS 109. (refer note 43)
The Company determines that it has acquired a
business when the acquired set of activities and
assets include an input and a substantive process
that together significantly contribute to the
ability to create outputs. The acquired process is
considered substantive if it is critical to the ability
to continue producing outputs, and the inputs
acquired include an organised workforce with
the necessary skills, knowledge, or experience to
perform that process or it significantly contributes
to the ability to continue producing outputs and is
considered unique or scarce or cannot be replaced
without significant cost, effort, or delay in the
ability to continue producing outputs.
At the acquisition date, the identifiable assets
acquired, and the liabilities assumed are recognised
at their acquisition date fair values. For this
purpose, the liabilities assumed include contingent
liabilities representing present obligation and
they are measured at their acquisition fair values
irrespective of the fact that outflow of resources
embodying economic benefits is not probable.
However, the following assets and liabilities
acquired in a business combination are measured
at the basis indicated below:
(i) Deferred tax assets or liabilities, and the
liabilities or assets related to employee
benefit arrangements are recognised and
measured in accordance with Ind AS 12
Income Tax and Ind AS 19 Employee Benefits
respectively.
(ii) Liabilities or equity instruments related
to share based payment arrangements of
the acquiree or share - based payments
arrangements of the Company entered into to
replace share-based payment arrangements
of the acquiree are measured in accordance
with Ind AS 102 Share-based Payments at the
acquisition date.
(iii) Assets (or disposal groups) that are
classified as held for sale in accordance
with Ind AS 105 Non-current Assets Held
for Sale and Discontinued Operations are
measured in accordance with that Standard.
(iv) Reacquired rights are measured at a value
determined on the basis of the remaining
contractual term of the related contract.
Such valuation does not consider potential
renewal of the reacquired right.
b. Investment in subsidiaries
A subsidiary is an entity that is controlled by
another entity.
The Company's investments in its subsidiaries are
accounted at cost less impairment.
Impairment of investments
The Company reviews its carrying value of
investments carried at cost annually, or more
frequently when there is indication for impairment.
If the recoverable amount is less than its carrying
amount, the impairment loss is recorded in the
Statement of Profit and Loss.
When an impairment loss subsequently reverses,
the carrying amount of the Investment is increased
to the revised estimate of its recoverable amount,
so that the increased carrying amount does not
exceed the cost of the Investment. A reversal of
an impairment loss is recognised immediately in
Statement of Profit or Loss.
c. Current versus non-current classification
The Company segregates assets and liabilities
into current and non-current categories for
presentation in the balance sheet after considering
its normal operating cycle and other criteria set out
in Ind AS 1, "Presentation of Financial Statements".
For this purpose, current assets and liabilities
include the current portion of non-current assets
and liabilities respectively. Deferred tax assets and
liabilities are always classified as non-current.
The operating cycle is the time between the
acquisition of assets for processing and their
realization in cash and cash equivalents.
The Company has identified period up to twelve
months as its operating cycle.
d. Foreign currencies
The Company's standalone financial statements
are presented in Indian Rupees (INR), which is also
the Company's functional currency.
Transaction and balances
Transactions in foreign currencies are initially
recorded by the Company at their respective
functional currency spot rates at the date
the transaction first qualifies for recognition.
However, for practical reasons, the Company uses
an average rate if the average approximates the
actual rate at the date of the transaction.
Monetary assets and liabilities denominated
in foreign currencies are translated at the
functional currency spot rates of exchange at the
reporting date.
Exchange differences arising on settlement or
translation of monetary items are recognised in
statement of profit and loss.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated
using the exchange rates at the dates of the initial
transactions. Non-monetary items measured
at fair value in a foreign currency are translated
using the exchange rates at the date when the
fair value is determined. The gain or loss arising
on translation of non-monetary items measured at
fair value is treated in line with the recognition of
the gain or loss on the change in fair value of the
item (i.e., translation differences on items whose
fair value gain or loss is recognised in OCI or profit
or loss are also recognised in OCI or profit or loss,
respectively).
In determining the spot exchange rate to use on
initial recognition of the related asset, expense
or income (or part of it) on the derecognition of
a non-monetary asset or non-monetary liability
relating to advance consideration, the date of the
transaction is the date on which the Company
initially recognises the non-monetary asset or
non-monetary liability arising from the advance
consideration. If there are multiple payments or
receipts in advance, the Company determines the
transaction date for each payment or receipt of
advance consideration.
e. Revenue from contract with customers
Revenue from contracts with customers is
recognised when control of the goods or services
are transferred to the customer at an amount that
reflects the consideration to which the Company
expects to be entitled in exchange for those goods
or services. The Company has generally concluded
that it is the principal in its revenue arrangements
because it typically controls the goods or services
before transferring them to the customer.
The Company collects Goods and service tax
(GST) on behalf of the government and therefore,
these are not economic benefits flowing to the
Company. Hence, they are excluded from revenue.
The specific recognition criteria described below
must also be met before revenue is recognised.
Sale of Goods
Revenue from sale of goods is recognised at
the point in time when control of the goods is
transferred to the customer, generally on delivery
of the goods. Revenue from the sale of goods
is measured at the transaction price of the
consideration received or receivable, net of sales
returns and allowances and trade discounts.
Rendering of Services
(i) Revenue from erection service is recognised
as per the contractual terms and as and when
services are rendered.
(ii) Revenue from job work is recognised at the
point in time when control of the goods is
transferred to the customer, generally on
delivery of the goods.
Interest Income
For all debt instruments measured either at
amortised cost or at fair value through other
comprehensive income, interest income is
recorded using the 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 or to the amortised cost of
a financial liability. When calculating the effective
interest rate, the Company estimates the expected
cash flows by considering all the contractual
terms of the financial instrument (for example,
prepayment, extension, call and similar options)
but does not consider the expected credit losses.
Sale of Electricity
Revenue from sale of power is recognised
over time for each unit of electricity delivered.
The Company has signed Power Purchase
Agreement with Customer.
Contract balances
Trade receivables
A receivable represents the Company's right to
an amount of consideration that is unconditional
(i.e., only the passage of time is required before
payment of the consideration is due). Refer to
accounting policies of financial assets in section
(n) Financial instruments - initial recognition and
subsequent measurement.
Contract liabilities
A contract liability is the obligation to transfer
goods or services to a customer for which the
Company has received consideration (or an amount
of consideration is due) from the customer. If a
customer pays consideration before the Company
transfers goods or services to the customer, a
contract liability is recognised when the payment is
made or the payment is due (whichever is earlier).
Contract liabilities are recognised as revenue when
the Company performs under the contract.
f. Taxes
Current income tax
Tax expense comprises current tax expense and
deferred tax.
Current income tax assets and liabilities are
measured at the amount expected to be recovered
from or paid to the taxation authorities. The tax
rates and tax laws used to compute the amount are
those that are enacted or substantively enacted,
at the reporting date in the countries where the
Company operates and generates taxable income.
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
OCI or directly in equity. Management periodically
evaluates positions taken in the tax returns with
respect to situations in which applicable tax
regulations are subject to interpretation and
considers whether it is probable that a taxation
authority will accept an uncertain tax treatment.
The Company reflects the effect of uncertainty
for each uncertain tax treatment by using either
most likely method or expected value method,
depending on which method predicts better
resolution of the treatment.
Deferred tax
Deferred tax is provided using the balance sheet
approach on temporary differences between the
tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes at the
reporting date.
Deferred tax liabilities are recognised for all taxable
temporary differences, except:
-When the deferred tax liability arises from the
initial recognition of goodwill or an asset or liability
in a transaction that is not a business combination
and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss and
does not give rise to equal taxable and deductible
temporary differences;
-In respect of taxable temporary differences
associated with investments in subsidiaries,
when the timing of the reversal of the temporary
differences can be controlled and it is probable
that the temporary differences will not reverse in
the foreseeable future.
The carrying amount of deferred tax assets is
reviewed at each reporting date 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.
Unrecognised deferred tax assets are re-assessed
at each reporting date and are recognised to the
extent that it has become probable that future
taxable profits will allow the deferred tax asset to
be recovered.
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.
Deferred tax relating to items recognised outside
profit or loss is recognised outside profit or
loss (either in other comprehensive income or
in equity). Deferred tax items are recognised in
correlation to the underlying transaction either in
OCI or directly in equity.
The Company offsets deferred tax assets and
deferred tax liabilities if and only if it has a legally
enforceable right to set off current tax assets and
current tax liabilities and the deferred tax assets
and deferred tax liabilities relate to income taxes
levied by the same taxation authority on either the
same taxable entity which intends either to settle
current tax liabilities and assets on a net basis,
or to realise the assets and settle the liabilities
simultaneously, in each future period in which
significant amounts of deferred tax liabilities or
assets are expected to be settled or recovered.
Goods and Services Tax (GST) paid on acquisition
of assets or on incurring expenses
Expenses and assets are recognised net of the
amount of GST paid, except:
-When the tax incurred on a purchase of assets
or services is not recoverable from the taxation
authority, in which case, the tax paid is recognised
as part of the cost of acquisition of the asset or as
part of the expense item, as applicable;
-When receivables and payables are stated with
the amount of tax included.
The net amount of tax recoverable from, or payable
to, the taxation authority is included as part of
other current and non-current assets/ liabilities in
the balance sheet.
g. Property, Plant and Equipment
All the property, plant and equipment is stated
at cost, net of accumulated depreciation and
accumulated impairment losses, if any. Such cost
includes the cost of replacing part of the plant and
equipment and borrowing costs for qualifying asset
if the recognition criteria are met. When a major
inspection is performed, its cost is recognised in
the carrying amount of the plant and equipment
as a replacement if the recognition criteria are
satisfied. All other repair and maintenance costs
are recognised in profit or loss as incurred.
Capital work in progress is stated at cost, net of
accumulated impairment loss, if any.
Depreciation is calculated on a straight-line basis
over the estimated useful lives of the assets as
follows. When significant parts of plant and
equipment are required to be replaced at intervals,
the Company depreciates them separately based
on their specific useful lives:
• Building 15 to 60 years
• Furniture and fixture 8 to 10 years
• Plant and equipment 5 to 30 years
• Office equipment 3 to 5 years
• Motor Vehicles 8 to 10 years
• Leasehold improvements are depreciated over
the period of leases.
The Company, based on technical assessment
made by technical expert and management
estimate, depreciates certain items of building,
plant and equipment and furniture and fixtures
over estimated useful lives which are different
from the useful life prescribed in Schedule II to the
Companies Act, 2013. The management believes
that these estimated useful lives are realistic and
reflect fair approximation of the period over which
the assets are likely to be used.
Depreciation on addition to or on disposal of
Property, Plant and equipment is calculated on
pro rata basis. Addition, to Property, Plant and
equipment costing less than or equal to Rs.
5,000 are depreciated fully in the year of purchase.
An item of property, plant and equipment and any
significant part initially recognised is derecognised
upon disposal or when no future economic
benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the
asset) is included in the statement of profit and
loss when the asset is derecognised.
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.
h. 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.
Amortisation of the finite intangible assets is
allocated on systematic basis over the best estimate
of their useful life and accordingly softwares are
amortised on straight line basis over the period
of six years or license period which ever is lower.
Gains or losses arising from de-recognition of an
intangible asset are measured as the difference
between the net disposal proceeds and the
carrying amount of the asset and are recognised
in the statement of profit or loss when the asset
is derecognised. The Company has no intangible
assets with an indefinite life.
Intangible under development assets is stated at
cost, net of accumulated impairment loss, if any.
i. Borrowing Cost
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 (qualifying
asset) 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.
j. Leases
The Company assesses at contract inception
whether a contract is, or contains, a lease. That is, if
the contract conveys the right to control the use of
an identified asset for a period of time in exchange
for consideration.
Company as a lessee
The Company applies a single recognition and
measurement approach for all leases, except
for short-term leases and leases of low-value
assets. The Company recognises lease liabilities
to make lease payments and right-of-use assets
representing the right to use the underlying assets.
(i) Right-of-use asset
The Company recognises right-of-use assets
at the commencement date of the lease (i.e.,
the date the underlying asset is available
for use). Right-of-use assets are measured
at cost, less any accumulated depreciation
and adjusted for any remeasurement of
lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities
recognised, initial direct costs incurred,
and lease payments made at or before the
commencement date less any lease incentives
received. Right-of-use assets are depreciated
on a straight-line basis over the shorter of the
lease term and the estimated useful lives of
the assets, as follows:
If ownership of the leased asset transfers to
the Company at the end of the lease term or
the cost reflects the exercise of a purchase
option, depreciation is calculated using the
estimated useful life of the asset. The right-of-
use assets are also subject to impairment.
Refer to the accounting policies in section (l)
Impairment of non-financial assets.
(ii) Lease Liabilities
At the commencement date of the lease,
the Company recognises lease liabilities
measured at the present value of lease
payments to be made over the lease term.
The lease payments include fixed payments
(including in substance fixed payments) less
any lease incentives receivable, variable
lease payments that depend on an index
or a rate, and amounts expected to be paid
under residual value guarantees. The lease
payments also include the exercise price of
a purchase option reasonably certain to be
exercised by the Company and payments
of penalties for terminating the lease, if the
lease term reflects the Company exercising
the option to terminate. Variable lease
payments that do not depend on an index
or a rate are recognised as expenses (unless
they are incurred to produce inventories) in
the period in which the event or condition
that triggers the payment occurs.
In calculating the present value of lease
payments, the Company uses its incremental
borrowing rate at the lease commencement
date because the interest rate implicit in the
lease is not readily determinable. After the
commencement date, the amount of lease
liabilities is increased to reflect the accretion
of interest and reduced for the lease payments
made. In addition, the carrying amount of
lease liabilities is remeasured if there is a
modification, a change in the lease term, a
change in the lease payments or a change in
the assessment of an option to purchase the
underlying asset.
(iii) Short-term leases and leases of low-value
assets
The Company applies the short-term lease
recognition exemption to its short-term
leases of machinery and equipment (i.e.,
those leases that have a lease term of 12
months or less from the commencement
date and do not contain a purchase option).
It also applies the lease of low-value assets
recognition exemption to leases of office
equipment that are considered to be low
value. Lease payments on short-term leases
and leases of low-value assets are recognised
as expense on a straight-line basis over the
lease term.
l. 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 or cash-generating unit's
(CGU) fair value less costs of disposal and its
value in use. 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 Company's of
assets. When the carrying amount of an asset or
CGU 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
fair value less costs of disposal, recent market
transactions are taken into account. If no such
transactions can be identified, an appropriate
valuation model is used.
m. Retirement and other employee benefits
(i) Retirement benefit in the form of provident
fund is a defined contribution scheme.
The Company has no obligation, other than
the contribution payable to the provident
fund. The Company recognizes contribution
payable to the provident fund scheme as
an expense, when an employee renders the
related service. If the contribution payable to
the scheme for service received before the
balance sheet date exceeds the contribution
already paid, the deficit payable to the scheme
is recognized as a liability after deducting the
contribution already paid. If the contribution
already paid exceeds the contribution due for
services received before the balance sheet
date, then excess is recognized as an asset to
the extent that the pre-payment will lead to,
for example, a reduction in future payment or
a cash refund.
(ii) Gratuity is a defined benefit plan and provision
is being made on the basis of actuarial
valuation carried out by an independent
actuary at the year end using projected unit
credit method, and is contributed to the
Gratuity fund managed by the Life Insurance
Corporation of India.
Remeasurements, comprising of actuarial
gains and losses, the effect of the asset ceiling,
excluding amounts included in net interest on
the net defined benefit liability and the return
on plan assets (excluding amounts included in
net interest on the net defined benefit liability),
are recognised immediately in the balance sheet
with a corresponding debit or credit to retained
earnings through OCI in the period in which they
occur. Remeasurements are not reclassified to
profit or loss in subsequent periods.
Past service costs are recognised in profit or loss
on the earlier of:
• The date of the plan amendment or
curtailment, and
• The date that the Company recognises related
restructuring costs
Net interest is calculated by applying the discount
rate to the net defined benefit liability or asset.
The Company recognises the following changes in
the net defined benefit obligation as an expense
in the statement of profit and loss:
• Service costs comprising current service
costs, past-service costs, gains and losses on
curtailments and non-routine settlements; and
• Net interest expense or income
Compensated Absences
Accumulated leave which is expected to be utilized
within the next 12 months, is treated as short-term
employee benefit. The Company measures the
expected cost of such absences as the additional
amount that it expects to pay as a result of the
unused entitlement that has accumulated at the
reporting date.
The Company treats accumulated leave expected
to be carried forward beyond twelve months, as
long-term employee benefit for measurement
purposes. Such long-term compensated absences
are provided for based on the actuarial valuation
using the projected unit credit method at the
year-end. Actuarial gains/losses are immediately
taken to statement of Profit and Loss in the period
in which they occur. The Company presents the
entire leave as a current liability in the balance
sheet, since it does not have an unconditional
right to defer its settlement for 12 months after
the reporting date.
n. 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.
Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition,
and subsequently measured at amortised cost, fair
value through other comprehensive income (OCI),
and fair value through profit or loss.
The classification of financial assets at initial
recognition depends on the financial asset's
contractual cash flow characteristics and the
Company's business model for managing them.
With the exception of trade receivables that do
not contain a significant financing component or
for which the Company has applied the practical
expedient, the Company initially measures a
financial asset at its fair value plus, in the case of
a financial asset not at fair value through profit or
loss, transaction costs. Trade receivables that do
not contain a significant financing component or
for which the Company has applied the practical
expedient are measured at the transaction price
determined under Ind AS 115. Refer to the
accounting policies in section (e) Revenue from
contracts with customers.
Subsequent measurement
For purposes of subsequent measurement,
financial assets are classified in two categories:
• Financial assets at amortised cost (debt
instruments)
• Financial assets at fair value through
profit or loss
Financial assets at amortised cost (debt
instruments)
A 'debt instrument' is measured at the amortised
cost if both the following conditions are met:
(i) The asset is held within a business model
whose objective is to hold assets for collecting
contractual cash flows, and
(ii) Contractual terms of the asset give rise on
specified dates to cash flows that are solely
payments of principal and interest (SPPI) on
the principal amount outstanding.
This category is the most relevant to the Company.
After initial measurement, such financial assets
are subsequently measured at amortised cost
using the effective interest rate (EIR) method and
are subject to impairment as per the accounting
policy applicable to 'Impairment of financial
assets.' Amortised 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 amortisation is included in other
income in the profit or loss. The losses arising from
impairment are recognised in the profit or loss.
The Company's financial assets at amortised cost
includes trade receivables, loan and investments
and fixed deposits under current and non-current
financial assets. For more information on financial
assets, refer Note 6.
Financial assets at fair value through profit or loss
Financial assets in this category are those that are
held for trading and have been either designated
by management upon initial recognition or are
mandatorily required to be measured at fair
value under Ind AS 109 i.e. they do not meet the
criteria for classification as measured at amortised
cost or FVOCI. Management only designates an
instrument at FVTPL upon initial recognition, if the
designation eliminates, or significantly reduces,
the inconsistent treatment that would otherwise
arise from measuring the assets or liabilities or
recognising gains or losses on them on a different
basis. Such designation is determined on an
instrument-by-instrument basis. For the Company,
this category includes derivative instruments
which the Company had not irrevocably elected
to classify at fair value through OCI. The Company
has not designated any financial assets at FVTPL.
Financial assets at fair value through profit or
loss are carried in the balance sheet at fair value
with net changes in fair value recognised in the
statement of profit and loss.
Interest earned on instruments designated at
FVTPL is accrued in interest income, using the
EIR, taking into account any discount/ premium
and qualifying transaction costs being an integral
part of instrument. Interest earned on assets
mandatorily required to be measured at FVTPL
is recorded using the contractual interest rate.
Dividend income on listed equity investments are
recognised in the statement of profit and loss as
other income when the right of payment has been
established.
Derecognition
A financial asset (or, where applicable, a part of
a financial asset or part of a Company of similar
financial assets) is primarily derecognised (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 (i) the
Company has transferred substantially all the
risks and rewards of the asset, or (ii) 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
recognises 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.
Continuing involvement that takes the form of a
guarantee over the transferred asset is measured
at the lower of the original carrying amount of the
asset and the maximum amount of consideration
that the Company could be required to repay.
Impairment of financial assets
Further disclosures relating to impairment
of financial assets are also provided in the
following notes:
-Disclosures for significant assumptions -
see Note 29
-Trade receivables - see Note 6 (A)
The Company recognises an allowance for expected
credit losses (ECLs) for all debt instruments not
held at fair value through profit or loss. ECLs are
based on the difference between the contractual
cash flows due in accordance with the contract
and all the cash flows that the Company expects
to receive, discounted at an approximation of
the original effective interest rate. The expected
cash flows will include cash flows from the sale of
collateral held or other credit enhancements that
are integral to the contractual terms.
ECLs are recognised in two stages. For credit
exposures for which there has not been a
significant increase in credit risk since initial
recognition, ECLs are provided for credit losses
that result from default events that are possible
within the next 12-months (a 12-month ECL).
For those credit exposures for which there has
been a significant increase in credit risk since initial
recognition, a loss allowance is required for credit
losses expected over the remaining life of the
exposure, irrespective of the timing of the default
(a lifetime ECL).
For trade receivables, the Company applies
a simplified approach in calculating ECLs.
Therefore, the Company does not track changes in
credit risk, but instead recognises a loss allowance
based on lifetime ECLs at each reporting date.
The Company has established a provision matrix
that is based on its historical credit loss experience,
adjusted for forward-looking factors specific to
the debtors and the economic environment.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial
recognition, as financial liabilities at fair value
through profit or loss, loans and borrowings,
trade and other financial liabilities. All financial
liabilities are recognised initially at fair value and,
in the case of borrowings and other financial
liabilities, net of directly attributable transaction
costs. The Company's financial liabilities include
trade and other financial liabilities and borrowings
including cash credit.
Subsequent measurement
For purposes of subsequent measurement,
financial liabilities are classified in two categories:
-Financial liabilities at fair value through profit or loss
-Financial liabilities at amortised cost (Borrowings,
trade payables and other financial liabilities)
Financial liabilities at fair value through
profit or loss
Financial liabilities at fair value through profit or
loss include financial liabilities held for trading
and financial liabilities designated upon initial
recognition as at fair value through profit or
loss. Financial liabilities are classified as held for
trading if they are incurred for the purpose of
repurchasing in the near term. This category also
includes derivative financial instruments entered
into by the Company that are not designated
as hedging instruments in hedge relationships
as defined by Ind AS 109. Separated embedded
derivatives are also classified as held for trading
unless they are designated as effective hedging
instruments.
Gains or losses on liabilities held for trading are
recognised in the statement of profit and loss.
Financial liabilities designated upon initial
recognition at fair value through profit or loss are
designated as such at the initial date of recognition,
and only if the criteria in Ind AS 109 are satisfied.
For liabilities designated as FVTPL, fair value gains/
losses attributable to changes in own credit risk
are recognized in OCI. These gains/ loss are not
subsequently transferred to P&L. However, the
Company may transfer the cumulative gain or loss
within equity. All other changes in fair value of
such liability are recognised in the statement of
profit or loss. The Company has not designated
any financial liability as at fair value through
Statement of profit and loss.
Financial liabilities at amortised cost (Borrowings,
trade payables and other financial liabilities)
This is the category most relevant to the Company.
After initial recognition, interest-bearing loans
and borrowings are subsequently measured
at amortised cost using the EIR method.
Gains and losses are recognised in profit or
loss when the liabilities are derecognised as
well as through the EIR amortisation process.
Amortised 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 amortisation is included as
finance costs in the statement of profit and loss.
This category generally applies to borrowings,
trade payables and other financial liabilities.
For more information refer Note 11, 18 and 12."
Derecognition
A financial liability is derecognised when the
obligation under the liability is discharged or
cancelled or expires. 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
the derecognition of the original liability and the
recognition of a new liability. The difference in the
respective carrying amounts is recognised in the
statement of profit or loss.
o. Derivative financial instruments
The Company uses derivative financial instruments,
such as forward currency contracts to hedge its
foreign currency risks respectively. Such derivative
financial instruments are initially recognised at fair
value on the date on which a derivative contract
is entered into and are subsequently re-measured
at fair value. Derivatives are carried as financial
assets when the fair value is positive and as
financial liabilities when the fair value is negative.
Any gains or losses arising from changes in the
fair value of derivatives are taken directly to
profit or loss.
p. Fair Value measurement
The Company measures financial instruments, such
as, derivatives at fair value at each balance sheet date.
Fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. The fair value measurement
is based on the presumption that the transaction
to sell the asset or transfer the liability takes
place either:
-In the principal market for the asset or liability, or
-In the absence of a principal market, in the most
advantageous market for the asset or liability
The principal or the most advantageous market
must be accessible by the Company.
The fair value of an asset or a liability is measured
using the assumptions that market participants
would use when pricing the asset or liability,
assuming that market participants act in their
economic best interest.
A fair value measurement of a non-financial
asset takes into account a market participant's
ability to generate economic benefits by using
the asset in its highest and best use or by
selling it to another market participant that
would use the asset in its highest and best use.
The Company uses valuation techniques that are
appropriate in the circumstances and for which
sufficient data are available to measure fair value,
maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is
measured or disclosed in the financial statements
are categorised within the fair value hierarchy,
described as follows, based on the lowest
level input that is significant to the fair value
measurement as a whole:
- Level 1 — Quoted (unadjusted) market prices in
active markets for identical assets or liabilities
- Level 2 — Valuation techniques for which the
lowest level input that is significant to the fair value
measurement is directly or indirectly observable
- Level 3 — Valuation techniques for which the
lowest level input that is significant to the fair
value measurement is unobservable
For assets and liabilities that are recognised in
the financial statements on a recurring basis, the
Company determines whether transfers have
occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest
level input that is significant to the fair value
measurement as a whole) at the end of each
reporting period.
The Company's management determines the
policies and procedures for recurring fair value
measurement, such as derivative instruments and
unquoted financial assets measured at fair value.
At each reporting date, the management analyses
the movements in the values of assets and
liabilities which are required to be remeasured
or re-assessed as per the Company's accounting
policies. The management also compares the
change in the fair value of each asset and liability
with relevant external sources to determine
whether the change is reasonable.
For the purpose of fair value disclosures, the
Company has determined classes of assets and
liabilities on the basis of the nature, characteristics
and risks of the asset or liability and the level of
the fair value hierarchy as explained above.
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