3. (A) Summary of material accounting policies

a. Fair value measurement

A number of the Company’s accounting policies
and disclosures require the measurement of fair
values, for both financial and non-financial assets
and liabilities.

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.

In estimating the fair value of an asset or liability,
the Company takes into account the characteristics
of the asset or liability if market participants would
take those characteristics into account when pricing
the asset or liability at the measurement date.

Fair values are categorised into different levels in a
fair value hierarchy based on the inputs used in the
valuation techniques as follows:

• Level 1: quoted prices (unadjusted) in active
markets for identical assets or liabilities.

• Level 2: inputs other than quoted prices
included in Level 1 that are observable for
the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).

• Level 3: inputs for the asset or liability that
are not based on observable market data
(unobservable inputs).

When measuring the fair value of an asset or a
liability, the Company uses observable market data
as far as possible. If the inputs used to measure
the fair value of an asset or a liability fall into
different levels of the fair value hierarchy, then the
fair value measurement is categorised in its entirety
in the same level of the fair value hierarchy as the
lowest level input that is significant to the entire
measurement.

The Company recognises transfers between
levels of the fair value hierarchy at the end of
the reporting period during which the change has
occurred.

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.

b. Property, plant and equipment

Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses,
if any. Cost comprise of purchase price, freight,
non-refundable taxes and duties and any other
cost attributable to bring the asset to its working
condition for its intended use. Expenditure directly
relating to construction activity is capitalised if the
recognition criteria are met. Indirect expenditure
is capitalised to the extent those relate to the
construction activity or is incidental thereto. All
other repair and maintenance costs are recognised
in statement of profit and loss as incurred.

Direct expenditure incurred and other attributable
costs on projects under construction are treated as
expenditure during construction period pending
capitalisation and are termed as Capital work-in¬
progress and shown at cost in the Balance Sheet.
Gains or losses arising from derecognition of
an item of property, plant and equipment 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
and Loss when the asset is derecognised.

Capital work-in-progress includes cost of property,
plant and equipment that are not ready for their
intended use.

Capital work-in-progress are not depreciated as
these assets are not yet ready for use.

Depreciable amount for assets is the cost of
an asset, or other amount substituted for cost,
less its estimated residual value. Depreciation on
property, plant and equipment is provided on
Straight-Line Method over their estimated useful
lives as estimated by management. The details of
useful lives as assessed by the management and as
prescribed in the Schedule II to the Companies
Act, 2013 is as follows:

Leasehold improvements are depreciated on
Straight-Line Method over the lease period or
the useful lives as determined by management,
whichever is lower.

c. Other intangible assets

Intangible assets in the nature of computer
software and franchise fee are measured on initial
recognition at cost. Following initial recognition,
intangible assets are carried at cost less any
accumulated amortisation and accumulated
impairment losses. Gains or losses arising from
derecognition 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 and Loss
when the asset is derecognised.

Amortisation of other intangible assets
Intangible assets are amortised on a Straight-Line
Method basis over the estimated useful economic
life. The intangible assets are amortised over a
period of three years from the date when the asset
is available for use and franchise fees is amortised
over the period of lease term, as estimated by
management. If the persuasive evidence exists to
the affect that useful life of an intangible asset
exceeds three years, the Company amortises the
intangible asset over the best estimate of its useful
life.

d. Impairment of non-financial assets

At each reporting date, the Company assesses
whether there is any indication that an asset may be
impaired, based on internal or external factors. If
any such indication exists, the Company estimates
the recoverable amount of the asset or the cash
generating unit. If such recoverable amount of
the asset or cash generating unit to which the asset
belongs is less than its carrying amount, the carrying
amount is reduced to its recoverable amount. The
reduction is treated as an impairment loss and is
recognised in the Statement of Profit and Loss.
If, at the reporting date there is an indication that
a previously assessed impairment loss no longer
exists, the recoverable amount is reassessed and
the asset is reflected at the recoverable amount.
Impairment losses previously recognised are
accordingly reversed in the Statement of Profit and
Loss.

e. 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.

with original maturity of less than three
months. Cash and cash equivalent are readily
convertible into known amounts of cash and
are subject to an insignificant risk of changes
in value.

De-recognition

The Company de-recognises a financial asset
only when the contractual rights to the cash
flows from the asset expires or it transfers
the financial asset and substantially all the
risks and rewards of ownership 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 retains
the risks and rewards of ownership. When it
neither transfers nor retains substantially all
of the risks and rewards of the assets, nor
transfers 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
In accordance with Ind-AS 109, the Company
applies expected credit loss (ECL) model for
measurement and recognition of impairment
loss for following financial assets and credit
risk exposures:

a) Financial assets that are debt
instruments, and are measured at
amortised cost e.g., loans, deposits,
trade receivables, commission
receivables, other advances and bank
balances; and

b) Trade receivables

The Company follows ‘simplified approach’
for recognition of impairment loss allowance
on trade receivables. The application of

simplified approach does not require
the Company to track changes in credit
risk. Rather, it recognises impairment
loss allowance based on lifetime ECLs at
each reporting date, right from its initial
recognition.

For recognition of impairment loss on
other financial assets and risk exposure, the
Company determines that whether there has
been a significant increase in the credit risk
since initial recognition. If credit risk has not
increased significantly, 12-month ECL is used
to provide for impairment loss. However, if
credit risk has increased significantly, lifetime
ECL is used. If, in a subsequent period, credit
quality of the instrument improves such that
there is no longer a significant increase in
credit risk since initial recognition, then the
entity reverts to recognising impairment loss
allowance based on 12-month ECL.

Lifetime ECL are the expected credit losses
resulting from all possible default events over
the expected life of a financial instrument.
The 12-month ECL is a portion of the
lifetime ECL which results from default
events that are possible within 12 months
after the reporting date.

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. When estimating the cash flows, the
Company considers —

• All contractual terms of the financial
assets (including prepayment and
extension) over the expected life of the
assets, and

• Cash flows from the sale of collateral
held or other credit enhancements that
are integral to the contractual terms.

Financial Liabilities

Initial recognition and measurement

All financial liabilities are recognised 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.

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 amortised cost using the EIR
method. Gains and losses are recognised
in statement of profit and 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.

Trade and other payables
These amounts represent liabilities for goods
and services provided to the Company prior
to the end of period which are unpaid. The
amounts are unsecured and are usually paid
as per agreed terms. Trade and other payables
are presented as current liabilities unless
payment is not due within 12 months after
the reporting period. They are recognised
initially at their fair value and subsequently
measured at amortised cost using the
effective interest method.

De-recognition

A financial liability is de-recognised 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 and Loss.

Offsetting of financial instruments
Financial assets and financial liabilities are
offset and the net amount is reported in
the balance sheet if there is a currently
enforceable legal right to offset the
recognised amounts and there is an intention
to settle on a net basis, to realise the assets
and settle the liabilities simultaneously.

f. Taxes

Tax expense comprises of current and deferred

tax.

i) Current income 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. Current taxes are recognised
in the statement of Profit and Loss, except
when they relate to items that are recognised
in Other Comprehensive Income or directly
in equity in which case, the income taxes are
recognised in Other Comprehensive Income
or directly in equity respectively.

The Company recognises interest levied on
income tax as interest expenses.

ii) Deferred tax

Deferred tax is provided using the Balance
Sheet method 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.

Deferred tax assets are recognised for all
deductible temporary differences and any
unused tax losses. Deferred tax assets are
recognised to the extent that it is probable
that future taxable profit will be available
against which the deductible temporary
differences and unused tax losses can be
utilised.

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 future 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 assets and
deferred tax liabilities are offset if a legally
enforceable right exists to set off current
tax assets against current tax liabilities and
the deferred taxes relate to the same taxable
entity and the same taxation authority.

g. Inventories

Inventory is valued at lower of cost and net
realisable value.

Cost includes purchase price, duties and taxes
(other than those subsequently recoverable by the
Company from the concerned revenue authorities),
freight inwards and other expenditure incurred in
bringing such inventories to their present location
and condition. Trade discounts, rebates, incentives
and other similar items are deducted in determining
the costs of purchase. In determining the cost,
weighted average cost method is used. The carrying
cost of inventories are appropriately written down
when there is a decline in the net realisable value of
such materials. Net realisable value is the estimated
selling price in the ordinary course of business, less
estimated costs of completion and the estimated
costs necessary to make the sale.

h. Borrowing costs

Borrowing costs consists of interest, ancillary costs
and other costs in connection with the borrowing
of funds.

Borrowing costs attributable to acquisition and/or
construction of qualifying assets are capitalised as
a part of the cost of such assets, up to the date
such assets are ready for their intended use. Other
borrowing costs are charged to the Statement of
Profit and Loss.