3. SUMMARY OF MATERIAL ACCOUNTING POLICIES
A. ACCOUNTING CONCEPTS
The financial statements have been prepared using the material accounting policies and measurement bases summarised below. These were used throughout all periods presented in the financial statements, except where the Company has applied certain accounting policies and exemptions upon transition to Ind AS. The accounts are prepared on historical cost concept based on accrual method of accounting as a going concern.
B. REVENUE RECOGNTION
REVENUE RECOGNTION
Revenue from contracts with customers is recognised upon transfer of control of promised services to customers in an amount that reflects the consideration which the Company expects to receive in exchange for those services. The services performed by the Company fall into the criteria of the transfer of control over a period of time and hence, revenue is recognized over a period of time.
Revenue is measured based on the transaction price, which is the consideration, adjusted for variable considerations, if any, as specified in the contract with the customer. Revenue also excludes taxes collected from customers.
Arrangements with customers are either on a cost plus, rate plus jobs, lump sum services, turnkey contracts and Inspection contracts.
Revenue from services is accounted as follows:
i) In the case of cost plus and rate plus jobs on the basis of services rendered and amount billable under the contract.
ii) In the case of lump sum services and turnkey contracts, consideration of the respective contract agreed with the customer multiplied by proportion of actual direct costs of the work performed to latest estimated total direct cost of the work performed i.e. percentage completion method.
iii) In the case of inspection contracts providing for a percentage fee on project cost, on the basis of physical progress duly certified.
Contract modifications are accounted for when additions, deletions or changes are approved either to the contract scope or contract price (or both). The accounting for modifications of contracts involves assessing whether the services added to an existing contract are distinct and whether the pricing is at the standalone selling price. Services added that are not distinct are accounted for on a cumulative catch up basis, while those that are distinct are accounted for
prospectively, either as a separate contract, if the additional services are priced at the standalone selling price, or as a termination of the existing contract and creation of a new contract if not priced at the standalone selling price.
Provisions for estimated losses, if any, on uncompleted contracts are recorded in the period in which such losses become probable based on the expected contract estimates at the reporting date.
Other claims including interest on outstanding are accounted for when there is probability of ultimate collection. TURNOVER/WORK-IN-PROGRESS
a) No income has been taken into account on jobs for which:
(i) The terms of consideration receivable by the Company have not been settled and/or scope of work has not been clearly defined and therefore, it is not possible in the absence of settled terms to determine whether there is a profit or loss on such jobs. However, Expenditures incurred by the Company during the year are recognised as revenue. Further, in cases where minimum undisputed terms have been agreed to by the clients, income has been accounted for on the basis of such undisputed terms though the final terms are still to be settled.
(ii) The terms have been agreed to at lumpsum services/turnkey contracts and outcome of job cannot be estimated reliably.
b) The cost of such jobs as stated in 'a' above is carried forward as work-in- progress at actual direct cost. DIVIDEND INCOME
Dividend on units/shares is accounted for when right to receive payment is established.
INTEREST INCOME ON INCOME TAX REFUND
Interest on income tax refund is accounted for upon receipt of such interest.
(Refer note 46 of financial statements for accounting treatment in respect of unbilled revenue, income received in advance (contract liabilities) and performance related obligations.)
C. INTANGIBLE ASSETS Recognition
Intangible assets (softwares) are stated at their cost of acquisition less accumulated amortization less impairment, if any. Subsequent measurement (amortisation)
The cost of capitalized software is amortized over a period of three years from the date of its acquisition. However, software individually costing upto H 5 lakhs is fully amortized during the year of its acquisition.
The amortisation period and the amortisation method of software are reviewed at least at the end of each reporting period.
The residual value of software is considered as nil. Day to day maintenance of intangibles is charged to the Statement of Profit and Loss.
Exchange difference arising on translation of foreign operations pertaining to intangible assets are added/deducted from the Gross block of Intangible assets.
De-recognition
An intangible asset is derecognised upon disposal or when no future economic benefits are expected from its use or disposal.
D. PROPERTY, PLANT AND EQUIPMENT AND CAPITAL WORK IN PROGRESS
Recognition
Properties plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Capital work in progress is stated at cost, net of accumulated impairment loss, if any. The cost of property, plant and equipment comprises purchase price, borrowing cost (if capitalization criteria are met), directly attributable cost of bringing the asset to its working condition for the intended use and the present value of the initial estimate of any decommissioning or site abandonment obligation, wherever applicable. Any trade discount and rebates are deducted in arriving at the cost of property, plant and equipment. 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. The cost of any software purchased initially along with the computer hardware is being capitalized along with the cost of the hardware. Any subsequent acquisition/up-gradation of software is being capitalized as an intangible asset.
Whenever any new office space is acquired and partitions/fixtures and fittings are provided to make it suitable for use, the expenditure on the same is capitalized as furniture fixtures and depreciation is charged thereon. When significant parts of the property are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognised in statement of profit and loss as incurred.
Subsequent measurement (depreciation)
Depreciation on Property, plant and equipment is charged on straight line method either on the basis of rates arrived at with reference to the useful life of the assets evaluated by the Committee consisting of technical experts and approved by the management or rates arrived at based on the useful life prescribed under Part C of Schedule II of the Companies Act, 2013, whichever is higher. Refer Note 43 for the useful life of various assets under PPE.
100% depreciation is provided on library books in the year of purchase.
Property, plant and equipment individually costing less than INR 5,000 are fully depreciated in the year of acquisition.
Residual value of property plant and equipment is upto 5% of the original cost till such assets is disposed.
The residual values, useful lives and method of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively.
De-recognition
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 de-recognition of the asset is recognised in the statement of profit and loss when the asset is derecognised.
Physical verification of the property, plant and equipment is carried out by the Company in a phased manner to cover all the items over a period of three years. The discrepancies noticed, if any, are accounted for in the year in which such differences are found, after obtaining the requisite approvals.
E. LEASES
Company as a lessee
The Company assesses whether a contract contains a lease, at inception of a contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether: (i) the contract involves the use of an identified asset (ii) the Company has substantially all of the economic benefits from use of the asset through the period of the lease and (iii) the Company has the right to direct the use of the asset.
The Company determines the lease term as the non-cancellable period of a lease, together with both periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option; and periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option. In assessing whether the Company is reasonably certain to exercise an option to extend a lease, or not to exercise an option to terminate a lease, it considers all relevant facts and circumstances that create an economic incentive for the Company to exercise the option to extend the lease, or not to exercise the option to terminate the lease.
At the date of commencement of the lease, the Company recognizes a right-of-use asset ("ROU") and a corresponding lease liability for all lease arrangements.
The Company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of twelve months or less from the commencement date and do not contain a purchase option) and low value exemption for low value leases. For these short-term and low value leases, the Company recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease.
The right-of-use assets are initially recognized at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or prior to the commencement date of the lease plus any initial direct costs less any lease incentives. They are subsequently measured at cost less accumulated depreciation, and impairment losses, if any.
Right-of-use assets are depreciated from the commencement date on a straight-line basis over the shorter of the lease term and useful life of the underlying asset except for perpetual lease. Right of use assets are tested for impairment whenever there is any indication that their carrying amounts may not be recoverable. Impairment loss, if any, is recognised in the statement of profit and loss.
The lease liability is initially measured at amortized cost at the present value of the future lease payments. 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.
Lease liability and ROU asset have been separately presented in the Balance Sheet and lease payments have been classified as financing cash flows.
The carrying amount of Right of use assets and lease liabilities is adjusted for early termination of lease.
Company as a lessor Operating lease
Leases in which the Company does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Assets leased out under operating leases are capitalized.
When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub lease separately. The sublease is classified as a finance lease or operating lease by reference to the right of use asset arising from the head lease.
Rental income from operating leases is recognized on straight line basis over the lease term.
F. INVESTMENT PROPERTIES
Recognition
Investment properties are properties held to earn rentals or for capital appreciation, or both. Investment properties are stated at cost, net of accumulated depreciation, and accumulated impairment losses, if any. The cost comprises purchase price, borrowing cost if capitalization criteria are met and directly attributable cost of bringing the asset to its working condition for the intended use. Any trade discount and rebates are deducted in arriving at the purchase price. An investment property held as right-of use asset are measured initially at its cost in accordance with Ind AS 116.
When significant parts of the property are required to be replaced at intervals, the Company depreciates them separately based on their specific useful lives. All other repair and maintenance costs are recognised in statement of profit and loss as incurred.
Subsequent measurement (depreciation)
Depreciation on investment properties is charged on straight line method, either on the basis of rates arrived at with reference to the useful life of the assets evaluated by the Committee consisting of technical experts and approved by the management or rates arrived at based on useful life prescribed under Part C of Schedule II of the Companies Act, 2013, whichever is higher (refer note 43 for the useful life of various categories of assets, classified as investment property).
Premium paid on land where lease agreements have been executed for specified period are written off over the period of lease proportionately.
Transfers are made to (or from) investment properties only when there is an actual change in use of such property rather than the intended change and there is evidence of the change in use. Transfers between investment property, owner-occupied property do not change the carrying amount of the property transferred.
De-recognition
Investment properties are derecognised either when they have been disposed off or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in statement of profit and loss in the year of de-recognition.
G. FOREIGN CURRENCY
Functional and presentation currency
The financial statements are presented in INR, which is also the functional currency of the Company.
Foreign currency transactions and balances Initial recognition
Foreign currency transactions are accounted for at average monthly rates based on market rates for preceding month in respect of Pound Sterling, US Dollars, Euro, Australian Dollar, Canadian Dollar, Swiss Franc and Japanese Yen and in respect of other currencies at Government rates prevailing in the month. However, foreign currency transactions in respect of sub-contractors/vendors are recorded at bank rate prevailing on the date of transaction.
Conversion
Foreign currency monetary items are retranslated using the exchange rate prevailing at the reporting date. Nonmonetary items which are measured in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction.
Assets and liabilities of foreign operations are translated into INR using the exchange rate prevailing at the balance sheet date and their statement of profit and loss are translated at exchange rates prevailing at the dates of the transactions. For practical reasons, the Company uses an average exchange rate for previous month.
Exchange differences
Exchange differences arising on the settlement of monetary items, or on reporting such monetary items at rates different from those at which they were initially recorded during the year, or reported in previous financial statements, are recognized as income or as expenses in the year in which they arise.
For the foreign operation of the Company, exchange differences arising on translation are recognised under other comprehensive income as exchange differences on translation of foreign operations and accumulated under the head other equity.
H. IMPAIRMENT OF NON-FINANCIAL ASSETS
Impairment of cash generating assets are reviewed for impairment whenever an event or changes in circumstances indicate that carrying amount of such assets may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of assets.
Impairment loss is reversed only if there has been a change in the assumptions used to determine the asset's recoverable amount since the last impairment loss was recognised. If it is found that some of the impairment losses already recognized needs to be reversed the reversals are recognized in the statement of profit and loss in the year of reversal and is restricted to the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years.
I. FINANCIAL INSTRUMENTS
Financial assets
Initial recognition and measurement
All financial assets are recognized initially at fair value, plus in case of financial assets not recorded at fair value through profit or loss (FVTPL), transaction cost that are directly attributable to the acquisition of the financial asset, except for trade receivables which are initially measured at transaction price.
Subsequent measurement
The Company determines the classification of its financial assets based on its business model for managing the financial assets and the contractual terms of the cash flows. The Company's financial assets are classified into the following categories: -
• those to be measured at fair value (either through other comprehensive income or through profit or loss). These includes equity securities at fair value through other comprehensive income (FVTOCI) and investment in mutual fund at fair value through profit or loss (FVTPL).
• those to be measured at amortized cost using the effective interest rate (EIR) method. These comprises trade receivables, loan receivables, security deposit, deposit with banks, unbilled revenue, retention against contracts, cash and bank balances, other assets, and receivables.
On initial recognition, the Company has made an irrevocable election to present the subsequent changes in fair value through other comprehensive income for equity instruments (other than subsidiaries, joint ventures and associates) that are not held for trading.
De-recognition of financial assets
A financial asset is primarily de-recognised when the contractual rights to receive cash flows from the asset have expired or the Company has transferred its rights to receive cash flows from the asset.
Financial liabilities
Initial recognition and measurement
All financial liabilities are recognised initially at fair value and transaction cost that is attributable to the acquisition of the financial liabilities is also adjusted.
Subsequent measurement
The Company's financial liabilities are subsequently measured at amortised cost using the effective interest method which mainly include lease liabilities, trade payables, security deposit, retentions, and other liabilities.
De-recognition of financial liabilities
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 de-recognition 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 realize the assets and settle the liabilities simultaneously.
Forward contracts
A forward contract is recognised as an asset or a liability on the commitment date. Outstanding forward contracts as at reporting date are restated using the mark to market information and resultant gain/(loss) is accounted in statement of profit and loss.
J. 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 financial assets.
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 is required to consider -
• All contractual terms of the financial assets (including prepayment and extension) over the expected life of the assets.
• Cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. Trade receivables and contract assets
As a practical expedient the Company has adopted 'simplified approach' using the provision matrix method for recognition of expected loss on trade receivables. The provision matrix is based on historical default rates observed over the expected life of the trade receivables and is adjusted for forward-looking estimates. At every reporting date, the historical default rates are updated and changes in the forward-looking estimates are analysed. Further receivables are segmented for this analysis where the credit risk characteristics of the receivable are similar.
Expected credit loss on contract assets is determined based on management judgement.
Other financial assets
For recognition of impairment loss on other financial assets and risk exposure, the Company determines whether there has been a significant increase in the credit risk since initial recognition and if credit risk has increased significantly, impairment loss is provided.
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