3. Material Accounting Policies
A. GOING CONCERN
The directors have, at the time of approval of
financial statements, a reasonable expectation that
the Company has adequate resources to continue
in operational existence for the foreseeable future.
Thus, they continue to adopt the going concern basis
of accounting in preparing the financial statements.
B. GOODwILL
Goodwill is initially recognized and measured as
set out above. Goodwill is not amortized but is
reviewed for impairment at least annually. For the
purpose of impairment testing, goodwill is allocated
to each of the Company's cash-generating units.
Cash-generating units to which goodwill has been
allocated are tested for impairment annually, or more
frequently when there is an indication that the unit
may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount
of the unit, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated
to the unit and then to the other assets of the unit
pro-rata on the basis of the carrying amount of each
asset in the unit. An impairment loss recognized for
goodwill is not reversed in a subsequent period.
On disposal of a cash-generating unit, the
attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
c. revenue recognition
Sale of goods
Revenue is recognized upon transfer of control of
goods to customers in an amount that reflects the
consideration which the Company expects to receive
in exchange for those goods.
Revenue from the sale of goods is recognized at
the point in time when control is transferred to the
customer which is usually on dispatch / delivery
of goods, based on contracts with the customers.
Revenue is measured based on the transaction
price, which is the consideration, adjusted for
volume discounts, price concessions, and returns,
if any, as specified in the contracts with the
customers. Revenue excludes taxes collected from
customers on behalf of the government. Accruals
for discounts and returns are estimated (using
the most likely method) based on accumulated
experience and underlying schemes and agreements
with customers. Due to the short nature of credit
period given to customers, there is no financing
component in the contract.
Interest income
Interest income is recognized on a time proportion
basis taking into account the amount outstanding
and the applicable interest rate. Interest income
is included under the head "other income" in the
statement of profit and loss.
Export benefit
Export enitlements (such as Duty draw back, Focus
Market Scheme and Merchandise Exports from
India Scheme) are recognized in the statement
of profit and loss when revenue from exports is
recognized and there is no significant uncertainty
regarding the entitlement to the credit and the
amount thereof.
D. FOREIGN CURRENCY TRANSACTIONS
i. Initial recognition
Foreign currency transactions are recorded at
exchange rates prevailing on the date of the
transaction. Foreign currency denominated
monetary assets and liabilities are restated
into the functional currency using exchange
rates prevailing on the date of Balance Sheet.
Gains and losses arising on settlement and
restatement of foreign currency denominated
monetary assets and liabilities are recognized in
the profit or loss.
ii. Derivative financial instruments
The Company holds derivative financial
instruments to hedge its foreign currency
exposure. Derivatives are measured at fair
value and changes therein are recognized in
Statement of Profit and Loss.
iii. Conversion
Monetary assets and liabilities denominated
in foreign currencies are translated into the
functional currency at the exchange rate at
the reporting date. Non-monetary assets
and liabilities that are measured at fair value
in a foreign currency are translated into the
functional currency at the exchange rate when
the fair value was determined. Non-monetary
assets and liabilities that are measured based
on historical cost in a foreign currency are
translated at the exchange rate at the date
of the transaction. Exchange differences are
recognized in profit or loss.
E. LEASES
The company as a lessee
The Company's lease asset classes primarily consist
of leases for machinery and vehicles. The Company
assesses whether a contract is or 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.
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 in which it is a lessee, except for
leases with a term of twelve months or less (short¬
term leases) and 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 unless
another systematic basis is more representative of
the time pattern in which economic benefits from
the leased assets are consumed.
The lease liability is initially measured at the present
value of the lease payments that are not paid at the
commencement date, discounted by using the rate
implicit in the lease. If this rate cannot be readily
determined, the Company uses its incremental
borrowing rate.
Lease payments included in the measurement of the
lease liability:
i. Fixed Lease Payments (including in-substance
fixed payments), less any lease incentives
receivable;
ii. Variable Lease Payments that depend on an
index or rate, initially measured using the index
or rate at the commencement date;
iii. The amount expected to be payable by the
lessee under residual value guarantees;
iv. The exercise price of purchase options, if the
lessee is reasonably certain to exercise the
options;
v. Payments of penalties for terminating the
lease, if the lease term reflects the exercise of
an option to terminate the lease.
The lease liability is presented as a separate
line item in the Balance Sheet. 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. Right-of-use assets are
depreciated from the commencement date on
a straight-line basis over the shorter period of
the lease term and useful life of the underlying
asset. They are separately presented in the
Balance Sheet.
F. FOREIGN CURRENCIES
On the disposal of a foreign operation, all of the
exchange differences accumulated in a foreign
exchange translation reserve in respect of that
operation attributable to the owners of the Company
are reclassified to profit or loss.
G. GOVERNMENT GRANTS
Government grants are not recognized until there is
reasonable assurance that the Company will comply
with the conditions attached to them and that the
grants will be received.
Government grants are recognized in profit or loss
on a systematic basis over the periods in which the
Company recognizes as expenses the related costs
for which the grants are intended to compensate.
Specifically, government grants whose primary
condition is that the Company should purchase,
construct or otherwise acquire non-current assets
(including property, plant and equipment) are
recognized as deferred income in the consolidated
balance sheet and transferred to profit or loss on a
systematic and rational basis over the useful lives of
the related assets.
Government grants that are receivable as
compensation for expenses or losses already incurred
or for the purpose of giving immediate financial
support to the Company with no future related costs
are recognized in profit or loss in the period in which
they become receivable.
The benefit of a government loan at a below-
market rate of interest is treated as a government
grant, measured as the difference between proceeds
received and the fair value of the loan based on
prevailing market interest rates.
H. EMPLOYEE BENEFITS
(i) Short-term and long-term employee benefits:
A liability is recognized for benefits accruing to
employees in respect of wages and salaries, annual
leave and sick leave in the period the related service
is rendered at the undiscounted amount of the
benefits expected to be paid in exchange for that
service.
Liabilities recognized in respect of short-term
employee benefits are measured at the undiscounted
amount of the benefits expected to be paid in
exchange of the related service.
Liabilities recognized in respect of other long-term
employee benefits are measured at the present value
of the estimated future cash outflows expected to be
made by the company in respect of services provided
by employees up to the reporting date.
1. Post employment benefits:
Defined contribution plans
The Company has defined contribution
plans for post-employment benefits namely
Provident Fund and Superannuation Scheme
which are recognized by the income tax
authorities. The Company contributes to a
government administered provident fund and
superannuation fund on behalf of its employees
and has no further obligation beyond
making its contribution. The Company makes
contributions to state plans namely Employee's
State Insurance Fund and Employee's Pension
Scheme and has no further obligation beyond
making the payment to them. The Company's
contributions to the above funds are charged
to the Statement of Profit and Loss every year.
Defined benefit plans
The Company's gratuity scheme with Life
Insurance Corporation of India is a defined
benefit plan. The Company's net obligation
in respect of the gratuity benefit scheme is
calculated by estimating the amount of future
benefit that employees have earned in return
for their service in the current and prior periods;
that benefit is discounted to determine its
present value, and the fair value of any plan
assets is deducted. The present value of the
obligation under such defined benefit plan is
determined based on independent actuarial
valuation at the Balance Sheet date using
the Projected Unit Credit Method, which
recognizes each period of service as giving
rise to additional unit of employee benefit
entitlement and measures each unit separately
to build up the final obligation. The obligation is
measured at the present value of the estimated
future cash flows. The discount rates used for
determining the present value of the obligation
under defined benefit plan are based on the
market yields on Government securities as at
the Balance Sheet date. Remeasurements of
the net defined benefit liability, which comprise
actuarial gains and losses, the return on plan
assets (excluding interest) and the effect of
the asset ceiling (if any, excluding interest), are
recognized in OCI. The Company determines
the net interest expense (income) on the
net defined benefit liability (asset) for the
period by applying the discount rate used to
measure the defined benefit obligation at the
beginning of the annual period to the then-
net defined benefit liability (asset), taking into
account any changes in the net defined benefit
liability (asset) during the period as a result
of contributions and benefit payments. Net
interest expense and other expenses related to
defined benefit plans are recognized in profit or
loss.
Compensated absences:
Compensated absences which are not expected
to occur within twelve months after the end
of the period in which the employee renders
the related services are recognized as a liability.
The cost of providing benefits is actuarially
determined using the projected unit credit
method, with actuarial valuations being carried
out at each Balance Sheet date. All gains/losses
due to actuarial valuations are immediately
recognized in the Statement of Profit and Loss.
Employee separation cost
Compensation paid / payable to employees
who have opted for retirement under a
Voluntary Retirement Scheme including ex-
gratia is charged to the Statement of Profit and
Loss in the year of separation.
Retirement and termination benefits costs:
Payments to defined contribution retirement
benefit plans are recognized as an expense
when employees have rendered service
entitling them to the contributions. Payments
made to state-managed retirement benefit
plans are accounted for as payments to defined
contribution plans where the Company's
obligations under the plans are equivalent
to those arising in a defined contribution
retirement benefit plan.
For defined benefit retirement plans, the cost
of providing benefits is determined using the
Projected Unit Credit Method, with actuarial
valuations being carried out at the end of each
annual reporting period. Remeasurements
comprising actuarial gains and losses, the
effect of the assets ceiling (if applicable) and
the return on plan assets (excluding interest)
are recognized immediately in the balance
sheet with the charge or credit to other
comprehensive income in the period in which
they occur. Remeasurements recognized
in other comprehensive income are not
reclassified. Past service cost is recognized in
profit or loss when the plan amendment or
curtailment occurs. Net interest is calculated
by applying a discount rate to the net defined
benefit liability or asset. Defined benefit costs
are split into three categories:
i. Service costs, which includes current
service cost, past service cost and gains and
losses on curtailments and settlements;
ii. Net interest expense or income; and
iii. Remeasurements.
The Company recognizes service costs within
profit or loss as employee benefits expense.
Net interest expense or income is recognized
within finance costs.
The retirement benefit obligation recognized
in the balance sheet represents the deficit
or surplus in the Company's defined benefit
plans.
TAXATION
The income tax expense represents the sum of the tax
currently payable and deferred tax.
Current and deferred tax are recognized in profit or loss,
except when they relate to items that are recognized in
other comprehensive income or directly in equity, in which
case, current and deferred tax are also recognized in other
comprehensive income or directly in equity respectively.
J. CURRENT TAX
The tax currently payable is based on taxable profit for
the year. Taxable profit differs from net profit as reported
in profit or loss because it excludes items of income or
expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible.
The Company's liability for current tax is calculated using
tax rates that have been enacted or substantively enacted
by the end of the reporting period.
A provision is recognized for those matters for which
the tax determination is uncertain but it is considered
probable that there will be a future outflow of funds to
a tax authority. The provisions are measured at the best
estimate of the amount expected to become payable. The
assessment is based on the judgment of tax professionals
within the Company supported by previous experience in
respect of such activities and in certain cases based on
independent tax specialist advice.
Deferred Tax
Deferred tax is the tax expected to be payable or
recoverable on differences between the carrying amounts
of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of
taxable profit and is accounted for using the Balance sheet
method. Deferred tax liabilities are generally recognized
for all taxable temporary differences and deferred tax
assets are recognized to the extent that it is probable
that taxable profits will be available against which
deductible temporary differences can be utilized. Such
assets and liabilities are not recognized if the temporary
difference arises from the initial recognition (other than
in a business combination) of other assets and liabilities
in a transaction that affects neither the taxable profit nor
the accounting profit. In addition, a deferred tax liability is
not recognized if the temporary difference arises from the
initial recognition of goodwill.
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 profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected
to apply in the period when the liability is settled or the
asset is realized based on tax laws and rates that have
been enacted or substantively enacted at the reporting
date.
The measurement of deferred tax liabilities and assets
reflects the tax consequences that would follow from
the manner in which the Company expects, at the end
of the reporting period, to recover or settle the carrying
amount of its assets and liabilities. Deferred tax assets and
liabilities are offset when there is a legally enforceable
right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by
the same taxation authority and the Company intends to
settle its current tax assets and liabilities on a net basis.
K. SEGMENT REPORTING
Operating segments are reported in a manner consistent
with the internal reporting provided to the chief operating
decision maker.
L. PROPERTY, PLANT AND EQUIPMENT
Recognition and measurement
Items of property, plant and equipment are measured
at cost, which includes capitalized borrowing costs,
less accumulated depreciation and accumulated
impairment losses, if any. Cost of an item of property,
plant and equipment comprises its purchase price,
including import duties and non-refundable purchase
taxes, after deducting trade discounts and rebates, any
directly attributable cost of bringing the item to its
working condition for its intended use and estimated
costs of dismantling and removing the item and
restoring the site on which it is located. The cost of a
self-constructed item of property, plant and equipment
comprises the cost of materials and direct labor, any
other costs directly attributable to bringing the item to
working condition for its intended use, and estimated
costs of dismantling and removing the item and
restoring the site on which it is located. 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. Any gain or loss on disposal of an
item of property, plant and equipment is recognized in
profit or loss.
Capital work-in-progress comprises of the cost of
property, plant and equipment that are not yet ready
for their intended use as at the balance sheet date. Any
gain or loss on disposal of an item of property, plant and
equipment is recognized in profit or loss.
Subsequent expenditure
Subsequent expenditure related to an item of property,
plant and equipment is added to its book value only if
it increases the future benefits from the existing asset
beyond its previously assessed standard of performance.
All other expenses on existing property, plant and
equipment, including day-to-day repair and maintenance
expenditure and cost of replacing parts, are charged to
the statement of profit and loss for the year during which
such expenses are incurred.
l. Depreciation of tangible assets
Leasehold land is amortized on a straight line basis over
the primary period of lease, i.e. 99 years. Depreciation
on property, plant and equipment is provided on straight
line method at estimated useful live, which in certain
categories of assets is different than the estimated useful
life as specified in Schedule II of the Companies Act, 2013
('Schedule II'). The useful life of assets adopted by the
Company are as under:
*For these class of assets, based on internal technical
assessment, the useful lives as given above are believed
to best represent the period over which the assets are
expected to be used. Hence, the useful life of these
assets are different from the useful lives as prescribed
under Part C of Schedule II of the Companies Act,
2013.
Property, plant and equipment under construction are
disclosed as capital work-in progress. Capital work-in¬
progress includes the cost of fixed assets that are not
ready to use at the Balance Sheet date.
Property, plant and equipment is eliminated from the
financial statements on disposal or when no further
benefit is expected from its use and disposal.
Losses arising from retirement and gains or losses arising
from disposal of Property, plant and equipment which
are carried at cost are recognized in the Statement of
Profit and Loss. In case of disposal of revalued asset, the
difference between net disposal proceeds and the net
book value is charged or credited to the Statement of
Profit and Loss except that to the extent that such loss is
related to an existing surplus on that asset recognized in
revaluation reserve, it is charged directly to that reserve.
Intangible assets acquired separately
Intangible assets with finite useful lives that are acquired
separately are carried at cost less accumulated amortization
and accumulated impairment losses. Amortization is
recognized on a straight-line basis over their estimated
useful lives which are disclosed above. The estimated
useful life and amortization method are reviewed at
the end of each reporting period, with the effect of any
changes in estimate being accounted for on a prospective
basis. Intangible assets with indefinite useful lives that are
acquired separately are carried at cost less accumulated
impairment losses. Software cost is amortized on a straight¬
line basis over a period of 5 years, which in management's
opinion represents the period during which economic
benefits will be derived from their use.
M. INTERNALLY GENERATED INTANGIBLE ASSETS -
RESEARCH AND DEVELOPMENT EXPENDITURE
Expenditure on research activities is recognized as an
expense in the period in which it is incurred. An internally
generated intangible asset arising from development (or
from the development phase of an internal project) is
recognized if, and only if, all of the following conditions
have been demonstrated:
i. The technical feasibility of completing the intangible
asset so that it will be available for use or sale;
ii. the intention to complete the intangible asset and
use or sell it;
iii. the ability to use or sell the intangible asset;
iv. how the intangible asset will generate probable
future economic benefits;
v. the availability of adequate technical, financial and
other resources to complete the development and to
use or sell the intangible asset; and
vi. the ability to measure reliably the expenditure
attributable to the intangible asset during its
development.
The amount initially recognized for internally generated
intangible assets is the sum of the expenditure
incurred from the date when the intangible asset first
meets the recognition criteria listed above. Where no
internally generated intangible asset can be recognized,
development expenditure is recognized in profit or loss in
the period in which it is incurred.
Subsequent to initial recognition, internally generated
intangible assets are reported at cost less accumulated
amortization and accumulated impairment losses, on
the same basis as intangible assets that are acquired
separately.
N. DERECOGNITION OF INTANGIBLE ASSETS
An Intangible asset is derecognized on disposal, or when
no future economic benefits are expected from use or
disposal. Gains or losses arising from derecognition of
an intangible asset, measured as the difference between
the net disposal proceeds and the carrying amount of the
asset, are recognized in profit or loss when the asset is
derecognized.
O. IMPAIRMENT OF PROPERTY, PLANT AND
EQUIPMENT AND INTANGIBLE ASSETS EXCLUDING
GOODWILL
At each reporting date, the Company reviews the
carrying amounts of its property, plant and equipment
and intangible assets to determine whether there is any
indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount
of the asset is estimated to determine the extent of
the impairment loss (if any). Where the asset does not
generate cash flows that are independent from other
assets, the Company estimate the recoverable amount
of the cash-generating unit to which the asset belongs.
When a reasonable and consistent basis of allocation
can be identified, corporate assets are also allocated to
individual cash-generating units, or otherwise they are
allocated to the smallest Company of cash-generating
units for which a reasonable and consistent allocation
basis can be identified.
Intangible assets with an indefinite useful life are tested
for impairment at least annually and whenever there is an
indication at the end of a reporting period that the asset
may be impaired.
Recoverable amount is the higher of Fair value less costs
of disposal and value in use. 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 for which the estimates
of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating
unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (or cash-generating unit)
is reduced to its recoverable amount. An impairment
loss is recognized immediately in profit or loss. Where
an impairment loss subsequently reverses, the carrying
amount of the asset (or cash-generating unit) is increased
to the revised estimate of its recoverable amount, but
so that the increased carrying amount does not exceed
the carrying amount that should have been determined
had no impairment loss been recognized for the asset
(or cash-generating unit) In prior years. A reversal of an
impairment loss is recognized immediately in profit or
loss to the extent that it eliminates the impairment loss
which has been recognized for the asset in prior years.
Any increase in excess of this amount is treated as a
revaluation increase.
p. inventories
i) Inventories are stated at the lower of cost and net
realizable value. Cost comprises direct materials
and, where applicable, direct labour costs and those
overheads that have been incurred in bringing the
inventory to their present location and condition.
Cost is calculated using the weighted average cost
method. Finished goods and Work-in progress include
appropriate proportion of costs of conversion. Fixed
production overheads are allocated on the basis of
normal capacity of production facilities. Valuation of
work-in-progress is based on stage of completion.
Net realisable value represents the estimated selling
price less all estimated costs of completion and costs
to be incurred in marketing, selling and distribution.
ii) Spare parts and consumables:
In most cases, spare parts are considered to be
consumable items within group, and it is appropriate
to expense these when they are purchased.
If spare parts are significant and held for a long
period of time, it would be more appropriate to
record these as inventory and expense them as
consumed. It is considered best practice to record
spare parts (even at nil value if expensed) in ERP
systems to allow monitoring of usage.
Q. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments,
which are readily convertible into known amounts of cash,
that are subject to an insignificant risk of change in value
with an original maturity within three months or less from
the date of purchase, to be cash equivalents. Cash and
cash equivalents consist of balances with banks which are
unrestricted for withdrawal and usage.
R. 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.
Financial assets and financial liabilities are initially
measured at fair value, except for trade receivables that
do not have a significant financing component which are
measured at transaction price. Transaction costs that are
directly attributable to the acquisition or issue of financial
assets and financial liabilities (other than financial assets
and financial liabilities at fair value through profit or
loss) are added to the fair value of the financial assets or
financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of
financial assets or financial liabilities at fair value through
profit or loss are recognised immediately in profit or loss.
Financial Assets
All regular way purchases or sales of financial assets
are recognised and derecognised on a trade date basis.
Regular way purchases or sales are purchases or sales of
financial assets that require delivery of assets within the
time frame established by regulation or convention in the
marketplace.
All recognised financial assets are measured
subsequently in their entirety at either amortised cost
or fair value, depending on the classification of the
financial assets.
Classification of financial assets
On subsequent recognition, a financial asset can be
measured at:
i. Amortized cost;
ii. Fair Value through Other Comprehensive Income
(FVOCI) or;
iii. Fair Value through Profit and Loss (FVTPL)
Debt instruments that meet the following conditions are
measured subsequently at amortised cost:
i. The financial asset is held within a business model
whose objective is to hold financial assets in order to
collect contractual cash flows; and
ii. 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.
After initial measurement, such financial assets are
subsequently measured at amortized costs using effective
interest rate (EIR) method.
Debt instruments that meet the following conditions
are measured subsequently at fair value through other
comprehensive income (FVTOCI):
i. the financial asset is held within a business model
whose objective is achieved by both collecting
contractual cash flows and selling the financial
assets; and
ii. The contractual terms of the financial asset give
rise on specified dates to cash flow that are solely
payments of principal and interest on the principal
amount outstanding.
By default, all other financial assets are measured
subsequently at fair value through profit or loss(FVTPL).
The Company may irrevocably designate a financial asset
that otherwise meets the requirements to be measured at
amortized cost or at FVOCI criteria as measured at FVTPL if
doing so eliminates or significantly reduces an accounting
mismatch.
Assessment whether contractual cash flows are solely
payments of principal and interest:
For the purposes of this assessment, 'principal' is defined
as the fair value of the financial asset on initial recognition.
'Interest' is defined as consideration for the time value of
money and for the credit risk associated with the principal
amount outstanding during a particular period of time
and for other basic lending risks and costs (e.g. liquidity
risk and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are
solely payments of principal and interest, the Company
considers the contractual terms of the instrument. This
includes assessing whether the financial asset contains a
contractual term that could change the timing or amount
of contractual cash flows such that it would not meet
this condition. In making this assessment, the Company
considers:
i. contingent events that would change the amount or
timing of cash flows
ii. terms that may adjust the contractual coupon rate,
including variable interest rate features
iii. prepayment and extension features; and
iv. terms that limit the Company's claim to cash flows
from specified assets (e.g. non-recourse features)
A prepayment feature is consistent with the solely
payments of principal and interest criterion if the
prepayment amount substantially represents unpaid
amounts of principal and interest on the principal amount
outstanding, which may include reasonable additional
compensation for early termination of the contract.
Additionally, for a financial asset acquired at a significant
discount or premium to its contractual par amount, a
feature that permits or requires prepayment at an amount
that substantially represents the contractual par amount
plus accrued (but unpaid) contractual interest (which may
also include reasonable additional compensation for early
termination) is treated as consistent with this criterion if
the fair value of the prepayment feature is insignificant at
initial recognition.
Foreign exchange gains and losses
The carrying amount of financial assets that are
denominated in a foreign currency is determined in that
foreign currency and translated at the spot rate at the end
of each reporting period. Specifically:
i. for financial assets measured at amortised cost that
are not part of a designated hedging relationship,
exchange differences are recognised in profit or loss
in the 'other income' line item;
ii. for debt instruments measured at FVTOCI that are not
part of a designated hedging relationship, exchange
differences on the amortised cost of the debt instrument
are recognised in profit or loss in the 'other income'
line item. As the foreign currency element recognised
in profit or loss is the same as if it was measured at
amortised cost, the residual foreign currency element
based on the translation of the carrying amount (at fair
value) is recognised in other comprehensive income in
a separate component of equity;
iii. for financial assets measured at FVTPL that are not
part of a designated hedging relationship, exchange
differences are recognised in profit or loss in the
'other income' line item as part of the fair value gain
or loss; and
iv. for equity instruments measured at FVTOCI,
exchange differences are recognised in other
comprehensive income in a separate component of
equity.
Impairment of financial assets
The Company recognises a loss allowance for expected
credit losses on investments in debt instruments that are
measured at amortised cost or at FVTOCI, lease receivables,
trade receivables and contract assets, financial guarantee
contracts and certain other financial assets measured at
amortised cost such as deferred consideration receivable
on disposable of subsidiaries. The amount of expected
credit losses is updated at each reporting date to reflect
changes in credit risk since initial recognition of the
respective financial instrument.
The Company always recognises lifetime expected credit
losses (ECL) for trade receivables, contract assets and lease
receivables. The expected credit losses on these financial
assets are estimated using a provision matrix based on the
Company's historical credit loss experience, adjusted for
factors that are specific to the debtors, general economic
conditions and an assessment of both the current as well
as the forecast direction of conditions at the reporting
date, including time value of money where appropriate.
For all other financial instruments, the company recognises
lifetime ECL when there has been a significant increase
in credit risk since initial recognition. However, if the
credit risk of the financial instrument has not increased
significantly since initial recognition, the Company
measures the loss allowance for that financial instrument
at an amount equal to 12 month ECL.
Lifetime ECL represents the expected credit losses that will
result from all possible default events over the expected
life of a financial instrument. In contrast, 12-month ECL
represents the portion of lifetime ECL that is expected to
result from default events on a financial instrument that
are possible within 12 months after reporting date.
(i) Significant increase in credit risk
In assessing whether the credit risk on a financial
instrument has increased significantly since initial
recognition, the Company compares the risk of
a default occurring on the financial instrument
at the reporting date with the risk of a default
occurring on the financial instrument at the date of
initial recognition. In making this assessment, the
company considers both quantitative and qualitative
information that is reasonable and supportable,
including historical experience and forward-looking
information that is available without undue cost
or effort. Forward-looking information considered
includes the future prospects of the industries in
which the Company's debtors operate, obtained
from economic expert reports, financial analysts,
governmental bodies, relevant think-tanks and
other similar organisations, as well as consideration
of various external sources of actual and forecast
economic information that relate to the Company's
core operations.
In particular, the following information is taken into
account when assessing whether credit risk has
increased significantly since initial recognition:
i. an actual or expected significant deterioration
in the financial instrument's external (if
available) or internal credit rating;
ii. significant deterioration in external market
indicators of credit risk for a particular financial
instrument,
iii. existing or forecast of adverse changes in
business, financial or economic conditions that
are expected to cause a significant decrease in
the debtor's ability to meet its debt obligations;
iv. an actual or expected significant deterioration
in the operating results of the later;
v. significant increases in credit risk on other
financial instruments of the same debtor; And
vi. an actual or expected significant adverse
change in the regulatory, economic, or
technological environment of the debtor that
results in a significant decrease in the debtor's
ability to meet it's debt obligations.
Despite the foregoing, the Company assumes
the credit risk on a financial instrument has not
increased significantly since initial recognition if the
financial instrument is determined to have low credit
risk at the reporting date. A financial instrument is
determined to have low credit risk if:
i. the financial instrument has a low risk of default;
ii. the debtor has a strong capacity to meet its
contractual cash flow obligations in the near
term; and
iii. adverse changes in economic and business
conditions in the longer term may, but will not
necessarily, reduce the ability of the borrower
to fulfil its contractual cash flow obligations.
(ii) Definition of Default
The Company considers the following as
constituting an event of default for internal credit
risk management purposes as historical experience
indicates that financial assets that meet either of the
following criteria are generally not recoverable:
i. When there is a breach of financial covenants
by the debtor; or
ii. Information developed internally or obtained
from external sources indicates that the debtor
is unlikely to pay its creditors, including the
Company, in full.
Irrespective of the above analysis, the Company
consider the default is occurred when a financial
asset is more than 180 days past due.
(iii) Credit-impaired financial assets
A financial asset is credit-impaired when one or
more events that have a detrimental impact on the
estimated future cash flows of that financial asset
have occurred. Evidence that a financial asset is
credit-impaired includes observable data about the
following events:
i. significant financial difficulty of the issuer or
the borrower;
ii. a breach of contract, such as a default or past
due event;
iii. the lender(s) of the borrower, for economic or
contractual reasons relating to the borrower's
financial difficulty, having granted to the
borrower a concession that the lender would
not otherwise consider;
iv. It is becoming probable that the borrower
will enter bankruptcy or other financial
reorganisation: or
v. The disappearance of an active market for that
financial asset because of financial difficulties.
(iv) Measurement and recognition of expected
credit losses
The measurement of expected credit losses is a
function of the probability of default, loss given
default (i.e. the magnitude of the loss if there is a
default) and the exposure at default. The assessment
of the probability of default and loss given default is
based on historical data adjusted by forward-looking
information.
As for the exposure at default, for financial assets,
this is represented by the assets' gross carrying
amount at the reporting date. For financial assets,
the expected credit loss is estimated as 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,
discounted at the original effective interest rate.
If the Company has measured the loss allowance
for the financial instrument at an amount equal to
lifetime ECL in the previous reporting period, but
determines at the current reporting date that the
conditions for lifetime ECL are no longer met, the
company measures the loss allowance at an amount
equal to 12-month ECL at the current reporting date,
except for assets for which the simplified approach
was used.
The Company recognises an impairment gain or loss
in profit or loss for all financial instruments with the
corresponding adjustment to the carrying amount
through a loss allowance account.
(v) Derecognition of Financial Assets
The Company derecognises a financial asset only
when the contractual rights to the cash flows from
the asset expire, or when it transfers the financial
asset and substantially all the risks and rewards
of ownership of the asset to another entity. If the
Company neither transfers nor retains substantially
all the risks and rewards of ownership and continues
to control the transferred asset, the Company
recognises its retained interest in the asset and an
associated liability for amounts it may have to pay.
If the Company retains substantially all the risks
and rewards of ownership of a transferred financial
asset, the Company continues to recognise the
financial asset and also recognises the collateralized
borrowing for the proceeds received.
On derecognition of a financial asset measured at
amortised cost, the difference between the assets
carrying amount and the sum of the consideration
received and receivable is recognised in profit or loss.
In addition, on the derecognition of an investment
in a debt instrument classified as at FVTOCI, the
cumulative gain or loss previously accumulated
in a separate component of equity is reclassified
to profit or loss. In contrast, on the derecognition
of an investment in an equity instrument which
the Company has elected on initial recognition to
measure at FVTOCI, the cumulative gain or loss
previously accumulated in a separate component
of equity is not reclassified to profit or loss, but is
transferred to retained earnings.
S. FINANCIAL LIABILITIES AND EQUITY
Classification as debt or equity
Debt and equity instruments are classified as either
financial liabilities or as equity in accordance with
the substance of the contractual agreements and
the definitions of a financial liability and an equity
instrument.
Equity Instruments
An equity instrument is any contract that evidences a
residual interest in the assets of an entity after deducting
all of its liabilities. Equity instruments issued by the
Company are recognised at the proceeds received, net or
direct issue costs.
Repurchase of the Company's own equity instruments
is recognised and deducted directly in equity. No gain
or loss is recognised in profit or loss on the purchase,
sale, issue or cancellation of the Company's own equity
instruments.
Financial Liabilities
All financial liabilities are measured subsequently at amortised
cost using the effective interest method or at FVTPL.
However, financial liabilities that arise when a transfer of
a financial asset does not qualify for the derecognition
or when the continuing involvement approach applies
are measured in accordance with the specific accounting
policies set out below.
Financial Liabilities at FVTPL
Financial liabilities are classified as at FVTPL when the
financial liability is (i) contingent consideration of an
acquirer in a business combination, (ii) held for trading or
(iii) it is designated as at FVTPL.
Or financial liabilities classified as held for trading if:
i. it has been acquired principally for the purpose of
repurchasing it in the near term; or
ii. on initial recognition it is part of a portfolio of
identified financial instruments that the company
manages together and has a recent actual pattern of
short-term profit-taking; or
iii. it is a derivative, except for a derivative that is
financial guarantee contract or designated an
effective hedging instrument.
Financial liabilities at FVTPL are measured at fair value,
with any gains or losses arising on changes in fair value
recognised in profit or loss to the extent that they are
not forming part of a designated hedging relationship.
The net gain or loss recognised in profit or loss
incorporates any interest paid on the financial liability
and is included in the 'other income' line item in profit
or loss.
However, for financial liabilities that are designated as
at FVTPL, the amount of change in the fair value of the
financial liability that is attributable to changes in the credit
risk of that liability is recognised in other comprehensive
income, unless the recognition of the effects of changes
in the liability's credit risk in other comprehensive income
would create or enlarge an accounting mismatch in profit
or loss. The remaining amount of change in the fair value
of the liability is recognised in profit or loss. Changes in
fair value attributable to a financial liability's credit risk
that are recognized in other comprehensive income are
recognized in retained earnings.
Financial Liabilities are subsequently measured at
amortised cost.
Financial liabilities that are not (i) contingent consideration
of an acquirer in a business combination, (ii) held-for-
trading, or (iii) designated as at FVTPL, are measured
subsequently at amortised cost using the effective interest
method.
The effective interest method is a method of calculating
the amortised cost of financial liability and of allocating
interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated
future cash payments (including all fees and points paid or
received that form an integral part of the effective interest
rate, transaction costs and other premiums or discounts)
through the expected life of the financial liability, or
(where appropriate) a shorter period, to the amortised
cost of a financial liability.
Foreign Exchange gains or losses
For financial liabilities that are denominated in a foreign
currency and are measured at amortised cost at the end
of each reporting period, the foreign exchange gains and
losses are determined based on the amortised cost of the
instrument. These foreign exchange gains and losses are
recognised in the 'other income' line item in profit or loss
for financial liabilities that are not part of a designated
hedging relationship. For those which are designated as a
hedging instrument for a hedge of foreign currency risk,
foreign action gains and losses are recognised in other
comprehensive income and accumulated in a separate
component of equity.
The fair value of financial liabilities denominated in
foreign currency is determined in that foreign currency
and translated at the spot rate at the end of the reporting
period. For financial liabilities that are measured as at
FVTPL, the foreign exchange component forms part of the
fair value gains or losses and is recognised in profit or loss
for financial liabilities that are not part of a designated
hedging relationship.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and
only when, the Company's obligations are discharged,
cancelled or have expired. the difference between the
carrying amount of the financial liability derecognised and
the consideration paid and payable is recognised in profit
or loss.
When the Company exchanges with the existing lender
one debt instrument into another one with substantially
different terms, such exchanges accounted for as an
extinguishment of the original financial liability and
the recognition of a new financial liability. Similarly, the
Company accounts for substantial modification of terms
of an existing liability or part of it as an extinguishment
of the original financial liability and the recognition of a
new liability. It is assumed that the terms are substantially
different if the discounted present value of the cash flows
under the new terms, including any fees paid net of any
fees received and discounted using the original effective
rate is at least 10 percent different from the discounted
present value of the remaining cash flows of the original
financial liability. If the modification is not substantial, the
difference between: (1) the carrying amount of the liability
before the modification; and (2) the present value of the
cash flows after modification is recognised in profit or loss
as the modification gain or loss within 'other income'.
Derivative Financial Instruments-
The Company holds derivative financial instruments such
as foreign exchange forward contracts to mitigate the
risk of changes in exchange rates on foreign currency
exposures. Embedded derivatives are separated from
the host contract and accounted for separately if the
host contract is not a financial asset and certain criteria
are met. The Company does not use derivative financial
instruments for speculative purposes. The counterparty
to the Company's foreign currency forward contracts is
generally a bank.
Derivatives not designated as hedges are recognized
initially at fair value and attributable transaction costs
are recognized in the statement of profit and loss,
when incurred. Subsequent to initial recognition, these
derivatives are measured at fair value through profit or loss
and the resulting exchange gains or losses are included
in other income. Assets/ liabilities in this category are
presented as derivative contract assets/derivative contract
liabilities if they are either held for trading or are expected
to be realized within 12 months after the balance sheet
date.
T. MEASUREMENT OF FAIR VALUE
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,
regardless of whether that price is directly observable or
estimated using another valuation technique. In estimating
the fair value of an asset or a liability, the Company takes
into account the characteristics of the asset or the liability
if market participants would take those characteristics
into account when pricing the asset or liability at the
measurement date.
A number of accounting policies and disclosures require
the measurement of fair values, for both financial and
non-financial assets and liabilities.
The company has an established control framework with
respect to measurement of fair values.
Fair values are categorized into different levels in fair value
hierarchy based on inputs used in the valuation techniques
as follows:
i. Level 1: quoted prices (unadjusted) in active markets
for identical assets or liabilities
ii. 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).
iii. 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 categorized
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 recognizes transfers between levels of the
fair value hierarchy at the end of the reporting period
during which the change has occurred.
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