D. MATERIAL ACCOUNTING POLICY INFORMATION
i) Basis of Preparation
These financial statements are prepared under the historical cost convention on the accrual basis except for certain
financial instruments which are measured at fair values which are disclosed in the Financial Statements, the provisions
of the Companies Act, 2013 ('Act') (to the extent notified).
The classification of assets and liabilities of the Company is done into current and non-current based on the operating
cycle of the business of the Company. The operating cycle of the business of the Company is less than twelve months
and therefore all current and non-current classifications are done based on the status of realisability and expected
settlement of the respective asset and liability within a period of twelve months from the reporting date as required by
Schedule III to the Companies Act, 2013.
Accounting policies have been consistently applied except whereas newly issued accounting standard is initially adopted
or a revision to an existing accounting standard requires a change in the accounting policy hitherto in use.
The financial statements are presented in Indian Rupees (‘INR’) and all values are rounded to the nearest crore, except
otherwise indicated.
ii) Revenue Recognition
The Company undertakes Engineering, Procurement and Construction business. The ongoing contracts with customers
are for construction of highways, water pipeline projects construction of residential & commercial buildings, and others.
The type of work in these contracts involve construction, engineering, designing, supply of materials, development of
system, installation, project management, operations and maintenance etc.
Construction Activity
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 Companies performance creates or enhances an asset that the customer controls as the asset is created or
enhanced and as per the terms of the contract, the Company has an enforceable right to payment for performance
completed till date. Hence the Company transfers control of a good or service over time and, therefore, satisfies a
performance obligation and recognises revenue over time. The Company recognises revenue at the transaction price
which is determined on the basis of agreement entered into with the customer. The Company recognises revenue for
performance obligation satisfied over time only if it can reasonably measure its progress towards complete satisfaction
of the performance obligation. The Company would not be able to reasonably measure its progress towards complete
satisfaction of a performance obligation if it lacks reliable information that would be required to apply an appropriate
method of measuring progress. In those circumstances, the Company recognises revenue only to the extent of cost
incurred until it can reasonably measure outcome of the performance obligation.
Awards & Claims
• The awards are recognised as revenue as soon as the Company receives an award determining the quantum of
award pursuant to arbitration or other conciliation process
• The Company has claims in respect of cost over-run arising due to client caused delays, suspension of projects,
deviation in design and change in scope of work etc., which are at various stages of negotiation/discussion with
the clients or under arbitration. The realisability of these claims are estimated based on contractual terms, historical
experience with similar claims as well as legal opinion obtained from internal and external experts, wherever
necessary. Changes in facts of the case or the legal framework may impact realisability of these claims
Measurement of performance obligation
The Company uses cost based input method for measuring progress for performance obligation satisfied over time.
Under this method, the Company recognises revenue in proportion to the actual project cost incurred as against the total
estimated project cost. The management reviews and revises its measure of progress periodically and are considered as
change in estimates and accordingly, the effect of such changes in estimates is recognised prospectively in the period in
which such changes are determined.
Contract costs
Costs related to work performed in projects are recognised on an accrual basis. Costs incurred in connection with the
work performed are recognised as an expense.
Provision for future losses
Provision for future losses are recognised as soon as it becomes evident that the total costs expected to be incurred in
a contract exceed the total expected revenue from that contract.
Contract balances
Contract assets
A contract asset is recognised for amount of work done but pending billing/acknowledgement by customer or amounts
billed but payment is due on completion of future performance obligation, since it is conditionally receivable. The provision
for Expected Credit Loss on contract assets is made on the same basis as financial assets as stated in notes to financial
statement.
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
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
advance payments 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 consideration received.
Turnover
Turnover represents work certified upto and after taking into consideration the actual cost incurred and the profit evaluated
by adopting the percentage of work completion method of accounting.
Interest 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 amortized 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. Interest income is included in other income in the statement of profit and loss.
Other Revenues
All other revenues are recognized on accrual basis
iii) Joint Ventures
a) Joint Venture Contracts under Consortium are accounted as independent contracts to the extent of work completion.
b) In Joint Venture Contracts under Profit Sharing Arrangement, services rendered to Joint Ventures are accounted as
income on accrual basis, profit or loss is accounted as and when determined by the Joint Venture and net investment
in Joint Venture is reflected as investments or loans & advances or current liabilities.
iv) Employee benefits
All employee benefits payable wholly within twelve months rendering services are classified as short term employee
benefits. Benefits such as salaries, wages, short-term compensated absences, performance incentives etc., and the
expected cost of bonus, ex-gratia are recognized during the period in which the employee renders related service.
Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered
the service entitling them to the contribution.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method with
actuarial valuations being carried out at each balance sheet date, which recognizes each period of service as giving rise
to additional unit of employee benefit entitlement and measure each unit separately to build up the final obligation.
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 recognized immediately in the balance sheet with a corresponding debit or credit
to other comprehensive income in the period in which they occur. Remeasurements are not reclassified to the statement
of profit and loss in subsequent periods. Past service cost is recognized in the statement of profit and loss in the period
of plan amendment.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset.
The Company recognizes the following changes in the net defined benefit obligation under employee benefit expenses
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,
• Net interest expense or income.
Long-term employee benefits
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 at the present value of the defined benefit obligation
at the balance sheet date.
Termination benefits
Termination benefits are recognized as an expense in the period in which they are incurred.
v) Property, plant and equipment
Property, plant and equipment are stated at cost/deemed cost net of tax/duty credit availed, less accumulated depreciation
and accumulated impairment losses, if any. When significant parts of property, plant and equipment are required to be
replaced at intervals, the Company derecognizes the replaced part, and recognizes the new part with its own associated
useful life and it is depreciated accordingly. Likewise, when a major inspection is performed, its cost is recognized 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 recognized in the statement of profit and loss as incurred.
Capital work-in-progress includes cost of property, plant and equipment under installation/under development as at the
balance sheet date.
Property, plant and equipment are derecognised from financial statement, either on disposal or when retired from active
use. Losses arising in the case of retirement of property, plant and equipment and gains or losses arising from disposal
of property, plant and equipment are recognized in the statement of profit and loss in the year of occurrence.
The assets' residual values, useful lives and methods of depreciation are reviewed at each financial year end and
adjusted prospectively, if appropriate.
Depreciation on the property, plant and equipment is provided over the useful life of assets as specified in Schedule II to
the Companies Act, 2013 or as determined by the Independent Valuer as the case maybe . Property, plant and equipment
which are added / disposed off during the year, depreciation is provided on pro-rata basis with reference to the month of
addition / deletion.
vi) Leases
The Company's lease asset classes primarily consist of leases for land and buildings. 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.
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.
Certain lease arrangements includes the options to extend or terminate the lease before the end of the lease term. ROU
assets and lease liabilities includes these options when it is reasonably certain that they will be exercised.
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 of the lease
term and useful life of the underlying asset. Right of use assets are evaluated for recoverability whenever events or
changes in circumstances indicate that their carrying amounts may not be recoverable. For the purpose of impairment
testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on
an individual asset basis unless the asset does not generate cash flows that are largely independent of those from other
assets. In such cases, the recoverable amount is determined for the Cash Generating Unit (CGU) to which the asset
belongs.
The lease liability is initially measured at amortized cost at the present value of the future lease payments. The lease
payments are discounted using the interest rate implicit in the lease or, if not readily determinable, using the incremental
borrowing rates in the country of domicile of these leases. Lease liabilities are remeasured with a corresponding
adjustment to the related right of use asset if the Company changes its assessment if whether it will exercise an extension
or a termination option.
Lease liability and ROU asset have been separately presented in the Balance Sheet and lease payments have been
classified as financing cash flows.
vii) Intangible assets
Intangible assets are recognized when it is probable that the future economic benefits that are attributable to the assets
will flow to the Company and the cost of the asset can be measured reliably.
Internally generated intangibles, excluding capitalized development costs, are not capitalized and the related expenditure
is reflected in profit and loss in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed finite. The amortization period and the amortization method for an
intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected
useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to
modify the amortization period or method, as appropriate, and are treated as changes in accounting estimates.
Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever
there is an indication that the intangible asset may be impaired.
Intangible Assets without finite life are tested for impairment at each Balance Sheet date and Impairment provision, if any
are debited to profit and loss.
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 recognized in the statement of profit and loss when the
asset is derecognized.
viii) Impairment of Non-financial Assets
On annual basis the Company makes an assessment of any indicator that may lead to impairment of assets. An asset is
treated as impaired when the carrying cost of asset exceeds its recoverable value. Recoverable amount is higher of an
asset's fair value less cost to sell.
An impairment loss is charged to the Statement of Profit and Loss in the year in which an asset is identified as impaired.
The impairment loss recognized in prior accounting period is reversed if there has been a change in the estimate of
recoverable amount.
ix) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits with banks which are short-term, highly liquid
investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes
in value.
x) Inventories
Material at Construction Site are valued at lower of cost and net realisable value. Costs are valued at net of Goods and
service Tax wherever applicable. Stores and spares, loose tools are valued at cost except unserviceable and obsolete
items that are valued at estimated realisable value thereof. Costs are determined on Weighted Average Method.
Work In Progress on construction contracts are carried at lower of assessed value of work done less bill certified and net
realisable value.
Real Estate : Work In Progress on construction contracts reflects value of land, material inputs and project expenses.
Other -Scrap Material - At net realisable value
xi) Foreign currency transactions
The Company's financial statements are presented in INR, which is also the Company's functional currency.
Foreign currency transactions are recorded on initial recognition in the functional currency, using the exchange rate at
the date of the transaction. At each balance sheet date, foreign currency monetary items are reported using the closing
exchange rate. Exchange differences that arise on settlement of monetary items or on reporting at each balance sheet
date of the Company's monetary items at the closing rate are recognized as income or expenses in the period in which
they arise. Non-monetary items which are carried at historical cost denominated in a foreign currency are reported using
the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary
items is recognized in line with the gain or loss of the item that gave rise to the translation difference.
xii) Borrowing Cost
Borrowing costs directly attributable to the acquisition or construction of qualifying assets are capitalized as a part of
the cost of such asset till such time the asset is ready for its intended use or sale. A qualifying asset is an asset that
necessarily requires a substantial period of time (generally over twelve months) to get ready for its intended use or sale.
Other borrowing costs are recognized as expenses in the period in which they are incurred.
In determining the amount of borrowing costs eligible for capitalization during a period, any income earned on the
temporary investment of those borrowings is deducted from the borrowing costs incurred.
xiii) Taxes on income
Current Taxes
Tax on income for the current period is determined on the basis of estimated taxable income and tax credits computed in
accordance with the provisions of the relevant tax laws and based on the expected outcome of assessments/ appeals.
Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of
profit and loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which
applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is provided using the balance sheet approach on temporary differences at the reporting date between the
tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
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 utilized.
Unrecognized deferred tax assets are reassessed at each reporting and are recognized 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 realized or liability settled, based on the tax rates (tax laws) that have been enacted or substantively enacted at the
reporting date.
Deferred tax relating to items recognized outside the statement of profit and loss is recognized outside the statement of
profit and loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive
income or directly 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 income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation
authority.
The break-up of major components of deferred tax assets and liabilities as at balance sheet date has been arrived at after
setting off deferred tax assets and liabilities where the Company have a legally enforceable right to set-off assets against
liabilities and where such assets and liabilities relate to taxes on income levied by the same governing taxation laws.
|