3. Material Accounting Policies
3.1 Financial instruments
Recognition and initial measurement
Receivables issued are initially recognised when they are originated. All other financial assets and liabilities are initially recognised when
the Company becomes a party to the contractual provisions of the instrument.
A financial asset (unless it is a receivable without a significant financing component) or financial liability is initially measured at fair value
plus or minus, for an item not at (FVTPL), transaction costs that are directly attributable to its acquisition or issue. A receivable without a
significant financing component is initially measured at the transaction price.
Classification and subsequent measurement
i) Financial assets
On initial recognition, a financial asset is classified and measured at:
• Amortised cost; or
• Fair value through other comprehensive income (FVOCI); or
• Fair value through profit or loss (FVTPL).
Financial assets are not reclassified subsequent to their initial recognition, except if and in the period the Company changes its
business model for managing financial assets.
ii) Financial assets at amortised cost
A financial assets is measured at amortised cost if it meet both of the following conditions and is not designated as at FVTPL:
• The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash
flows; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and
interest (SPPI) on the principal amount outstanding.
The details of these conditions are outlined below.
Business model assessment
The Company determines its business model at the level that best reflects how it manages the Company's of financial assets to
achieve its business objective.
The Company's business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios
and is based on observable factors such as:
• How the performance of the business model and the financial assets held within that business model are evaluated and reported
to the entity's key management personnel;
• The risks that affect the performance of the business model (and the financial assets held within that business model) and, in
particular, the way those risks are managed;
• How managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets
managed or on the contractual cash flows collected);
• The expected frequency, value and timing of sales are also important aspects of the Company's assessment.
The business model assessment is based on reasonably expected scenarios without taking 'worst case' or 'stress case' scenarios into
account. If cash flows after initial recognition are realised in a way that is different from the Company's original expectations, the
Company does not change the classification of the remaining financial assets held in that business model, but incorporates such
information when assessing newly originated or newly purchased financial assets going forward.
The SPPI test
As a second step of its classification process the Company assesses the contractual terms of financial to identify whether they meet
the SPPI test.
'Principal' for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the
life of the financial asset (for example, if there are repayments of principal or amortisation of the premium / discount).
The most significant elements of interest within a lending arrangement are typically the consideration for the time value of money
and credit risk. To make the SPPI assessment, the Company applies judgment and considers relevant factors such as the currency in
which the financial asset is denominated, and the period for which the interest rate is set.
In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual cash flows that
are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely payments of principal and
interest on the amount outstanding. In such cases, the financial asset is required to be measured at FVTPL.
iii) Financial assets at FVOCI
On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent
changes in the investment's fair value in OCI (designated as FVOCI - equity investment). This election is made on an investment-by¬
investment basis.
Financial assets are measured at the FVOCI if both of the following conditions are met:
• The objective of the business model is achieved both by collecting contractual cash flows and selling the financial assets
• The asset's contractual cash flows represent SPPI.
Financial assets included within the FVOCI category are measured initially as well as at each reporting date at fair value. Fair value
movements are recognised in the other comprehensive income (OCI).
iv) Financial assets at FVTPL
All financial assets which do not meet the criteria for categorisation as at amortised cost or FVOCI as described above are classified
as at FVTPL. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements
to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that
would otherwise arise.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at
FVTPL.
Financial assets: Assessment whether contractual cash flows are SPPI.
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 SPPI, 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:
- contingent events that would change the amount or timing of cash flows;
- terms that may adjust the contractual coupon rate, including variable interest rate features;
- prepayment and extension features; and
- 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.
vi) Financial liabilities: Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortised cost or FVTPL.
vii) Financial liabilities at FVTPL
A financial liability is classified as at FVTPL if it is classified as held-for-trading, or it is a derivative or it is designated as such on initial
recognition. Financial liabilities at FVTPL are measured at fair value and net gains and losses, including any interest expense, are
recognised in Statement of Profit and Loss.
viii) Financial liabilities at amortised cost
Subordinated liabilities and other financial liabilities are subsequently measured at amortised cost using the effective interest (EIR)
method. Interest expense and foreign exchange gains and losses are recognised in Statement of Profit and Loss.
Any gain or loss on derecognition is also recognised in Statement of Profit and Loss.
Interest bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are
recognised in Statement of Profit and Loss when the liabilities are derecognised as well as through the EIR amortisation process.
For trade and other payables maturing within one year from the balance sheet date, the carrying amounts approximates fair value
due to the short maturity of these instruments.
Derecognition
i) Financial assets
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it
transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of
ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks
and rewards of ownership and does not retain control of the financial asset.
If the Company enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all or
substantially all of the risks and rewards of the transferred assets, the transferred assets are not derecognised.
ii) Financial liabilities
The Company derecognises a financial liability when its contractual obligations are discharged or cancelled or expired.
The Company also derecognises a financial liability when its terms are modified and the cash flows under the modified terms are
substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference
between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised
in Statement of Profit and Loss.
Offsetting
Financial assets and financial liabilities are offset and the net amount presented in the balance sheet when and only when, the
Company currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to
realise the asset and settle the liability simultaneously.
Impairment
i) Impairment of financial assets
At each reporting date, the Company assess whether financial assets, than those at FVTPL are credit-impaired. A financial asset is
'credit- impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset
have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
- significant financial difficulty of the borrower or issuer;
- a breach of contract such as a default or being past due for 90 days or more; or
- it is probable that the borrower will enter bankruptcy or other financial reorganisation.
The Company recognises loss allowances using the expected credit losses (ECL) model for the financial assets which are fair valued
through profit or loss.
The amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount
that is required to be recognised is recognised as an impairment gain or loss in Statement of Profit and Loss.
In case of receivables, the Company follows the simplified approach permitted by Ind AS 109 Financial Instruments for recognition
of impairment loss allowance. The application of simplified approach does not require the Company to track changes in credit risk.
The Company calculates the expected credit losses on receivables using a provision matrix on the basis of its historical credit loss
experience.
For all other financial assets, expected credit losses are measured unless there has been a significant increase in credit risk from
initial recognition in which case those are measured at lifetime ECL.
When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when
estimating expected credit losses, the Company considers reasonable and supportable information that is relevant and available
without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company's
historical experience and informed credit assessment and including forward-looking information.
(a) Measurement of expected credit losses
Expected credit losses are a probability weighted estimate of credit losses. Credit losses are measured as the present value of all
cash shortfalls (i.e. the difference between the cash flows due to the Company in accordance with the contract and the cash flows
that the Company expects to receive).
(b) Presentation of allowance for expected credit losses in the balance sheet
Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets.
(c) Write-off
The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect
of recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income
that could generate sufficient cash flows to repay the amounts subject to the write off. However, financial assets that are written
off could still be subject to enforcement activities in order to comply with the Company's procedures for recovery of amounts due.
(ii) Impairment of non-financial assets
The Company's non-financial assets, other than biological assets, inventories and deferred tax assets, are reviewed at each reporting
date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount
is estimated.
For impairment testing, assets that do not generate independent cash inflows are Companied together into cash-generating units
(CGUs). Each CGU represents the smallest Company of assets that generates cash inflows that are largely independent of the cash
inflows of other assets or CGUs.
The recoverable amount of a CGU (or an individual asset) is the higher of its value in use and its fair value less costs to sell. Value in
use is based on the estimated future cash flows, 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 CGU (or the asset).
The Company's corporate assets (e.g., central office building for providing support to various CGUs) do not generate independent
cash inflows. To determine impairment of a corporate asset, recoverable amount is determined for the CGUs to which the corporate
asset belongs.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its estimated recoverable amount. Impairment
losses are recognised in the statement of profit and loss. Impairment loss recognised in respect of a CGU is allocated to reduce the
carrying amounts of the other assets of the CGU (or Company of CGUs) on a pro rata basis.
In respect of other assets for which impairment loss has been recognised in prior periods, the Company reviews at each reporting
date whether there is any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been
a change in the estimates used to determine the recoverable amount. Such a reversal is made only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
3.2 Cash and cash equivalents
Cash and cash equivalent in the balance sheet comprise cash at banks and on hand and short-term deposits with an original
maturity of three months or less, which are subject to an insignificant risk of changes in value.
For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above, net
of outstanding bank overdrafts as they are considered an integral part of the Company's cash management.
3.3 Investment properties
Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties
are stated at cost less accumulated depreciation and accumulated impairment loss, if any.
When significant parts of the investment 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 profit or loss as incurred.
Depreciation is calculated using the straight-line method to write down the cost of investment properties to their residual values over
their estimated useful lives. Land recognised as investment properties is not depreciated.
The estimated useful lives are, as follows:
- Buildings 60 years
The Company depreciates property, plant and equipment over the useful life prescribed in Schedule II to the Companies Act, 2013.
The Company, based on technical assessment made by management's expert and management estimate, depreciates the building
components over their estimated useful lives which are different from the useful life prescribed in Schedule II to the Companies Act, 2013.
The management believes that these estimated useful lives are realistic and reflect fair approximation of the period over which the assets
are likely to be used.
Though the Company measures investment property using cost model, the fair value of investment property is disclosed in the notes. Fair
values are determined based on technical assessment made by management's expert.
Investment properties are derecognised either when they have been disposed of 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
(net) of the asset is recognised in profit or loss in the period of derecognition. In determining the amount of consideration from the
derecognition of investment property, the Company considers the effects of variable consideration, existence of a significant financing
component, non-cash consideration, and consideration payable to the buyer (if any).
Transfers are made to (or from) investment property only when there is a change in use.
3.4 Property, plant and equipment
Property plant and equipment is stated at cost excluding the costs of day-to-day servicing, less accumulated depreciation and
accumulated impairment in value. Changes in the expected useful life are accounted for by changing the amortisation period or
methodology, as appropriate, and treated as changes in accounting estimates.
Depreciation is calculated using the straight-line method to write down the cost of property, plant and equipment to their residual values
over their estimated useful lives. Land recognised as properties, plant and equipment is not depreciated.
The Company depreciates property, plant and equipment over the useful life prescribed in Schedule II to the Companies Act, 2013.
The estimated useful lives are, as follows:
- Buildings 30 years
- Furniture and Fixtures 10 years
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end
and adjusted prospectively, if appropriate.
Property plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or
loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the
asset) is recognised in other income / expense in the statement of profit and loss in the year the asset is derecognised. The date of disposal
of an item of property, plant and equipment is the date the recipient obtains control of that item in accordance with the requirements for
determining when a performance obligation is satisfied in Ind AS 115.
|