3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared using the significant accounting policies and measurement bases
summarised as below. These policies are applied consistently for all the periods presented in the financial
statements, except where the Company has applied certain accounting policies and exemptions upon transition to
Ind AS.
3.1 Property, plant and equipment:
a. Recognition and initial measurement
Property, plant and equipment are stated at their cost of acquisition. The cost comprises purchase price,
borrowing cost if capitalisation criteria are met and directly attributable cost of bringing the asset to its
working condition for the intended use. Any trade discount and rebates are deducted in arriving at the
purchase price.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Company and the cost of the item can be measured reliably. All other repair and maintenance costs are
recognised in statement of profit and loss.
b. Subsequent measurement (depreciation method, useful lives and residual value)
Property, plant and equipment are subsequently measured at cost less accumulated depreciation and
impairment losses. Depreciation on property, plant and equipment is provided on the written down
method over the useful life of the assets as prescribed under Part ‘C’ of Schedule II of the Companies Act,
2013.
Depreciation is calculated on pro rata basis from the date on which the asset is ready for use or till the date
the asset is sold or disposed.
The residual values, useful lives and method of depreciation are reviewed at the end of each financial year.
c. De-recognition
An item of property, plant and equipment and any significant part initially recognised is de-recognised
upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss
arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is recognised in the statement of profit and loss, when the asset is de¬
recognised.
d. Capital work-in-progress
Capital work-in-progress is carried at cost, comprising direct cost and related incidental expenses acquire
property, plant and equipment. Assets which are not ready to intended use are also shown under capital
work-in-progress.
e. Transition to Ind AS
The Company has elected to measure all its property, plant and equipment at the previous GAAP carrying
amount as its deemed cost on the date of transition of Ind AS i.e. April 1, 2018.
3.2 Intangible assets:
a. Recognition and initial measurement
Intangible assets are stated at their cost of acquisition. The cost comprises purchase price including any
import duties and other taxes (other than those subsequently recoverable from taxation authorities),
borrowing cost if capitalisation criteria are met and directly attributable cost of bringing the asset to its
working condition for the intended use.
b. Subsequent measurement (amortisation method, useful lives and residual value)
Intangible assets are amortised over a period of 3 years from the date when the assets are available for use.
T he estimated useful life (amortisation period) of the intangible assets is arrived basis the expected pattern
of consumption of economic benefits and is reviewed at the end of each financial year and the amortisation
period is revised to reflect the changed pattern, if any.
c. Transition to Ind AS
The Company has elected to measure all its intangible assets at the previous GAAP carrying amount as its
deemed cost on the date of transition of Ind AS i.e. April 1, 2018.
3.3 Revenue Recognition:
a. Sale of assets
Revenue from the sale of assets (shares and securities) is recognised when the significant risks and rewards
of ownership have passed to the buyer, based on the applicable terms. The Company recognises revenue
when the amount of revenue can be reliably measured, it is probable that future economic benefits will
flow to the Company and the revenue recognition criteria have been complied.
b. Interest
Interest income from a financial asset is recognised when it is probable that the economic benefits will flow
to the Company and the amount of income can be measured reliably. Interest income is accrued on a time
basis, by reference to the amortised cost and at the effective interest rate applicable.
c. Dividend income
Dividend income is recognised at the time when the right to receive is established by the reporting date.
d. Miscellaneous income
All other income is recognised on an accrual basis, when there is no uncertainty in the ultimate
realisation/collection.
3.4 Borrowing costs:
Borrowing costs that are directly attributable to the acquisition and/or construction of a qualifying asset, till
the time such qualifying assets become ready for its intended use, are capitalised. Borrowing cost consists of
interest and other cost that the Company incurred in connection with the borrowing of funds. A qualifying
asset is one that necessarily takes substantial period of time to get ready for its intended use. All other
borrowing costs are charged to the Statement of Profit and Loss as incurred basis the effective interest rate
method.
3.5 Taxation
Tax expense recognised in Statement of Profit and Loss comprises the sum of deferred tax and current tax
except to the extent it recognised in other comprehensive income or directly in equity.
Current tax comprises the tax payable or receivable on taxable income or loss for the year and any adjustment
to the tax payable or receivable in respect of previous years. Current tax is computed in accordance with
relevant tax regulations. The amount of current tax payable or receivable is the best estimate of the tax amount
expected to be paid or received after considering uncertainty related to income taxes, if any. Current tax
relating to items recognised outside profit or loss is recognised outside profit or loss (either in other
comprehensive income or in equity).
Current tax assets and liabilities are offset only if there is a legally enforceable right to set off the recognised
amounts, and it is intended to realise the asset and settle the liability on a net basis or simultaneously.
Minimum alternate tax (‘MAT’) credit entitlement is recognised as an asset only when and to the extent there
is convincing evidence that normal income tax will be paid during the specified period. In the year in which
MAT credit becomes eligible to be recognised as an asset, the said asset is created by way of a credit to the
Statement of Profit and Loss and shown as MAT credit entitlement. T his is reviewed at each balance sheet date
and the carrying amount of MAT credit entitlement is written down to the extent it is not reasonably certain
that normal income tax will be paid during the specified period.
Deferred tax is recognised in respect of temporary differences between carrying amount of assets and liabilities
for financial reporting purposes and corresponding amount used for taxation purposes. Deferred tax assets are
recognised on unused tax loss, unused tax credits and deductible temporary differences to the extent it is
probable that the future taxable profits will be available against which they can be used. This is assessed based
on the Company’s forecast of future operating results, adjusted for significant non-taxable income and
expenses and specific limits on the use of any unused tax loss. Unrecognised deferred tax assets are re-assessed
at each reporting date and are recognised to the extent that it has become probable that future taxable profits
will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the
asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date. The measurement of deferred tax reflects the tax consequences
that would follow from the manner in which the Company expects, at the reporting date to recover or settle
the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset only if there is a
legally enforceable right to set off the recognised amounts, and it is intended to realise the asset and settle the
liability on a net basis or simultaneously. Deferred tax relating to items recognised outside statement of profit
and loss is recognised outside statement of profit or loss (either in other comprehensive income or in equity).
3.6 Employee benefits
Short-term employee benefits
Short-term employee benefits including salaries, short term compensated absences (such as a paid annual
leave) where the absences are expected to occur within twelve months after the end of the period in which the
employees render the related service, profit sharing and bonuses payable within twelve months after the end
of the period in which the employees render the related services and non-monetary benefits for current
employees are estimated and measured on an undiscounted basis.
Post-employment benefit plans are classified into defined benefits plans and defined contribution plans
as under:
Defined contribution plans
The Company has a defined contribution plans namely provident fund, pension fund and employees state
insurance scheme. The contributions made by the Company in respect of these plans are charged to the
Statement of Profit and Loss.
Defined benefit plans
The following post - employment benefit plans are covered under the defined benefit plans:
Gratuity Fund
The Company provides for gratuity, a defined benefit retirement plan covering eligible employees. The Gratuity
Plan provides a lump-sum payment to vested employees at retirement, death, incapacitation or termination of
employment, of an amount based on the respective employee's salary and the tenure of employment with the
Company. The calculation of defined benefit obligations is performed annually by a qualified actuary using the
projected unit credit method.
Remeasurement gains and losses arising from experience adjustments and changes in actuarial assumptions
are recognized in the period in which they occur, directly in other comprehensive income.
Other long-term employee benefits
The Company also provides the benefit of compensated absences to its employees which are in the nature of
long-term employee benefit plan. Liability in respect of compensated absences becoming due and expected to
availed after one year from the Balance Sheet date is estimated in the basis of an actuarial valuation performed
by an independent actuary using the projected unit credit method as on the reporting date. Actuarial gains and
losses arising from past experience and changes in actuarial assumptions are charged to Statement of Profit and
Loss in the year in which such gains or losses are determined.
3.7 Impairment of Assets
The Company assesses at each Balance Sheet date whether there is any indication that an asset may be
impaired. For the purposes of assessing impairment, the smallest identifiable group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows from other assets or group of
assets, is considered as a cash generating unit. If any such indication exists, the Company estimates the
recoverable amount of the asset. The recoverable amount is the higher of an asset's fair value less costs of
disposal and value in use. If such recoverable amount of the asset or the recoverable amount of the cash
generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to
its recoverable amount. The reduction is treated as an impairment loss and is recognised in the Statement of
Profit and Loss. If at the Balance Sheet date there is an indication that a previously assessed impairment loss
no longer exists or may have decreased, the recoverable amount is reassessed and the asset is reflected at the
recoverable amount.
3.8 Financial instruments
A Financial instrument is any contract that gives rise to financial asset of one entity and a financial liability or
equity instrument of another party.
I. Financial Assets
a. Initial recognition:
T he Company classifies financial instruments, or their component parts, on initial recognition as a financial
asset, a financial liability or an equity instrument in accordance with the substance of the contractual
arrangement. Financial instruments are recognized when the Company becomes a party to the contractual
provisions of the instrument. Financial instruments are recognized initially at fair value plus transactions
costs that are directly attributable to the acquisition or issue of the financial instrument, except for
financial assets at fair value through statement of profit and loss, which are initially measured at fair value,
excluding transaction costs (which is recognized in statement of profit and loss).
b. Subsequent measurement:
i. Financial assets carried at amortized cost (AC): - A financial asset is subsequently measured at
amortized cost if it is held within a business model whose objective is to hold the asset 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 on the principal amount
outstanding.
ii. Financial assets at fair value through other comprehensive income (FVT OCI):- All equity
instruments are measured at fair value. Equity instruments held for trading is classified as FVTPL. For
all other equity instruments, the Company may make an irrevocable election to present subsequent
changes in the fair value in OCI. The Company makes such election on an instrument- by-instrument
basis.
If the Company decides to classify an equity instrument as FVT OCI, then all fair value changes on the
instrument, excluding dividend are recognised in OCI. There is no recycling of the amount from OCI
to statement of profit and loss, even on sale of the instrument. However, the Company may transfer the
cumulative gain or loss within the equity.
iii. Financial assets at fair value through statement of profit and loss (FVTPL) Equity instruments: - Equity
instruments included within the FVTPL category are measured at fair value with all changes
recognized in the Statement of Profit & Loss.
c. De-recognition:
A Financial Asset (or where applicable, part of financial asset) is primarily derecognized when the
contractual right to receive cash flows from the asset has expired or the Company has transferred its right
to receive cash flow from the financial asset and consequently all the risks and rewards of ownership of the
asset to third party.
d. Impairment of financial assets:
T he Company recognizes loss allowance using the expected credit loss (ECL) model for the financial assets
which are not fair valued through Statement of Profit and Loss. Loss allowance for trade receivables with
no significant financing component is measured at an amount equal to life time ECL. For all other financial
assets, expected credit loss are measured at an amount equal to the twelve month ECL, unless there has
been a significant increase in credit risk from initial recognition in which case those are measured at
lifetime ECL.
II. Financial Liabilities
a. Initial recognition and measurement:
All financial liabilities are recognized initially at fair value and in case of loans and borrowings and payables,
net of directly attributable cost. The Company's financial liabilities include trade and other payable and
loans and borrowings.
b. Subsequent measurement:
Financial liabilities are subsequently carried at amortized cost using the effective interest method. For
trade and other payables maturing within one year from the balance sheet date, the carrying amounts
approximate fair value due to the short maturity of these instruments.
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized
cost using the effective interest rate (EIR) method. Gains and losses are recognized in statement of profit
and loss when liabilities are de-recognized. Amortized cost is calculated by taking into account any
discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR
amortization is included as finance cost in the statement of profit and loss. Short term borrowings maturing
within one year from the balance sheet date are measured at fair value at the balance sheet date due to short
maturity.
c. De-recognition:
A financial liability is derecognized where the obligation under the liability is discharged or cancelled or
expires where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified. Such an exchange or
modification is treated as the de-recognition of the original liability and the recognition of new liability.
The difference in the respective carrying amounts is recognized in the statement of Profit and Loss.
III. Reclassification of financial assets and liabilities
Company determines the classification of financial assets and liabilities on initial recognition. After initial
recognition, no reclassification is made for financial assets and financial liabilities.
IV. Offsetting of financial instruments
Financial assets and financial liabilities including derivative instruments are offset and the net amount is
reported in the Balance sheet, if there is a currently enforceable legal right to offset the recognized amounts and
there is an intention to settle on a net basis or to realize the assets and settle the liabilities simultaneously
V. Fair value measurement
Fair value is a market-based measurement, not an entity-specific measurement. Under Ind AS, fair valuation of
financial instruments is guided by Ind AS 113 “Fair Value Measurement" (Ind AS - 113). For some assets and
liabilities, observable market transactions or market information might be available. For other assets and
liabilities, observable market transactions and market information might not be available. However, the
objective of a fair value measurement in both cases is the same to estimate the price at which an orderly
transaction to sell the asset or to transfer the liability would take place between market participants at the
measurement date under current market conditions (i.e. an exit price at the measurement date from the
perspective of a market participant that holds the asset or owes the liability).
T hree widely used valuation techniques specified in the said Ind AS are the market approach, the cost approach
and the income approach which have been dealt with separately in the said Ind AS.
Each of the valuation techniques stated as above proceeds on different fundamental assumptions, which have
greater or lesser relevance, and at times there is no relevance of a particular methodology to a given situation.
Thus, the methods to be adopted for a particular purpose must be judiciously chosen. The application of any
particular method of valuation depends on the Company being evaluated, the nature of industry in which it
operates, the Company's intrinsic strengths and the purpose for which the valuation is made.
In determining the fair value of financial instruments, the Company uses a variety of methods and assumptions
that are based on market conditions and risks existing at each balance sheet date.
The Company uses the following hierarchy for determining and disclosing the fair value of financial
instruments by valuation technique:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly.
Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs)
3.9 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand (including imprest), demand deposits and short-term highly
liquid investments (certificate of deposits and commercial paper) that are readily convertible into known
amount of cash and which are subject to an insignificant risk of changes in value. The Company has netted off
the balance of bank overdraft with cash and cash equivalents for cash flow statement.
3.10 Investments in Subsidiaries and Associates
Investments in subsidiaries and associates are measured at cost. Dividend income if any from subsidiaries and
associates is recognised when its right to receive the dividend is established.
|