Note 4: Significant Accounting Policies
4.1 Financial Instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual
provisions of the instruments.
(a) Financial Assets
Financial Assets comprises of investments in equity instruments, cash and cash equivalents and other
financial assets.
Initial Recognition:
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at Fair
Value through Profit or Loss, transaction costs that are attributable to the acquisition of financial assets.
Purchases or sales of financial assets that requires delivery of assets within a period of time frame established
by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the
date that the company committed to purchase or sell the asset.
Subsequent Measurement:
(i) Financial assets measured at Amortized Cost:
Financial assets are subsequently measured at amortised cost if these financial assets are held within a
business whose objective is to hold these assets in order to collect contractual cash flows and
contractual terms of 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 (FVTOCI):
Financial Assets that are held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets and the contractual terms of financial assets give rise
on specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding are subsequently measured at FVTOCI. Fair Value movements in financial assets
at FVTOCI are recognized in Other Comprehensive Income.
Equity instruments held for trading are classified as at fair value through profit or loss (FVTPL). For other
equity instruments the company classifies the same as FVTOCI. The classification is made on initial
recognition and is irrevocable. Fair Value changes on equity instruments at FVTOCI, excluding
dividends are recognized in Other Comprehensive Income (OCI).
(iii) Fair Value through Profit or Loss (FVTPL):
Financial Assets are measured at FVTPL if it does not meet the criteria for classification as measured at
amortized cost or at FVTOCI. All fair value changes are recognized in the Statement of Profit and Loss.
De-recognition of Financial Assets:
Financial Assets are derecognized when the contractual rights to cash flows from the financial assets
expire or the financial asset is transferred and the transfer qualifies for derecognition. On derecognition
of the financial assets in its entirety, the difference between the carrying amount (measured at the date of
derecognition) and the consideration received (including any new asset obtained less any new liability
assumed) shall be recognized in the Statement of Profit and Loss.
(b) Financial Liabilities
Initial Recognition and Measurement
Financial Liabilities are initially recognized at Fair value plus any transaction costs that are attributable to
acquisition of the financial liabilities except financial liabilities through profit or loss which are initially measured
at Fair Value.
Subsequent Measurement:
Financial Liabilities are classified for subsequent measurement into following categories:
(i) Financial liabilities at Amortized Cost:
The Company is classifying the following under amortized cost:
- Borrowing from Banks
- Borrowing from Others
- Trade Payables
- Other Financial Liabilities
Amortized cost for financial liabilities represents amount at which financial liability is measured at initial
recognition minus the principal repayments, plus or minus cumulative amortization using the effective
Interest Method of any differences between the initial amount and maturity amount.
(ii) Financial liabilities at Fair Value through Profit or Loss:
Financial liabilities held for trading are measured at FVTPL.
De-recognition of Financial Liabilities:
Financial liabilities shall be derecognized when, and only when, it is extinguished i.e. when the obligation
specified in the contract is discharged or cancelled or expires.
(c) Offsetting of Financial assets and Financial Liabilities
Financial assets and Financial Liabilities are offset and the net amount is presented in Balance Sheet when,
and only when, the Company has legal right to offset the recognized amounts and intends either to settle on the
net basis or to realize the assets and liabilities simultaneously.
(d) Reclassification of Financial Assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial
recognition, no reclassification is made for financial assets which are categorized as equity instruments at
FVTOCI, and financial assets or liabilities that are specifically designated as FVTPL. For financial assets which
are debt instruments, a reclassification is made only if there is a change in business model for managing those
assets. Changes to the business model are expected to be very infrequent. The management determines the
change in a business model as a result of external or internal changes which are significant to the Company’s
Operations. A Change in business occurs when the company either begins or ceased to perform an activity that
is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification
prospectively from the reclassification date which is the first day of the immediately next reporting period
following the change in business model. The Company does not restate any previously recognised gains,
losses (including impairment gains or losses) or interest.
4.2 Property, Plant and Equipment
Property, plant and equipment held for use in the production or supply of goods or services, or for administrative
purposes, are stated in the balance sheet at cost less accumulated depreciation and accumulated impairment
losses. All repairs and maintenance costs are charged to the income statement during the financial period in which
they are incurred.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate
items (major components) of property, plant and equipment.
Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives as
prescribed under Part C of Schedule II to the Companies Act 2013, using the straight-line method. The estimated
useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect
of any changes in estimate accounted for on a prospective basis. Depreciation for assets purchased/sold during a
period is proportionately charged for the period of use.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item
of property, plant and equipment is determined as the difference between the sales proceeds and the carrying
amount of the asset and are recognized net within “other income / other expenses” in the Statement of profit and loss.
4.3 Intangible assets
Intangible Assets acquired separately
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated
amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their
estimated useful lives. The estimated useful life and amortisation 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.
Derecognition of intangible assets
An intangible asset is derecognised 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, and are recognised in statement of profit and loss when
the asset is derecognised.
4.4 Impairment
I Financial assets (other than at fair value)
The Company assesses at each date of balance sheet, whether a financial asset or a group of financial assets
is impaired. Ind AS 109 requires expected credit losses to be measured through a loss allowance. The
Company recognises lifetime expected losses for all contract assets and / or all trade receivables that do not
constitute financing transaction. For all other financial assets, expected credit losses are measured at an
amount equal to the twelve-month expected credit losses or at an amount equal to the life time expected credit
losses if the credit risk on the financial asset has increased significantly, since initial recognition.
II Non-financial assets
Tangible and Intangible assets
Property, Plant and equipment and intangible assets with finite life are evaluated for recoverability whenever
there is an indication that their carrying amounts may not be recoverable. If any such indication exists, the
recoverable amount (i.e. 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 cash generating unit (CGU) to which the
asset belongs.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying
amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss is recognized in the
statement of profit and loss.
Reversal of impairment loss
Impairment losses recognized in prior periods are assessed at each reporting date for any indications 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. An impairment loss is reversed 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 amortization, if no impairment loss
had been recognized directly in other comprehensive income and presented within equity.
4.5 Revenue Recognition
Dividend and Interest Income
Dividend income from investments is recognised when the right to receive payment has been established (provided
that it is probable that the economic benefits will flow to the Company and the amount of income can be measured
reliably).
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 principal outstanding and at the effective interest rate applicable, which is the rate that exactly
discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying
amount on initial recognition.
4.6 Employee benefits
(a) Short-term obligations
Liabilities for salaries, including other monetary and non-monetary benefits that are expected to be settled
wholly within 12 months after the end of the period in which the employees render the related service are
recognised in respect of employees’ services up to the end of the reporting period and are measured at the
amounts expected to be paid when the liabilities are settled. The liabilities are presented as current employee
benefit obligations in the balance sheet.
(b) Post-employment obligations
The Company does not operate any post-employment schemes except defined contribution plan i.e. provident
fund.
(i) Defined contribution plans
The Company has defined contribution plan for the post-employment benefits namely Provident Fund
which is administered through the Regional Provident Fund Commissioner and the contributions
towards such fund are recognised as employee benefits expense and charged to the Statement of Profit
and Loss when they are due. The Company does not carry any further obligations with respect to this,
apart from contributions made on a monthly basis.
4.7 Fair Value Measurement
A number of Company's accounting policies and disclosures require the determination of fair value, for both financial
and non-financial assets and liabilities. 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. A fair value measurement
assumes that the transaction to sell the asset or transfer the liability takes place either in the principal market for the
asset or liability or in the absence of a principal market, in the most advantageous market for the asset or liability. The
principal market or the most advantageous market must be accessible to the Company.
The fair value of an asset or liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of
unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized
within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a
whole. The fair value hierarchy is described as below:
(a) Level 1 - unadjusted quoted prices in active markets for identical assets and liabilities.
(b) Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly.
(c) Level 3- unobservable inputs for the asset or liability.
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the
Company determines whether transfers have occurred between levels in the hierarchy by re-assessing
categorization at the end of each reporting period.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis
of the nature, characteristics and risks of the asset or liability and the level of fair value hierarchy.
Fair values have been determined for measurement and / or disclosure purposes based on the following methods.
When applicable, further information about the assumptions made in determining fair values is disclosed in the notes
specific to that asset or liability.
(a) Investment in equity and debt securities
The fair value is determined by reference to their quoted price at the reporting date. In the absence of quoted
price, the fair value of the financial asset is measured using valuation techniques. In respect of non-significant
investments in equity and debt securities where fair values could not be ascertained, the fair values are
considered as ' NIL and therefore such investment are stated at ' NIL only.
(b) Trade and other receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted
at the market rate of interest at the reporting date. However in respect of such financial instruments, fair value
generally approximates the carrying amount due to short term nature of such assets.
(c) Non derivative financial liabilities
Fair Value is calculated based on the present value of future principal and interest cash flows, discounted at the
market rate of interest at the reporting date.
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