3. Summary of significant accounting policies
3.01 Current versus non-current classification
The Company has identified twelve months as its operating cycle. The operating cycle is the time between the acquisition of
assets for processing and their realization in cash and cash equivalents.
The Company presents assets and liabilities in the balance sheet based on current/ non-current classification. An asset is treated
as current when it is:
• Expected to be realised or intended to be sold or consumed in normal operating cycle
• Held primarily for the purpose of trading
• Expected to be realised within twelve months after the reporting period, or
• Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the
reporting period. All other assets are classified as non-current.
All liability is current when:
• It is held primarily for the purpose of trading
• It is due to be settled within twelve months after the reporting period, or
• There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period
The Company classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets
and liabilities.
gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognised
in OCI or profit or loss are also recognised in OCI or profit or loss, respectively).
3.02 Fair value measurement
Financial instruments are recognised when the Company becomes a party to the contractual provisions of the instrument. Fair
value measurement is given in Note 32. 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. The fair value measurement is based on the
presumption 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 or the most advantageous market must be accessible by the Company.
The fair value of an asset or a 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 is 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 standalone financial statements are
categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value
measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2- Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable
Level 3 -Valuation techniques for which the lowest level input that is significant to the fair value measurement is
Unobservable.
For assets and liabilities that are recognised in the standalone financial statements, the Company determines whether transfers
have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant
to the fair value measurement as a whole) at the end of each reporting period.
At each reporting date, the Management analyses the movements in the values of assets and liabilities which are required to be
remeasured or re-assessed as per the Company's accounting policies. For this analysis, the Management verifies the major inputs
applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant
documents.
The management also compares the change in the fair value of each asset and liability with relevant external sources to determine
whether the change is reasonable.
On an annual basis, the Management presents the valuation results to the Audit Committee and the Company's independent
auditors. This includes a detailed discussion of the major assumptions used in the
valuations.
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 the fair value hierarchy as explained above.
3.03 Use of estimates and judgements
The preparation of the Company's standalone financial statements requires management to make judgements,
estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the accompanying
disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in
outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future years.
Estimates and assumptions
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
year in which the estimates are revised and future periods are affected. The key assumptions concerning the future and other
key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions
and estimates on parameters available when the financial statements were prepared. Existing circumstances and
assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond
the control of the Company. Such changes are reflected in the assumptions when they occur.
3.04 Revenue recognition
The Company has adopted Ind AS 115, Revenue from Contracts with Customers, with effect from April 01, 2018. The Company
has applied the following accounting policy for revenue recognition:
Revenue from contracts with customers:
The Company recognizes revenue from contracts with customers based on a five step model as set out in Ind AS 115:
Step 1. Identify the contract(s) with a customer: A contract is defined as an agreement between two or more parties that creates
enforceable rights and obligations and sets out the criteria for every contract that must be met.
Step 2. Identify the performance obligations in the contract: A performance obligation is a promise in a contract with a customer
to transfer a good or service to the customer.
Step 3. Determine the transaction price: The transaction price is the amount of consideration to which the Company expects to
be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third
parties.
Step 4. Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one
performance obligation, the Company will allocate the transaction price to each performance obligation in an amount that depicts
the amount of consideration to which the Company expects to be entitled in exchange for satisfying each performance obligation
Step 5. Recognise revenue when (or as) the entity satisfies a performance obligation.
The Company satisfies a performance obligation and recognises revenue over time, if one of the following criteria is met:
1. The customer simultaneously receives and consumes the benefits provided by the Company's performance as the Company
performs; or
2. The Company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or
3. The Company's performance does not create an asset with an alternative use to the Company and the entity has an
enforceable right to payment for performance completed to date.
Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms
of payment. The Company assesses its revenue arrangements against specific criteria to determine if it is acting as principal or
agent.
Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually
defined terms of payment. The Company assesses its revenue arrangements against specific criteria to determine if it is acting as
principal or agent.
For contracts where the Company bears certain indirect tax as it's own expense, and are effectively acting as principals and
collecting the indirect taxes on their own account, revenue from operations is presented as gross of such indirect taxes. In cases,
where the total consideration is exclusive of certain indirect taxes and other duties, the Company is acting as an agent and
revenue from operations is accounted net of indirect taxes.
Contract revenue (construction contracts)
Revenue from works contracts, where the outcome can be estimated reliably, is recognised under the percentage of completion
method by reference to the stage of completion of the contract activity. The stage of completion is measured by calculating the
proportion that costs incurred to date bear to the estimated total costs of a contract. Determination of revenues under the
percentage of completion method necessarily involves making estimates by the management.
When the Company satisfies a performance obligation by delivering the promised goods or services it creates a contract asset
based on the amount of consideration to be earned by the performance. Where the amount of consideration received from a
customer exceeds the amount of revenue recognised this gives rise to a contract liability.
Any variations in contract work, claims, and incentive payments are included in the transaction price if it is highly probable that
a significant reversal of revenue will not occur once associated uncertainties are resolved.
Revenue from other services are recognised to the extent it is probable that the economic benefits will flow to the Company and
the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of
the consideration received or receivable, taking into account contractually defined terms of payment and including taxes or duties
collected as principal contractor. Revenue earned in excess of billing has been reflected as unbilled revenue and billing in excess
of revenue has been reflected as unearned revenue.
Operation and maintenance contracts
Revenue from maintenance contracts are recognised over the period of the contract as and when services are rendered.
Interest income
Financial instruments which are measured either at amortised cost or at fair value through other comprehensive 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 amortised 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.
Dividends
Dividend is recognised when the Company's right to receive the payment is established.
Contract balances
Contract assets
A contract asset is the right to consideration in exchange for goods or services transferred to the customer e.g.
unbilled revenue. If the Company performs its obligations by transferring goods or services to a customer before the
customer pays consideration or before payment is due, a contract asset i.e. unbilled revenue is recognised for the earned
consideration that is conditional. The contract assets are transferred to receivables when the rights become unconditional.
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).
Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration
(or an amount of consideration is due) 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 payment is made or the payment is due (whichever is
earlier). Contract liabilities are recognised as revenue when the Company performs under the contract.
3.05 Taxes
Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities in accordance the Income Tax Act, 1961. The tax rates and tax laws used to compute the amount are those that are
enacted or substantively enacted at the reporting date in the country as per the applicable taxation laws where the Company
operates and generates taxable income.
Current tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity. 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 recognised in respect of temporary differences between the tax bases of assets and liabilities and their carrying
amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences, except:
• When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a
business combination and at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
• In respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the
temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable
future
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any
unused tax losses. The Company recognises a deferred tax asset only to the extent that it has sufficient taxable temporary
differences or there is convincing other evidence that sufficient taxable profit will be available against which such deferred tax
asset can be realised, except
• When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of
an asset or liability in a transaction that is not a business combination and, at the time of the transaction affects neither the
accounting profit nor taxable profit or loss.
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 utilised. 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.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss (either in other comprehensive
income or in equity). Deferred tax items are recognised in correlation to the underlying transaction either in OCI 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 tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
On March 30, 2019, MCA has issued amendment regarding the income tax Uncertainty over Income Tax Treatments. The
notification clarifies the recognition and measurement requirements when there is uncertainty over income tax treatments. In
assessing the uncertainty, an entity shall consider whether it is probable that a taxation authority will accept the uncertain tax
treatment. This notification is effective for annual reporting periods beginning on or after April 1, 2019. As per the Company's
assessment, there are no material income tax uncertainties over income tax treatments.
3.06 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial
period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs
are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds. Borrowing cost also includes exchange differences between the foreign currency
borrowing and the functional currency borrowing to the extent regarded as an adjustment to the borrowing costs.
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