the nearest million, unless otherwise indicated.
The figures mentioned as ‘0' in the financial
statements denote amounts less than 0.5 million.
2.3 Basis of measurement
The standalone financial statements have been
prepared on the historical cost basis except for the
following items:
2 Summary of material accounting policies
2.1 Basis of preparation
The standalone financial statements have
been prepared on the historical cost basis
except for certain financial instruments that
are measured at fair values at the end of each
reporting period, as explained in the accounting
policies below. Historical cost is based on the
consideration given in exchange for goods
and services. 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.
All assets and liabilities have been classified
as current or non-current as per the
Company's normal operating cycle and other
criteria set out in the Schedule III to the Act.
These financial statements have been prepared
on accrual and going concern basis.
2.2 Functional and presentation currency
These standalone financial statements are
presented in Indian rupees, which is also the
Company's functional currency. All amounts
have been rounded off to zero decimal places to
2.4 Use of estimates and judgements
The preparation of the standalone financial
statements in accordance with Ind AS requires
use of judgements, estimates and assumptions,
that affect the application of accounting policies
and the reported amounts of assets, liabilities,
income and expenses. The actual results may
differ from these estimates.
Estimates and underlying assumptions are
reviewed on an ongoing basis. Revision
to accounting estimates are recognised
prospectively.
The key assumptions concerning the future, and
other key sources of estimation uncertainty at the
end of the reporting period, that have a significant
risk of causing a material adjustment to the
carrying amounts of assets and liabilities within
the next financial year are discussed below:
a. Property, plant and equipment
Useful lives of tangible assets are based on
the estimates made by the management. In
cases, where the useful lives are different from
that prescribed in Schedule II, they are based
on technical advice, taking into account the
nature of the asset, the estimated usage of the
asset, the operating conditions of the asset, past
history of replacement, anticipated technological
changes, manufacturers' warranties and
maintenance support.
b. Recognition and measurement of defined
benefit obligations
The obligation arising from defined benefit plan is
determined on the basis of actuarial assumptions.
Key actuarial assumptions include discount rate,
trends in salary escalation, actuarial rates and
life expectancy. The discount rate is determined
by reference to market yields at the end of the
reporting period on government bonds. The
period to maturity of the underlying bonds
correspond to the probable maturity of the post¬
employment benefit obligations.
c. Impairment allowance of trade receivables
(allowance for bad and doubtful debts)
The Company makes allowances for doubtful
debts based on an assessment of the recoverability
of trade and other receivables. The identification
of doubtful debts requires use of judgements
and estimates. Where the expectation is different
from the original estimate, such difference will
impact the carrying value of the trade and other
receivables and doubtful debts expenses in the
period in which such estimate has been changed.
d. Allowances for inventories
Management reviews the inventory age listing on
a periodic basis. This review involves comparison of
the carrying value of the aged inventory items with
the respective net realisable value. The purpose
is to ascertain whether an allowance is required
to be made in the financial statements for any
obsolete and slow-moving items. Management
is satisfied that adequate allowance for obsolete
and slow-moving inventories has been made in
the financial statements.
e. Recognition of deferred tax assets
Deferred tax assets are recognised for the future
tax consequences of temporary differences
between the carrying values of assets and
liabilities and their respective tax bases, and
unutilised business loss and depreciation carry¬
forwards and tax credits. Deferred tax assets are
recognised to the extent that it is probable that
future taxable income will be available against
which the deductible temporary differences,
unused tax losses, depreciation carry-forwards
and unused tax credits, if any could be utilised.
2.5 Measurement of fair values
The Company's accounting policies and
disclosures require the measurement of fair
values, for both financial and non-financial assets
and liabilities.
The Company has an established control
framework with respect to the measurement of fair
values, which includes overseeing all significant
fair value measurements, including Level 3 fair
values by the management. The management
regularly reviews significant unobservable
inputs and valuation adjustments. If third party
information, such as broker quotes or pricing
services, is used to measure fair values, then the
management assesses the evidence obtained
from the third parties to support the conclusion
that such valuations meet the requirements of Ind
AS, including the level in the fair value hierarchy in
which such valuations should be classified.
When measuring the fair value of a financial
asset or a financial liability, the Company uses
observable market data as far as possible. Fair
values are categorised into different levels in a fair
value hierarchy based on the inputs used in the
valuation techniques as follows.
Level 1: quoted prices (unadjusted) in active
markets for identical assets or liabilities
Level 2: inputs other than quoted prices included
in Level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices).
Level 3: inputs for the asset or liability that are not
based on observable market data (unobservable
inputs).
If the inputs used to measure the fair value of an
asset or a liability fall into different levels of the fair
value hierarchy, then the fair value measurement
is categorised in its entirety in the same level of
the fair value hierarchy as the lowest level input
that is significant to the entire measurement. The
Company recognises transfers between levels of
the fair value hierarchy at the end of the reporting
period during which the change has occurred.
3 Material accounting policies
3.1 Revenue from contract with customer
i Sale of goods
Revenue is recognised upon transfer of control of
promised goods to customers in an amount that
reflects the consideration which the Company
expects to receive in exchange for those goods.
Revenue from the sale of goods is recognised at
the point in time when control is transferred to the
customer which is usually on dispatch / delivery.
Revenue is measured based on the transaction
price, which is the consideration, adjusted for
rebates and discounts, price adjustments and
returns, if any, as specified in the contracts with
the customers. Revenue excludes taxes collected
from customers on behalf of the government.
Due to short nature of credit period given to
customers there is no financing component in
the contract.
ii Sale of Services
Revenue from development and other services
are recognised over time because the customer
simultaneously receives and consumes the
benefits provided to them. The Company uses
an input method in measuring progress of the
services because there is a direct relationship
between the Company effort (i.e., based on the
labour hours incurred, raw material consumed)
and the transfer of service to the customer. The
Company recognises revenue on the basis of
the labour hours expended and raw material
consumed relative to the total expected labour
hours and raw material consumption to complete
the service.
iii Export entitlements
Export entitlements from Government authorities
are recognised in the statement of profit and
loss when the right to receive credit as per the
terms of the scheme is established in respect of
the exports made by the Company, and where
there is no significant uncertainty regarding the
ultimate collection/determination of amounts of
the relevant export proceeds.
Contract balances
Contract assets
A contract asset is the right to consideration in
exchange for goods or services transferred to the
customer. If the Company performs by transfering
goods or services to a customer before the
customer pays consideration or before payment is
due, a contract asset is recognised for the earned
consideration that is conditional.
Trade receivables
A receivable is recognised if 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
Contract liabilities
A contract liability is recognised if a payment is
received or a payment is due (whichever is earlier)
from a customer before the Company transfers
the related goods or services. Contract liabilities
are recognised as revenue when the company
performs under the contract (i.e., transfers control
of the related goods or services to the customer).
3.2 Other Income
i Interest Income
Interest income is recognised using the effective
interest method as set out in Ind AS 109 - Financial
Instruments: Recognition and Measurement,
when it is probable that the economic benefits
associated with the transaction will flow to the
Company and the amount of the revenue can
be measured reliably. The effective interest
method is a method of calculating the amortised
cost of a financial asset or a financial liability (or
group of financial assets or financial liabilities)
and of allocating the interest income over the
relevant period.
ii Dividend Income
Dividend income is recognised when right to
receive payment is established and it is probable
that the economic benefits associated with the
transaction will flow to the Company and the
amount of the revenue can be measured reliably.
3.3 Foreign currency
Transactions in foreign currencies are translated
into the Company's functional currency at the
exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in
foreign currencies are translated into the functional
currency at the exchange rate at the reporting
date. Non-monetary assets and liabilities that
are measured at fair value in a foreign currency
are translated into the functional currency at the
exchange rate when the fair value was determined.
Non-monetary assets and liabilities that are
measured based on historical cost in a foreign
currency are not translated. Foreign currency
exchange differences are generally recognised in
the statement of profit and loss.
Exchange differences arising on the settlement
of monetary items or on translating monetary
items at rates different from those at which they
were translated on initial recognition during the
period or in previous Financial Statements are
recognised in the Standalone Statement of Profit
and Loss in the period in which they arise. When a
gain or loss on a non-monetary item is recognised
in Other Comprehensive Income, any exchange
component of that gain or loss is recognised
in Other Comprehensive Income. Conversely,
when a gain or loss on a non-monetary item is
recognised in Standalone Statement of Profit
and Loss, any exchange component of that gain
or loss is recognised in Standalone Statement of
Profit and Loss.
3.4 Employee benefits
Short-term employee benefits
Short-term employee benefits obligations are
measured on an undiscounted basis and are
expensed as the related service is provided.
A liability is recognised for the amount expected
to be paid if the Company has a present legal
or constructive obligation to pay this amount
as a result of past service provided by the
employee and the amount of obligation can be
estimated reliably.
Post employment employee benefits
i Defined contribution plans
A defined contribution plan is a post¬
employment benefit plan under which
an entity pays fixed contributions into a
separate entity and will have no legal or
constructive obligation to pay further amounts.
The Company makes specified monthly
contributions to Provident fund, Employee State
Insurance and Labour Welfare Fund and are
recognised as an employee benefit expense in the
statement of profit and loss on an accrual basis.
Contribution to Superannuation Fund, a defined
contribution scheme, administered by Life
Insurance Corporation of India, based on a
specified percentage of eligible employees' salary.
ii Defined benefit plans
A defined benefit plan is a post-employee benefit
plan other than a defined contribution plan. The
Company's net obligation in respect of defined
benefit plans is calculated separately for each plan
by estimating the amount of future benefit that
employees have earned in the current and prior
periods, discounting that amount and deducting
the fair value of any plan assets.
The calculation of defined benefit obligations
is performed annually by a qualified actuary
using the projected unit credit method. When
the calculation results in a potential asset for the
Company, the recognised asset is limited to the
present value of economic benefits available in
the form of any future refunds from the plan or
reductions in future contributions to the plan. To
calculate the present value of economic benefits,
consideration is given to any applicable minimum
funding requirements.
Re-measurement of the net defined benefit
liability, which comprise actuarial gains and losses,
the return on plan assets (excluding interest) and
the effect of the asset ceiling (if any, excluding
interest), are recognised immediately in other
comprehensive income (OCI). Net interest expense
(income) on the net defined liability (assets) is
computed by applying the discount rate, used
to measure the defined benefit obligation at the
beginning of the annual period to the then-net
defined liability (asset) after taking into account
any changes as a result of contribution and benefit
payments during the year. Net interest expense
and other expenses related to gratuity benefit
scheme are recognised in profit or loss.
When the benefits of a plan are changed or when
a plan is curtailed, the resulting change in benefit
that relates to past service or the gain or loss on
curtailment is recognised immediately in profit or
loss. The Company recognises gains and losses on
the settlement of a defined benefit plan when the
settlement occurs.
Gratuity
The Company has an obligation towards
gratuity, a defined benefit scheme covering
eligible employees. The Company accounts for
gratuity benefits payable in future based on an
independent actuarial valuation method as stated
above. Gratuity for staff at Panoli plant is funded
through group gratuity insurance scheme of the
Life Insurance Corporation of India (‘ LIC').
Other long-term employee benefits
The Company's net obligation in respect of
compensated absences such as paid annual leave,
is the amount of future benefit that employees
have earned in return for their service in the current
and prior periods. The obligation is calculated
using the projected unit credit method, as at
the date of the Balance Sheet. Actuarial gains or
losses comprising of experience adjustments and
the effects of changes in actuarial assumptions
are immediately recognised in the statement of
profit and loss.
3.5 Income tax
Income tax expense comprises current
and deferred tax. It is recognised in the
standalone statement of profit and loss or
items recognised directly in equity or in other
comprehensive income.
i Current tax
Current tax comprises the expected tax payable
or receivable on the taxable income or loss for
the year and any adjustment to the tax payable
or receivable in respect of previous years. The
amount of current tax reflects the best estimate
of the tax amount expected to be paid or received
after considering the uncertainty, if any, related
to income taxes. It is measured using tax rates
enacted or substantively enacted by the reporting
date. Current tax also includes any tax arising
from dividends.
Current tax assets and current tax liabilities are
offset only if, the Company:
a) has a legally enforceable right to set off the
recognised amounts; and
b) intends either to settle on a net basis,
or to realise the asset and settle the
liability simultaneously.
Current income 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 items are
recognised 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 considers
whether it is probable that a taxation authority
will accept an uncertain tax treatment.
The Company shall reflect the effect of uncertainty
for each uncertain tax treatment by using either
most likely method or expected value method,
depending on which method predicts better
resolution of the treatment.
ii Deferred tax
Deferred tax is provided using the liability method
on 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:
i) 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.
ii) In respect of taxable temporary differences
associated with investments in subsidiaries,
associates and interests in joint ventures,
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.
Deferred tax assets are recognised to the
extent that it is probable that taxable profit
will be available against which the deductible
temporary differences, and the carry forward of
unused tax credits and unused tax losses can be
utilised, except:
i) 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
ii) In respect of deductible temporary differences
associated with investments in subsidiaries,
associates and interests in joint ventures, deferred
tax assets are recognised only to the extent that
it is probable that the temporary differences will
reverse in the foreseeable future and taxable profit
will be available against which the temporary
differences can be utilised.
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.
The Company offsets deferred tax assets and
deferred tax liabilities if and only if it has a legally
enforceable right to set off current tax assets and
current tax liabilities and the deferred tax assets
and deferred tax liabilities relate to income taxes
levied by the same taxation authority on either
the same taxable entity or different taxable
entities which intend either to settle current tax
liabilities and assets on a net basis, or to realise the
assets and settle the liabilities simultaneously, in
each future period in which significant amounts
of deferred tax liabilities or assets are expected to
be settled or recovered.
3.6 Inventories
a Measurement of Inventory
The Company measures its inventories at the
lower of cost and net realisable value.
b Cost of Inventories
The cost of inventories shall comprise all costs
of purchase, costs of conversion and other
costs incurred in bringing the inventories
to their present location and condition.
The costs of purchase of inventories comprise
the purchase price, import duties and
other taxes (other than those subsequently
recoverable by the entity from the taxing
authorities), and transport, handling and other
costs directly attributable to the acquisition of
finished goods, materials and services. Trade
discounts, rebates and other similar items are
deducted in determining the costs of purchase.
The costs of conversion of inventories include
costs directly related to the units of production
and a systematic allocation of fixed and variable
production overheads that are incurred in
converting materials into finished goods.
Other costs are included in the cost of
inventories only to the extent that they
are incurred in bringing the inventories
to their present location and condition.
The cost of inventories is assigned by weighted
average cost formula. The Company uses the
same cost formula for all inventories having a
similar nature and use to the Company.
c Net realisable value
Net realisable value is the estimated selling
price in the ordinary course of business less
the estimated costs of completion and the
estimated costs necessary to make the sale.
Net realisable value is ascertained for each
item of inventories with reference to the
selling prices of related finished products.
The practice of writing inventories down below
cost to net realisable value is consistent with
the view that assets should not be carried in
excess of amounts expected to be realised from
their sale or use. Inventories are usually written
down to net realisable value item by item.
Estimates of net realisable value of finished goods
and stock-in-trade are based on the most reliable
evidence available at the time the estimates are
made, of the amount the inventories are expected
to realise. These estimates take into consideration
fluctuations of price or cost directly relating to
events occurring after the end of the period to
the extent that such events confirm conditions
existing at the end of the period. Materials and
other supplies held for use in the production
of inventories are not written down below cost
if the finished products in which they will be
incorporated are expected to be sold at or above
cost. However, when a decline in the price of
materials indicates that the cost of the finished
products exceeds net realisable value, the
materials are written down to net realisable value.
Amount of any reversal of write-down of
inventories shall be recognised as an expense
as when the event occurs. A new assessment is
made of net realisable value in each subsequent
period. When the circumstances that previously
caused inventories to be written down below cost
no longer exist or when there is clear evidence
of an increase in net realisable value because of
changed economic circumstances, the amount
of the write-down is reversed. Amounts such
reversed shall be recognised as a reduction in the
amount of inventories and as an expense in the
period in which reversal occurs.
d Valuation of Spare parts, stand-by
equipments and servicing equipments
Spare parts, stand-by equipment and servicing
equipment are recognised as Property, Plant and
Equipment if and only if it is probable that future
economic benefits associated with them will flow
to the Company and their cost can be measured
reliably. Otherwise such items are classified and
recognised as Inventory.
3.7 Property, plant and equipment
i Recognition and measurement
Items of property, plant and equipment are
measured at cost less accumulated depreciation
and accumulated impairment losses, if any.
The cost of an item of property, plant and
equipment comprises:
a) its purchase price, including import duties
and non-refundable purchase taxes, after
deducting trade discounts and rebates.
b) any directly attributable cost of bringing the
asset to its location and condition necessary
for it to be capable of operating in the manner
intended by management.
c) the estimated costs of dismantling and
removing the item and restoring the site on
which it is located.
Income and expenses related to the incidental
operations, not necessary to bring the item
to the location and condition necessary
for it to be capable of operating in the
manner intended by management, are
recognised in the statement of profit and loss.
If significant parts of an item of property,
plant and equipment have different
useful lives, then they are accounted and
depreciated for as separate items (major
components) of property, plant and equipment.
Any gain or loss on disposal of an item of
property, plant and equipment is recognised
in the statement of profit and loss.
Capital work in progress is stated at cost, net of
accumulated impairment loss, if any.
ii. Subsequent expenditure
Subsequent expenditure is capitalised only if it
is probable that the future economic benefits
associated with the expenditure will flow to
the Company.
iii. Depreciation
Depreciable amount for assets is the cost of
an asset, or other amount substituted for cost.
Depreciation on the depreciable amount of
an item of Property, plant and equipment is
allocated on a systematic basis over its useful
life. The Company provides depreciation on the
straight-line method. The Company believes
that straight line method reflects the pattern
in which the asset's future economic benefits
are expected to be consumed by the Company.
Based on internal technical evaluation, taking into
account the nature of the asset, the estimated
usage of the asset, the operating conditions of
the asset, past history of replacement, anticipated
technological changes, manufacturers warranties
and maintenance support, etc: the management
believes useful lives of the assets are appropriate.
The depreciation method is reviewed at least at
each financial year-end and, if there has been
a significant change in the expected pattern of
consumption of the future economic benefits
embodied in the asset, the method is changed
to reflect the changed pattern. Such a change
is accounted for as a change in an accounting
estimate in accordance with Ind AS 8 -Accounting
Policies, Changes in Accounting Estimates
and Errors.
The useful life of an asset is reviewed at least at
each financial year-end. Depreciation is calculated
using the straight-line method on cost of items of
property, plant and equipment over the estimated
useful lives prescribed under Schedule II of the Act.
In case of Ships, based on internal assessment and
technical evaluation carried out, management
believes that the useful life is 30 years, which is
higher and different from the useful life of 20 years
as prescribed under Part C of Schedule II of the Act.
The estimated useful lives of items of property,
plant and equipment are as follows:
Leasehold improvements amortised over the
period of lease.
Depreciation methods and useful lives are
reviewed at each reporting date and adjusted
if appropriate.
3.8 Borrowing costs
Borrowing costs are interest and other costs
(including exchange differences relating to
foreign currency borrowings to the extent that
they are regarded as an adjustment to interest
costs) incurred in connection with the borrowing
of funds. Borrowing costs that are directly
attributable to the acquisition or construction
of an asset that necessarily takes a substantial
period of time to get ready for its intended use are
capitalised as part of the cost of that asset till the
date it is ready for its intended use or sale. Other
borrowing costs are recognised as an expense in
the period in which they are incurred.
The Company has opted option available in
Para D13AA of Ind AS 101 to continue the
policy adopted for accounting for exchange
differences arising from translation of long-term
foreign currency monetary items recognised in
the financial statements for the period ending
immediately before the beginning of the first
Ind AS financial reporting period as per the
previous GAAP i.e. capitalisation foreign exchange
difference pursuant to para 46A of AS 11 ‘The
Effects of Changes in Foreign Exchange Rates'
vide notification dated 29 December 2011 by
Ministry of Corporate Affairs (MCA).
3.9 Intangible assets
i. Recognition and measurement
Expenditure on research activities is recognised in
the statement of profit and loss as incurred.
Development expenditure is capitalised as part
of the cost of the research and development,
only if the expenditure can be measured
reliably, the product or process is technically and
commercially feasible, future economic benefits
are probable, and the Company intends to and
has sufficient resources to complete development
and sell the asset. Otherwise, it is recognised in
profit or loss as incurred. Subsequent to initial
recognition, the asset is measured at cost less
accumulated amortisation and any accumulated
impairment losses.
Other intangible assets, includes computer
software, which are acquired by the Company
are initially measured at cost. Such intangible
assets are subsequently measured at cost less
accumulated amortisation and any accumulated
impairment losses.
ii. Subsequent expenditure
Subsequent expenditure is capitalised only when it
increases the future economic benefits embodied
in the specific asset to which it relates. All other
expenditure, including expenditure on internally
generated goodwill and brands, is recognised in
the statement of profit and loss as incurred.
iii. Amortisation
Amortisation is calculated to write off the cost of
intangible assets using the straight-line method
over their estimated useful lives, and is included
in depreciation and amortisation in the statement
of profit and loss.
Other intangible assets are amortised over the
estimated useful lives as given below:
- Computer Software 5 years
- Product related intangible 5 years
Amortisation methods and useful lives are
reviewed at each reporting date and adjusted
if appropriate.
3.10 Financial instruments
A financial instrument is any contract that gives
rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.
a. Financial assets
i. Recognition and initial measurement
Trade receivables and debt securities issued are
initially recognised when they are originated.
All other financial assets are initially recognised
when the Company becomes a party to the
contractual provisions of the instrument.
All financial assets are measured subsequently
at either amortised cost, fair value through
other comprehensive income (OCI), or fair
value through profit or loss, depending on
the classification of the financial assets.
The classification of financial assets at initial
recognition depends on the financial asset's
contractual cash flow characteristics and the
Company's business model for managing them.
With the exception of trade receivables that do
not contain a significant financing component or
for which the Company has applied the practical
expedient, the Company initially measures a
financial asset at its fair value plus, in the case of
a financial asset not at fair value through profit or
loss, transaction costs. Trade receivables that do
not contain a significant financing component or
for which the Company has applied the practical
expedient are measured at the transaction price
determined under standard on revenue from
contracts with customers. Refer to the accounting
policies for revenue from contracts with customers.
In order for a financial asset to be classified and
measured at amortised cost or fair value through
OCI, it needs to give rise to contractual cash flows
that are ‘solely payments of principal and interest
(SPPI); on the principal amount outstanding. This
assessment is referred to as the SPPI test and is
performed at an instrument level. Financial assets
with cash flows that are not SPPI are classified
and measured at fair value through profit or loss,
irrespective of the business model.
The Company's business model for managing
financial assets refers to how it manages its
financial assets in order to generate cash flows.
The business model determines whether cash
flows will result from collecting contractual cash
flows, selling the financial assets, or both. Financial
assets classified and measured at amortised
cost are held within a business model with the
objective to hold financial assets in order to collect
contractual cash flows while financial assets
classified and measured at fair value through
OCI are held within a business model with the
objective of both holding to collect contractual
cash flows and selling the financial asset.
Purchases or sales of financial assets that require
delivery of assets within a time frame established
by regulation or convention in the market place
(regular way trades) are recognised on the trade
date, i.e, he date that the Company commits to
purchase or sell the asset.
ii. Classification
On initial recognition, a financial asset is classified
as measured at
- amortised cost; or
- fair value through profit or loss (FVTPL); or
- fair value through other comprehensive
income (FVOCI)
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.
A financial asset is measured at amortised cost if it
meets both of the following conditions and is not
designated as at FVTPL:
- the asset is held within a business model
whose objective is to hold assets 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.
A debt investment is measured at FVOCI if it
meets both of the following conditions and is not
designated as at FVTPL:
- the asset is held within a business model
whose objective is achieved by both collecting
contractual cash flows and selling financial
assets; 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.
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.
All financial assets not classified as measured at
amortised cost or FVOCI as described above are
measured at FVTPL. This includes all derivative
financial assets. 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: Business model assessment
The Company makes an assessment of the
objective of the business model in which a
financial asset is held at a portfolio level because
this best reflects the way the business is managed
and information is provided to management. The
information considered includes:
- the stated policies and objectives for
the portfolio and the operation of those
policies in practice. These include whether
management's strategy focuses on earning
contractual interest income, maintaining
a particular interest rate profile, matching
the duration of the financial assets to the
duration of any related liabilities or expected
cash outflows or realising cash flows through
the sale of the assets;
- how the performance of the portfolio
is evaluated and reported to the
Company's management;
- the risks that affect the performance of the
business model (and the financial assets held
within that business model) and how those
risks are managed;
- how managers of the business are
compensated - e.g. whether compensation is
based on the fair value of the assets managed
or the contractual cash flows collected; and
- the frequency, volume and timing of sales of
financial assets in prior periods, the reasons
for such sales and expectations about future
sales activity.
Transfers of financial assets to third parties in
transactions that do not qualify for derecognition
are not considered sales for this purpose,
consistent with the Company's continuing
recognition of the assets.
Financial assets that are held for trading or are
managed and whose performance is evaluated
on a fair value basis are measured at FVTPL.
iii Subsequent measurement and gains and
losses
Financial assets at FVTPL
These assets are subsequently measured at
fair value. Net gains and losses, including any
interest or dividend income, are recognised in the
statement of profit and loss.
Financial assets at amortised cost
These assets are subsequently measured at
amortised cost using the effective interest
method. The amortised cost is reduced by
impairment losses. Interest income, foreign
exchange gains and losses and impairment are
recognised in profit or loss. Any gain or loss on
derecognition is recognised in the statement of
profit and loss.
Equity investments at FVOCI
These assets are subsequently measured at fair
value. Dividends are recognised as income in
profit or loss unless the dividend clearly represents
a recovery of part of the cost of the investment.
Other net gains and losses are recognised in
OCI and are not reclassified in the statement of
profit and loss. Impairment losses (and reversal
of impairment losses) on equity instrument
measured at FVOCI not reported separately from
other changes in fair value.
iv. Derecognition
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.
v Impairment of financial assets
Trade Receivable and Contract asset
The company applies a simplified approach in
calculating ECL's. Therefore, the Company does
not track changes in credit risk, but instead
recognises a loss allowance based on lifetime
ECL's at each reporting date. The Company has
established a provision matrix that is based on
its historical credit loss experience, adjusted for
forward looking factors specific to the asset and
the economic environment.
Further disclosures relating to impairment of
financial assets are provided in Note no 13 -
Trade Receivables.
b. Financial liabilities
i. Recognition and initial measurement
All financial liabilities are initially recognised when
the Company becomes a party to the contractual
provisions of the instrument.
A financial liability is initially measured at fair
value. In the case of financial liabilities which are
recognised at fair value through profit and loss
(FVTPL), the transaction costs are recognised in
the statement of profit and loss. In other cases, the
transaction costs are attributed to the acquisition
or issue of financial liability.
ii Classification, subsequent measurement and
gains and losses
Financial liabilities are classified as measured
at amortised cost or 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 profit or loss. Other financial
liabilities are subsequently measured at amortised
cost using the effective interest method. Interest
expense and foreign exchange gains and losses
are recognised in profit or loss. Any gain or loss on
derecognition is also recognised in the statement
of profit and loss.
iii. Derecognition
The Company derecognises a financial liability
when its contractual obligations are discharged or
cancelled, or expire.
The Company also derecognises a financial
liability when its terms are modified and the cash
flows under the modified terms are substantially
i ic_y . ii i ci i a i i r\ u 11 i i i 11111 ui i)
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 the statement of profit and loss.
iv. 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.
c. Investment in subsidiaries
Investment in subsidiaries is carried at cost in the
standalone financial statements.
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