3. Material Accounting Polices
3.1 Business combinations
Acquisitions of businesses are accounted for using the
acquisition method. The consideration transferred in a
business combination is measured at fair value, which is
calculated as the sum of the acquisition-date fair values of
the assets transferred by the Company, liabilities incurred
by the Company to the former owners of the acquiree and
the equity interests issued by the Company in exchange
of control of the acquiree. Acquisition-related costs are
generally recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the
liabilities assumed are recognised at their fair value, except that:
• deferred tax assets or liabilities, and assets or
liabilities related to employee benefit arrangements
are recognised and measured in accordance with
Ind AS 12 Income Taxes and Ind AS 19 Employee
Benefits respectively;
• assets (or disposal Group) that are classified as held
for sale in accordance with Ind AS 105 Non-current
Assets Held for Sale and Discontinued Operations are
measured in accordance with that Standard.
Goodwill is measured as the excess of the sum of the
consideration transferred, the amount of any non-controlling
interests in the acquiree, and the fair value of the acquirer's
previously held equity interest in the acquiree (if any) over the
net of the acquisition-date amounts of the identifiable assets
acquired and the liabilities assumed.
In case of a bargain purchase, before recognising a gain in
respect thereof, the Company determines whether there
exists clear evidence of the underlying reasons for classifying
the business combination as a bargain purchase. Thereafter,
the Company reassesses whether it has correctly identified
all of the assets acquired and all of the liabilities assumed
and recognises any additional assets or liabilities that are
identified in that reassessment. The Company then reviews
the procedures used to measure the amounts that Ind AS
requires for the purposes of calculating the bargain purchase.
If the gain remains after this reassessment and review, the
Company recognises it in other comprehensive income
and accumulates the same in equity as capital reserve.
This gain is attributed to the acquirer. If there does not exist
clear evidence of the underlying reasons for classifying the
business combination as a bargain purchase, the Company
recognises the gain, after reassessing and reviewing (as
described above), directly in equity as capital reserve.
Non-controlling interests that are present ownership interests
and entitle their holders to a proportionate share of the
entity's net assets in the event of liquidation may be initially
measured either at fair value or at the non-controlling interests'
proportionate share of the recognised amounts of the
acquiree's identifiable net assets. The choice of measurement
basis is made on a transaction-by-transaction basis. Other
types of non-controlling interests are measured at fair value
or, when applicable, on the basis specified in another Ind AS.
When the consideration transferred by the Company in a
business combination includes assets or liabilities resulting
from a contingent consideration arrangement, the contingent
consideration is measured at its acquisition-date fair value
and included as part of the consideration transferred in
a business combination. Changes in the fair value of the
contingent consideration that qualify as measurement period
adjustments are adjusted retrospectively, with corresponding
adjustments against goodwill or capital reserve, as the case
may be. Measurement period adjustments are adjustments
that arise from additional information obtained during the
‘measurement period' (which cannot exceed one year from
the acquisition date) about facts and circumstances that
existed at the acquisition date.
The subsequent accounting for changes in the fair value
of the contingent consideration that do not qualify as
measurement period adjustments depends on how
the contingent consideration is classified. Contingent
consideration that is classified as equity is not remeasured at
subsequent reporting dates and its subsequent settlement is
accounted for within equity. Contingent consideration that is
classified as an asset or a liability is remeasured at fair value
at subsequent reporting dates with the corresponding gain
or loss being recognised in profit or loss.
When a business combination is achieved in stages, the
Company's previously held equity interest in the acquiree
is remeasured to its acquisition-date fair value and the
resulting gain or loss, if any, is recognised in profit or loss.
Amounts arising from interests in the acquiree prior to the
acquisition date that have previously been recognised in
other comprehensive income are reclassified to profit or loss
where such treatment would be appropriate if that interest
were disposed of.
If the initial accounting for a business combination is incomplete
by the end of the reporting period in which the combination
occurs, the Company reports provisional amounts for the
items for which the accounting is incomplete. Those provisional
amounts are adjusted during the measurement period (see
above), or additional assets or liabilities are recognised to reflect
new information obtained about facts and circumstances
that existed at the acquisition date that, if known, would have
affected the amounts recognised at that date.
3.2 Goodwill
Goodwill arising on an acquisition of a business is carried
at cost as established at the date of acquisition of the
business (see Note 3.1 above) less accumulated impairment
losses, if any.
For the purposes of impairment testing, goodwill is allocated
to each of the Company's cash-generating units (or groups
of cash-generating units) that is expected to benefit from the
synergies of the combination.
A cash-generating unit to which goodwill has been allocated
is tested for impairment annually, or more frequently when
there is an indication that the unit may be impaired. If the
recoverable amount of the cash-generating unit is less than
its carrying amount, the impairment loss is allocated first
to reduce the carrying amount of any goodwill allocated
to the unit and then to the other assets of the unit pro rata
based on the carrying amount of each asset in the unit. Any
impairment loss for goodwill is recognised directly in profit
or loss. An impairment loss recognised for goodwill is not
reversed in subsequent periods.
On disposal of the relevant cash-generating unit, the
attributable amount of goodwill is included in the
determination of the profit or loss on disposal.
3.3 Revenue recognition
Revenue is recognised upon transfer of control of promised
products or services to customers in an amount that reflects
the consideration which the Company expects to receive in
exchange for those products or services.
• Revenue from time and material and job contracts
is recognised on output basis measured by units
delivered, efforts expended, number of transactions
processed, etc.
• Revenue related to fixed price maintenance and
support services contracts where the Company is
standing ready to provide services is recognised based
on time elapsed mode and revenue is straight lined
over the period of performance.
• Revenue from services rendered is recognised in profit
or loss in proportion to the stage of completion of
transaction at the reporting date and when the costs
incurred for the transactions and the costs to complete
the transaction can be measured reliably, as under:
• Revenue from EPC is recognised on the basis of stage of
completion by reference to surveys of work performed.
• Revenue from operations and maintenance and
common infrastructure facilities contracts is recognised
over the period of the contract, on a straight-line basis
w.e.f signing of contracts.
• Revenue is measured at the fair value of the
consideration received or receivable and is recognised
when it is probable that the economic benefits
associated with the transaction will flow to the Company
and the amount of income can be measured reliably.
Revenue is net of returns and is reduced for rebates,
trade discounts, refunds and other similar allowances.
Revenue is net of goods and service tax.
• Revenue is measured based on the transaction
price, which is the consideration, adjusted for volume
discounts, service level credits, performance bonuses,
price concessions and incentives, if any, as specified in
the contract with the customer.
• Revenue also excludes taxes collected from customers.
Revenue from subsidiaries is recognised based on
transaction price which is at arm's length. Contract
assets are recognised when there is excess of revenue
earned over billings on contracts.
• Contract assets are classified as unbilled receivables
(only act of invoicing is pending) when there is
unconditional right to receive cash, and only passage
of time is required, as per contractual terms.
• Unearned and deferred revenue (“contract liability”) is
recognised when there is billings in excess of revenues.
• The billing schedules agreed with customers include
periodic performance based payments and / or
milestone based progress payments. Invoices are
payable within contractually agreed credit period.
• In accordance with Ind AS 37, the Company recognises
an onerous contract provision when the unavoidable
costs of meeting the obligations under a contract
exceed the economic benefits to be received.
• Contracts are subject to modification to account for
changes in contract specification and requirements.
The Company reviews modification to contract in
conjunction with the original contract, basis which
the transaction price could be allocated to a new
performance obligation, or transaction price of an
existing obligation could undergo a change. In the
event transaction price is revised for existing obligation,
a cumulative adjustment is accounted for.
Use of significant judgments in revenue recognition
• The Company's contracts with customers could include
promises to transfer multiple products and services
to a customer. The Company assesses the products
/ services promised in a contract and identifies
distinct performance obligations in the contract.
Identification of distinct performance obligation
involves judgement to determine the deliverables and
the ability of the customer to benefit independently
from such deliverables.
• The Company uses judgement to determine an
appropriate standalone selling price for a performance
obligation. The Company allocates the transaction
price to each performance obligation on the basis
of the relative standalone selling price of each
distinct product or service promised in the contract.
Where standalone selling price is not observable,
the Company uses the expected cost plus margin
approach to allocate the transaction price to each
distinct performance obligation.
• The Company exercises judgement in determining
whether the performance obligation is satisfied at a
point in time or over a period of time. The Company
considers indicators such as how customer consumes
benefits as services are rendered or who controls the
asset as it is being created or existence of enforceable
right to payment for performance to date and alternate
use of such product or service, transfer of significant
risks and rewards to the customer, acceptance of
delivery by the customer, etc.
• Revenue for fixed-price contract is recognised using
percentage-of-completion method. The Company uses
judgement to estimate the future cost-to-completion of
the contracts which is used to determine the degree of
completion of the performance obligation.
• Contract fulfilment costs are generally expensed as
incurred except for certain software licence costs
which meet the criteria for capitalisation. Such costs are
amortised over the contractual period or useful life of
licence whichever is less. The assessment of this criteria
requires the application of judgement, in particular when
considering if costs generate or enhance resources to
be used to satisfy future performance obligations and
whether costs are expected to be recovered.
Dividend income is recorded when the right to receive
payment is established. Interest income is recognised using
the effective interest method.
3.3.1 Other income
Interest income from a financial asset is recognised on
time basis, by reference to the principal outstanding at the
effective interest rate applicable, which is the rate which
exactly discounts estimated future cash receipts through
the expected life of the financial asset to that asset's net
carrying amount on initial recognition. Insurance claims are
recognised to the extent there is a reasonable certainty of
the realizability of the claim amount.
3.4 Leases
Ind AS 116 introduces a single lessee accounting model
and requires a lessee to recognise assets and liabilities
for all leases with a term of more than 12 months, unless
the underlying asset is of low value. A lessee is required to
recognise a right-of-use asset representing its right to use
the underlying leased asset and a lease liability representing
its obligation to make lease payments.
3.5 Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are
assets that necessarily take a substantial period of time to
get ready for their intended use or sale, are added to the cost
of those assets, until such time as the assets are substantially
ready for their intended use or sale.
Interest income earned on the temporary investment of
specific borrowings pending their expenditure on qualifying
assets is deducted from the borrowing costs eligible for
capitalisation.
All other borrowing costs are recognised in profit or loss in
the period in which they are incurred.
3.6 Employee benefits
3.6.1 Retirement benefit costs
Recognition and measurement of defined contribution
plans:
Payments to defined contribution benefit plan viz.
government administered provident funds and
pension schemes are recognised as an expense when
employees have rendered service entitling them to
the contributions.
Recognition and measurement of defined benefit
plans:
For defined benefit plan, the cost of providing benefits
is determined using the projected unit credit method,
with actuarial valuations being carried out at the end
of each reporting period. Remeasurement, comprising
actuarial gains and losses, the effect of the changes to
the asset ceiling (if applicable) and the return on plan
assets (excluding net interest), is reflected immediately
in the balance sheet with a charge or credit recognised
in other comprehensive income in the period in which
they occur. Remeasurement recognised in other
comprehensive income is reflected immediately in
retained earnings and is not reclassified to profit or loss.
Past service cost is recognised in profit or loss in the
period of a plan amendment. Net interest is calculated
by applying the discount rate to the net defined benefit
plan at the start of the reporting period, taking account
of any change in the net defined benefit plan during the
year as a result of contributions and benefit payments.
Defined benefit costs are categorised as follows:
• service cost (including current service cost,
past service cost, as well as gains and losses on
curtailments and settlements);
• net interest expense or income; and
• remeasurement
The Company presents the first two components of
defined benefit costs in profit or loss in the line item
‘Employee benefits expense'. Curtailment gains and
losses are accounted for as past service costs.
The retirement benefit obligation recognised in the
consolidated balance sheet represents the actual deficit
or surplus in the Company's defined benefit plans. Any
surplus resulting from this calculation is limited to the
present value of any economic benefits available in the
form of refunds from the plans or reductions in future
contributions to the plans.
3.6.2Short-term and other long-term employee benefits
A liability is recognised for benefits accruing to
employees in respect of wages and salaries, annual
leave and sick leave, bonus etc. in the period the related
service is rendered at the undiscounted amount
of the benefits expected to be paid in exchange
for that service.
Liabilities recognised in respect of short-term employee
benefits are measured at the undiscounted amount of
the benefits expected to be paid in exchange for the
related service.
Liabilities recognised in respect of other long-term
employee benefits are measured at the present value
of the estimated future cash outflows expected to be
made by the Company in respect of services provided
by employees up to the reporting date.
3.7 Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
3.7.1 Current tax
The tax currently payable is based on taxable profit for
the year. Taxable profit differs from ‘profit before tax' as
reported in the statement of profit and loss because
of items of income or expense that are taxable or
deductible in other years, items that are never taxable
or deductible and tax incentives. The Company's
current tax is calculated using tax rates that have been
enacted or substantively enacted by the end of the
reporting period.
3.7.2 Deferred tax
Deferred tax is recognised on temporary differences
between the carrying amounts of assets and liabilities
in the financial statements and the corresponding
tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised for all
taxable temporary differences. Deferred tax assets
are generally recognised for all deductible temporary
differences to the extent that it is probable that taxable
profits will be available against which those deductible
temporary differences can be utilised. Such deferred
tax assets and liabilities are not recognised if the
temporary difference arises from the initial recognition
(other than in a business combination) of assets and
liabilities in a transaction that affects neither the taxable
profit nor the accounting profit. In addition, deferred tax
liabilities are not recognised if the temporary difference
arises from the initial recognition of goodwill.
Deferred tax liabilities are recognised for taxable
temporary differences associated with investments
in subsidiaries and associates, except where the
Company is able to control the reversal of the temporary
difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary
differences associated with such investments are only
recognised to the extent that it is probable that there will
be sufficient taxable profits against which the benefits
of the temporary differences can be utilised and they
are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed
at the end of each reporting period and reduced to
the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the
asset to be recovered.
Deferred tax liabilities and assets are measured at
the tax rates that are expected to apply in the period
in which the liability is settled or the asset realised,
based on tax rates (and tax laws) that have been
enacted or substantively enacted by the end of the
reporting period.
The measurement of deferred tax liabilities and assets
reflects the tax consequences that would follow from
the manner in which the Company expects, at the end
of the reporting period, to recover or settle the carrying
amount of its assets and liabilities.
3.7.3 Presentation of current and deferred tax :
Current and deferred tax are recognised in profit or loss,
except when they relate to items that are recognised
in other comprehensive income or directly in equity,
in which case, the current and deferred tax are also
recognised in other comprehensive income or directly
in equity respectively. Where current tax or deferred
tax arises from the initial accounting for a business
combination, the tax effect is included in the accounting
for the business combination.
The Company offsets current tax assets and current
tax liabilities, where it has a legally enforceable right to
set off the recognized amounts and where it intends
either to settle on a net basis, or to realize the asset and
settle the liability simultaneously. In case of deferred tax
assets and deferred tax liabilities, the same are offset if
the Company has a legally enforceable right to set off
corresponding current tax assets against current tax
liabilities and the deferred tax assets and deferred tax
liabilities relate to income taxes levied by the same tax
authority on the Company.
3.8 Property, plant and equipment
An item of Property, Plant and Equipment (PPE) that qualifies
as an asset is measured on initial recognition at cost.
Following initial recognition, property, plant and equipment
are carried at cost, as reduced by accumulated depreciation
and impairment losses, if any.
The Company identifies and determines cost of each part of
an item of property, plant and equipment separately, if the
part has a cost which is significant to the total cost of that
item of property, plant and equipment and has useful life that
is materially different from that of the remaining item.
Cost comprises of purchase price / cost of construction,
including non-refundable taxes or levies and any expenses
attributable to bring the PPE to its working condition for its
intended use. Project pre-operative expenses and expenditure
incurred during construction period are capitalized to various
eligible PPE. Borrowing costs directly attributable to acquisition
or construction of qualifying PPE are capitalised.
Spare parts, stand-by equipment and servicing equipment
that meet the definition of property, plant and equipment
are capitalized at cost and depreciated over their useful life.
Costs in nature of repairs and maintenance are recognized in
the Statement of Profit and Loss as and when incurred.
Cost of assets not ready for intended use, as on the Balance
Sheet date, is shown as capital work in progress. Advances
given towards acquisition of property, plant and equipment
in outstanding at each Balance Sheet date are disclosed as
Other Non-Current Assets.
Depreciation is recognised so as to write off the cost of PPE
(other than freehold land and properties under construction)
less their residual values over their useful lives, using the
straight-line method. The useful lives prescribed in Schedule
II to the Companies Act, 2013 are considered as the minimum
lives. If the management's estimate of the useful life of
property, plant and equipment at the time of acquisition of
the asset or of the remaining useful life on a subsequent
review is shorter than that envisaged in the aforesaid
schedule, depreciation is provided at a higher rate based
on the management's estimate of the useful life/remaining
useful life. 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.
PPE are depreciated over its estimated useful lives,
determined as under:
• Freehold land is not depreciated.
• On other items of PPE, on the basis of useful life as per
Part C of Schedule II to the Companies Act, 2013.
The management believes that these estimated useful lives
are realistic and reflect fair approximation of the period over
which the assets are likely to be used.
An item of property, plant and equipment is derecognised
upon disposal or when no future economic benefits are
expected to arise from its use or disposal. 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 is recognised in profit or loss.
3.9 Intangible assets
Intangible assets with finite useful lives that are acquired
separately are carried at cost less accumulated amortisation
and accumulated impairment losses. Amortization is
recognised on a straight-line basis over their estimated
useful lives. The estimated useful life and amortization
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.
Intangible assets acquired in a business combination and
recognised separately from goodwill are initially recognised
at their fair value at the acquisition date (which is regarded as
their cost). Subsequent to initial recognition, intangible assets
acquired in a business combination are reported at cost less
accumulated amortisation and impairment losses, on the
same basis as intangible assets as above.
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, are
recognised in profit or loss when the asset is derecognised.
Estimated useful lives of intangible assets
Estimated useful lives of the intangible assets are as follows:
• Software 6 years
3.10 Impairment of tangible and intangible assets other
than goodwill
At the end of each reporting period, the Company reviews
the carrying amounts of its tangible and intangible assets
(other than goodwill) to determine whether there is any
indication that those assets have suffered an impairment
loss. If any such indication exists, the recoverable amount of
the asset is estimated in order to determine the extent of the
impairment loss (if any). When it is not possible to estimate
the recoverable amount of an individual asset, the Company
estimates the recoverable amount of the cash-generating
unit to which the asset belongs. When a reasonable and
consistent basis of allocation can be identified, corporate
assets are also allocated to individual cash-generating units,
or otherwise they are allocated to the smallest group of
cash-generating units for which a reasonable and consistent
allocation basis can be identified.
Recoverable amount is the higher of fair value less costs
of disposal and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present
value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific
to the asset for which the estimates of future cash flows have
not been adjusted. If it is not possible to measure fair value
less cost of disposal because there is no basis for making a
reliable estimate of the price at which an orderly transaction to
sell the asset would take place between market participants at
the measurement dates under market conditions, the asset's
value in use is used as recoverable amount.
If the recoverable amount of an asset (or cash-generating
unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (or cash-generating unit) is
reduced to its recoverable amount. An impairment loss is
recognised immediately in profit or loss.
When an impairment loss subsequently reverses, the
carrying amount of the asset (or cash-generating unit) is
increased to the revised estimate of its recoverable amount,
to the extent that the increased carrying amount does
not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the
asset (or cash-generating unit) in prior years. A reversal of an
impairment loss is recognised immediately in profit or loss.
3.11 Inventories
Inventories are valued at lower of the cost and net realisable
value. Cost is determined using weighted average cost basis.
Cost of inventories comprises all costs of purchase, duties
and taxes (other than those subsequently recoverable from
tax authorities) and all other costs incurred in bringing the
inventory to their present location and condition.
Cost of work-in-progress includes the cost of materials,
conversion costs, an appropriate share of fixed and variable
overheads and other costs incurred in bringing the inventories
to their present location and condition. Net realisable value
represents 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.
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