Note 2 Material Accounting Policy
2.1 Basis of Preparation
The financial statements have been prepared in accordance with Indian Accounting Standards (Ind AS) as per the Companies (Indian Accounting Standards) Rules, 2015 as amended from time to time and notified under section 133 of the Companies Act, 2013 (the Act) along with other relevant provisions of the Act. The Company uses accrual basis of accounting. The financial statements are presented in Indian Rupee (INR) which is also the functional currency of the Company.
The financial statements have been prepared on a historical cost basis, except for certain financial instruments and defined benefit plan assets/Liability measured at fair value. The preparation of financial statements requires the management to make judgments, accounting estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities, at the end of the reporting period Although these estimates are based on the management's best knowledge of current events and actions, uncertainty about these assumptions and estimates could result in the outcomes requiring a material adjustment to the carrying amounts of assets or liabilities in future periods.
The financial statements are prepared on a going concern basis, as the Management is satisfied that the Company shall be able to continue its business for the foreseeable future and no material uncertainty exists that may cast significant doubt on the going concern assumption. In making this assessment, the Management has considered a wide range of information relating to present and future conditions, including future projections of profitability, cash flows and capital resources.
2.2 Presentation of financial statements
The Company presents its Balance Sheet in order of liquidity. The Company prepares and presents its Balance Sheet, the Statement of Profit and Loss and the Statement of Changes in Equity in the format prescribed by Division III of Schedule III to the Act. The Statement of Cash Flows has been prepared and presented as per the requirements of Ind AS 7 'Statement of Cash Flows'. The Company generally reports financial assets and financial liabilities on a gross basis in the Balance Sheet. They are offset and reported net only when Ind AS specifically permits the same or it has an unconditional legally enforceable right to offset the recognised amounts without being contingent on a future event. Similarly, the Company offsets incomes and expenses and reports the same on a net basis when permitted by Ind AS specifically unless they are material in nature.
2.3 Critical accounting estimates and judgments
The preparation of the Company's financial statements requires Management to make use of estimates and judgments.
In view of the inherent uncertainties and a level of subjectivity involved in measurement of items, it is possible that the outcomes in the subsequent financial years could differ from those based on Management's estimates. Accounting estimates and judgments are used in various items in the financial statements for e.g.:
• Business model assessment
• Fair value of financial instruments
• Effective interest rate (EIR)
• Impairment of financial assets
• Provisions and contingent liabilities
• Provision for tax expenses
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• Residual value, useful life and indicators of recoverable value of property, plant and equipment
2 4 Income enhancing Fortunes, Lnncmng .Lives.
Revenue recognition
The Company recognises revenue from contracts with customers (other than financial assets to which Ind AS 109 'Financial instruments' is applicable) based on Ind AS 115 'Revenue from contracts with customers'. The Company identifies contract(s) with a customer and its performance obligations under the contract, determines the transaction price and its allocation to the performance obligations in the contract and recognises revenue only on satisfactory completion of performance obligations. Revenue is measured at the fair value of the consideration received or receivable.
The Revenue includes the following:
(I) Brokerage fee income
Revenue from contract with customer is recognised when performance obligation is completed i.e. when the trade is executed. These include brokerage fees charged per transaction executed on behalf of the clients as per the contractually agreed rate.
(ii) Interest income
The Company recognises interest income using effective interest rate (EIR) on all financial assets subsequently measured under amortised cost or fair value through other comprehensive income (FVOCI). EIR is calculated by considering all costs and incomes attributable to acquisition of a financial asset or assumption of a financial liability and it represents a rate that exactly discounts estimated future cash payments/receipts through the expected life of the financial asset/financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability. The Company calculates interest income by applying the EIR to the gross carrying amount of financial assets other than credit-impaired assets. In case of credit-impaired financial assets, the Company recognises interest income on the amortised cost net of impairment loss of the financial asset at EIR. If the financial asset is no longer credit-impaired, the Company reverts to calculating interest income on a gross basis.
(iii) Dividend income
Dividend income on equity shares is recognised when the Company's right to receive the payment is established and it is probable that the economic benefits associated with the dividend will flow to the entity and the amount of the dividend can be measured reliably.
(iv) Fees and commission income
Fees and commission income includes:
Income from depository operations is accounted when performance obligation is completed Advisory fees income is recognised when the performance obligation is satisfied by rendering the services to the client.
Distribution income is earned by distribution of services and products of other entities under distribution arrangements. The income so earned is recognised on successful distribution on behalf of other entities subject to there being no significant uncertainty of its recovery.
(v) Net gain on fair value changes
Any realised gain or loss on sale of financial assets (including derivatives and Securities held for trading) being classified as fair value through profit and loss ("FVTPL") is recognised as "Net gain or loss on fair value changes" under "Revenue from operatings" or "Expense" respectively in the statement of profit and loss.
Similarly, any difference between the fair values of financial assets (including derivatives and securities held for trading) being classified as fair value through profit or loss ("FVTPL") held by the company on the balance sheet date is recognised as on unrealised gain/loss. In cases there is a net gain in the aggregate, the same is recognised as "Net gain on fair value changes" under "Revenue from operations" and if there is a net loss the same is disclosed as "Net loss on fair value changes" under "Expense" in the statement of profit and loss.
(vi) Recoveries of financial assets written off
The Company recognises income on recoveries of financial assets written off on realisation or when the right to receive the same without any uncertainties of recovery is established.
2.5 Expenditures
(i) Finance costs
Borrowing costs on financial liabilities are recognised using the EIR.
(ii) Fees and commission expenses
Fees and commission expenses which are not directly linked to the sourcing of financial assets, such as
commission/incentive incurred on provision of services and products distribution, recovery charges etc., are
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recognised in the Statement of Profit and Loss on an accrual basis.
2.6 Cash and cash equivalents Enhancing Fortunes. Enriching Lives.
Cash and cash equivalents include cash on hand, other short term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value
2.7 Financial Instruments
A financial instrument is defined as any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Trade receivables and payables, loan receivables, investments in securities and subsidiaries, debt securities and other borrowings, preferential and equity capital etc. are some examples of financial instruments.
(i) Financial assets
Financial assets include cash, or an equity instrument of another entity, or a contractual right to receive cash or another financial asset from another entity. Few examples of financial assets are loan receivables, investment in equity and debt instruments, trade receivables and cash and cash equivalents.
Investment in subsidiaries
Investment in subsidiaries is recognised at cost and is not adjusted to fair value at the end of each reporting period. Cost of investment represents amount paid for acquisition of the said investment.
The Company assesses at the end of each reporting period, if there are any indications that the said investment may be impaired. If so, the Company estimates the recoverable value/amount of the investment and provides for impairment, if any i.e. the deficit in the recoverable value over cost.
Financial Assets (other than investment in subsidiaries)
Initial measurement
All financial assets are recognised initially at fair value including transaction costs that are attributable to the acquisition of financial assets except in the case of financial assets recorded at FVTPL where the transaction costs are charged to profit or loss.
Subsequent measurement
All equity investments in scope of Ind AS 109 'Financial Instruments' are measured at fair value.
All fair value changes of the equity instruments designated as FVTPL are recognised in statement of profit and loss. All fair value changes, excluding dividends, of the equity instruments designated as FVOCI are recognised in Other Comprehensive Income,and not available for reclassification to profit or loss, even on sale of investments. Equity instruments at FVOCI are not subject to an impairment assessment.
Derecognition of Financial Assets
The Company derecognises a financial asset (or, where applicable, a part of a financial asset) when:
(i) The right to receive cash flows from the asset have expired; or
(ii) The Company has transferred its right to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under an assignment arrangement and the
Company has transferred substantially all the risks and rewards of the asset. Once the asset is derecognised, the Company does not have any continuing involvement in the same.
On derecognition of a financial asset in its entirety, the difference between:
(i) the carrying amount (measured at the date of derecognition) and
(ii) the consideration received (including any new asset obtained less any new liability assumed) is recognised in profit or loss.
Impairment of financial assets
Expected Credit Loss (ECL) principles
The Company recognises loss allowances (provisions) for expected credit losses on its financial assets (including
non-fund exposures) that are measured at amortised costs.
The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime expected credit loss), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months' expected credit loss. Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a financial instrument. The 12-month ECL is the portion of Lifetime ECL that represent the ECLs that result from default events on a financial instrument that are possible within the 12 months after the reporting date.
The mechanics of ECL
The Company calculates ECLs based on probability weighted scenarios to measure the expected cash shortfalls, discounted at an approximation to the EIR. A cash shortfall is the difference between the cash flows that are dneJo
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