3. Summary of material 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
realisation 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 expected to be settled in normal operating cycle
• 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.
3.02 Foreign currency translations
The Company’s financial statements are presented in
INR, which is also the Company’s functional currency.
Transactions and balances
Transactions in foreign currencies are initially recorded
by the Company at their functional currency spot rates
at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot
rates of exchange at the reporting date.
Exchange differences arising on settlement or translation
of monetary items are recognised in the statement of
profit and loss.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using
the exchange rates at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the
date when the fair value is determined. The gain or loss
arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of the
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).
3.03 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 35.
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, maximising the
use of relevant observable inputs and minimising the use
of unobservable inputs.
All assets and liabilities for which fair value is measured
or disclosed in the standalone financial statements are
categorised 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 categorisation
(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.
This note summarises accounting policy for fair value.
Other fair value related disclosures are given in the
relevant notes.
Disclosures for valuation methods, significant estimates
and assumptions (note 3.04)
Financial instruments (including those carried at
amortised cost) (note 4,5,6,7,10,11,15,16 and 17)
Quantitative disclosure of fair value measurement
hierarchy and Fair value of contingent consideration
receivable (note 36)
3.04 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.
a) Judgement involved in assessment of applicability
of criteria mentioned in IND AS 28, read with Ind AS
27 to measure investments in InvIT & related assets
at fair value through statement of Profit and Loss:
Judgement is required to assess whether the
Company’s InvIT & Related Assets segment meets
the criteria specified under Ind AS 28, read with
Ind AS 27 to measure its investments including
interest in joint venture at Fair Value through Profit
& Loss rather than consolidate them using equity
method. In order to evaluate this criteria the Group
has considered amongst others:
• the segment’s business purpose is to invest
funds in InvIT & Related Assets solely for returns
from capital appreciation, investment income,
or both
• the segment measures and evaluates the
performance of substantially all of such
investments on a fair value basis. The InvITs &
related assets segment reports in its quarterly
investor information and to the management,
via internal management reports, on a fair value
basis. All investments are reported at fair value
to the extent allowed by Ind AS.
The management has concluded that the InvITs &
related assets segment meets the criteria under
Ind AS 28, read with Ind AS 27 for measuring its
investments, including interest in joint ventures, at
Fair Value through Profit & Loss. This conclusion
will be reassessed on a continuous basis as per
the requirements of Ind AS, if any of these criteria
or characteristics of the segment change.
b) Estimates and assumptions
Estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting
estimates are recognised 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. In the following items there is
significant judgments and estimates which are key
in preparation of standalone financial statements:
Fair value measurement of financial instruments
and contingent consideration receivable (Refer
note 35 and 3.14)
Revenue recognition based on percentage of
completion (Refer note 44)
Impairment of investments/loans given to
subsidiaries (Refer note 3.09 and 3.13)
3.05 Revenue recognition
The Company has applied the following accounting
policy for revenue recognition:
Revenue from contracts with customers:
The Company recognises 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.
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.
Consideration is adjusted for the time value of money if
the period between the transfer of goods or services and
the receipt of payment exceeds twelve months and there
is a significant financing benefit either to the customer or
the Company.
Revenue is recognised to the extent that 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.
The Company recognises revenue from Operations and
Maintenance services using the time-elapsed measure
of progress i.e input method on a straight line basis.
Significant financing component
Generally, the Company receives short-term advances
from its subsidiaries. Using the practical expedient in
Ind AS 115, the Company does not adjust the promised
amount of consideration for the effects of a significant
financing component if it expects, at contract inception,
that the period between the transfer of the promised
good or service to the customer and when the customer
pays for that good or service will be one year or less.
Operation and maintenance contracts
Revenue from maintenance contracts are recognised
over the period of the contract as and when services
are rendered.
Gain on InvITs & Related Assets as per fair value
measurement
Unrealised net gains or losses on InvIT & Related
Assets, including interest in joint venture, which are
measured at FVTPL represents to changes in the fair
value of such investments subsequent to its initial
classification as at FVTPL and exclude realised interest
and dividend income.
Dividend / Interest income from InvITs & Related Assets
Realised gains are recognised as dividend and interest
as per the underlying nature of the distribution.
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 the statement of profit and loss.
Dividends
Dividend is recognised when the Company’s right to
receive the payment is established, which is generally
when shareholders approve the dividend.
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.
3.06 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 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 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.
3.07 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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