2. Material Accounting Policies
Information
2.1 Basis of preparation
(i) Statement of compliance
The Standalone Financial Statements of the Company
have been prepared on going concern basis following
accrual system of accounting and in accordance with
accounting principles generally accepted in India,
including the Indian Accounting Standards (Ind AS)
notified under section 133 of the Companies Act, 2013
read together with Rule 3 of the Companies (Indian
Accounting Standards) Rules, 2015 (as amended
from time to time) and presentation requirements of
Division II of Schedule III to the Companies Act, 2013,
(Ind AS compliant Schedule III), as applicable to the
standalone financial statements.
(ii) Basis of measurement
The Standalone Financial Statements have been
prepared under the historical cost convention,
except for the following assets and liabilities which
have been measured at fair value:
• Provisions, where the effect of time value of money is
material are measured at present value
• Certain financial assets and liabilities measured at fair
value
• Defined benefit plans and other long-term employee
benefits
2.2 Summary of material accounting policies
Information
A summary of the material accounting policies
applied in the preparation of the financial
statements are as given below. These accounting
policies have been applied consistently to all
periods presented in the financial statements.
2.2.1 Current vs non-current classification
Based on the time involved between the acquisition
of assets for processing and their realisation in
cash and cash equivalents, the Company has
determined twelve months as its operating cycle
for the purpose of classification of its assets and
liabilities as current and non-current in the balance
sheet.
Deferred tax assets and liabilities are classified as
non-current assets and liabilities.
2.2.2 Property, plant and equipment
Property, plant and equipment are initially stated
at their cost.
The cost of an item of property, plant and
equipment includes:
a) its purchase price, including import duties
and non-refundable purchase taxes, after
deducting trade discounts and rebates;
b) Cost directly attributable to the acquisition of
the asset which incurred in bringing the asset
to the location and condition necessary for
it to be capable of operating in the manner
intended by management.
c) Incidental expenditure during the construction
period is capitalised as part of the indirect
construction cost to the extent the
expenditure is directly related to construction
or is incidental there to.
d) Present value of the estimated costs of
dismantling & removing the items & restoring
the site to the original condition on which it is
located if recognition criteria are met.
Freehold land is carried at historical cost.
Property, plant and equipment are subsequently _
measured at cost net of accumulated depreciation
and accumulated impairment losses, if any.
Subsequent costs are included in the assets
carrying amount or recognised as a separate
asset, as appropriate, only when it is probable that
future economic benefits associated with the item
will flow to the Company and the cost of the item
can be measured reliably. Cost of replacement,
major inspection, repair of significant parts for
long-term construction projects are capitalised if
the recognition criteria are met.
Depreciation is calculated on cost of items of
property, plant and equipment less their estimated
residual values and is charged to the Statement of
Profit and Loss. Depreciation on property, plant and
equipment, excluding freehold land and leasehold
land acquired on perpetual lease is provided on
straight line basis over the estimated useful lives
of the assets as specified under part C of schedule
II of the Companies act, 2013. However, in case of
certain class of assets, the Company uses different
useful life than those prescribed in Schedule II of
the Companies Act, 2013. The useful life has been
assessed based on technical evaluation, taking
into account the nature of those classes of assets,
the estimated usage of the asset on the basis of
the management's best estimation of getting
economic benefits from the asset. The estimated
useful life as per the technical evaluation viz-a-viz
Schedule II of the Companies Act, 2013 has been
disclosed in the notes to accounts. The residual
values is not more than 5% of the original cost of
assets.
Each part of an item of Property, plant and
equipment is depreciated separately if the cost of
part is significant in relation to the total cost of the
item and useful life of that part is different from the
useful life of remaining asset.
Property plant and equipment acquired during the
period, individually costing up to ?5000/- are fully
depreciated, by keeping Re. 1 as token value for
identification. However, Mobile phones provided
to employees are charged to statement of profit
and loss irrespective of its value.
Depreciation methods, useful lives and residual
values are reviewed at each financial year-end.
Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These
are included in statement of profit and loss within
other gains/(losses).
2.2.3 Capital work in progress
Property, plant and equipment that are not yet
ready for their intended use on the reporting date
are disclosed as "capital work in progress". Capital
work in progress is carried at cost less accumulated
impairment loss, if any. The cost comprises of direct
cost and related incidental expenses.
2.2.4 Investment properties
Investment property comprises of completed
property, property under construction and property
held under a lease. Investment properties are
measured initially at cost, including transaction
costs. Subsequently investment properties are
stated at cost less accumulated depreciation and
accumulated impairment loss, if any. Subsequent
cost is added if recognition criteria is met.
The Company depreciates building component
of investment property on straight line basis
over 60 years from the date of original purchase/
completion of construction. Leasehold land acquired
on perpetual lease is not amortised. Depreciation
methods and useful lives are reviewed at each
financial year end.
Though the Company measures investment property
using cost-based measurement, the fair value of
investment property is disclosed in the notes. Fair
value determined based on an annual evaluation
performed by an accredited external independent
valuer applying valuation model acceptable
internationally.
Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These
are included in statement of profit and loss within
other gains/(losses).
2.2.5 Intangible assets
Intangible assets are initially measured at cost.
Intangible assets not ready for the intended use
on the date of the Balance Sheet are disclosed as
"Intangible assets under development".
Subsequently, intangible assets are carried at cost
less accumulated amortisation and accumulated
impairment losses, if any. Software cost up to ?1
Lakh in each case is fully amortised in the period
of purchase, by keeping ?1 as token value for
identification.
The cost of capitalised software is amortised over
a period 36 months from the date of its acquisition.
The residual values is not more than 5% of the
original cost of assets.
Amortisation methods and useful lives are reviewed
at each financial year end.
Gains and losses on disposals are determined by
comparing proceeds with carrying amount. These
are included in statement of profit and loss within
other gains/(losses).
2.2.6 Impairment of non-financial assets
At each reporting date, the Company reviews
the carrying amounts of its non-financial assets
to determine whether there is any indication
of impairment. 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).
If such assets are considered to be impaired, the
impairment to be recognised in the Statement
of Profit and Loss is measured by the amount by
which the carrying value of the assets exceeds the
estimated recoverable amount of the asset.
2.2.7 Investment in equity instruments of subsidiaries
and joint ventures
Investment in equity instruments of subsidiaries
and joint ventures are stated at cost as per Ind
AS 27 'Separate Financial Statements'. Where the
carrying amount of an investment is greater than
its estimated recoverable amount, it is assessed for
recoverability and in case of permanent diminution
provision for impairment is recorded in statement
of Profit and Loss. On disposal of investment, the
difference between the net disposal proceeds and
the carrying amount of investments is recognised to
the statement of profit and loss.
Interests in joint operations
The Company as a joint operator recognises in
relation to its interest in a joint operation, its share
in the assets/liabilities held/ incurred jointly with
the other parties of the joint arrangement. Revenue
is recognised for its share of revenue from the sale
of output by the joint operation. Expenses are
recognised for its share of expenses incurred jointly
with other parties as part of the joint arrangement.
2.2.8 Inventories
Inventories are valued at the lower of cost and net
realisable value. Cost is determined on First in First
out (FIFO) basis.
Construction costs incurred for future contract
activities are recognised as assets if it is probable
that they will be recovered during the contract
period and classified as construction work-in¬
progress under inventories.
Loose tools are expensed in the period of purchase.
2.2.9 Revenue recognition
The Company operates in construction industry
and it earns revenue primarily from the Engineering,
Procurement and Construction ('EPC') business. The
contracts with the customers are of construction
of railways, construction of roads & highways,
construction of commercial and residential buildings,
electrification work and others. The type of work in
these contracts involve geotechnical investigations,
topographical surveys, resource-planning,
preparation of DPR, construction, engineering,
designing, supply of materials, redevelopment
of system, installation, project management,
operations and management etc. ("together called
as construction related services"). The company
provides these construction services on a fixed-sum
turnkey basis as well as on cost plus basis.
Revenue from contract with customers is recognised
when control of the goods or services ("performance
obligation") are transferred to the customer at an
amount that reflects the consideration to which the
Company expects to be entitled in exchange for
those goods or services ("transaction price").
a) Revenue from construction related services
The Company's contracts with the Customers
for the construction related services are
accounted for as a single performance
obligation as contract is negotiated as a
package with a single commercial objective and
involves complex integration of construction
and maintenance services.
Revenue is recognised over the time using
input method (i.e. percentage-of-completion
method) which is consistent with the transfer
of control to the customer because there is a
direct relationship between the Company's
effort (i.e., cost incurred) and the transfer of
service to the customer. Under input method,
contract revenue is recognised as revenue
by reference to the stage of completion as at
the reporting date. The stage of completion is
measured in terms of a proportion of actual cost
incurred to-date, to the total estimated cost
attributable to the performance obligation.
Changes to total estimated contract costs, if
any, are recognised in the period in which they
are determined as assessed at the contract
level. In cases where the input method does
not reliably depicts the progress towards
completion of performance obligation, then
output method is used to recognise revenue.
Any expected losses on contracts in progress
are charged to statement to profit & Loss, in
total, in the period the losses are identified.
Revenue is measured at the transaction price
that is allocated to the performance obligation
and is adjusted for variable considerations.
Variability in the transaction price arises
primarily due to liquidated damages, price
variation clauses, incentives, if any. The
Company recognises revenue for variable
consideration when it is probable that a
significant reversal in the amount cumulative
revenue recognised will not occur. The
company estimates the amount of revenue to
be recognised on variable consideration using
most likely amount method. Consequently,
amounts allocated to a satisfied performance
obligation are recognised as revenue, or as a
reduction of revenue, in the period in which the
transaction price changes.
The Company recognises asset from the
costs incurred to fulfill the contract such as
initial contract expenses on new projects for
mobilisation which will be used in satisfying the
contract and are expected to be recovered.
The asset is amortised over the contract tenure
on a systematic basis that is consistent with
the transfer of control to the customer of the
goods or services to which the asset relates
i.e., stage of completion of the contract as at
the end of reporting period. Site mobilisation
expenditure to the extent not written off valued
at cost.
Contract modifications are accounted for when
additions, deletions or changes are approved
either to the contract scope or contract price.
The accounting for modifications of contracts
involves assessing whether the services
added to the existing contract are distinct
and whether the pricing is at the standalone
selling price. Services added that are not
distinct are accounted for on a cumulative
catch-up basis, while those that are distinct
are accounted for prospectively, either as a
separate contract, if additional services are
priced at the standalone selling price, or as a
termination of existing contract and creation of
a new contract if not priced at the standalone
selling price.
b) Contract balances
Contract assets: If the Company performs by
transferring 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. The portion of the payments
retained by the customer until final contract
settlement is not considered a significant
financing component since it is usually
intended to provide customer with a form of
security for Company's remaining performance
as specified under the contract, which is
consistent with the industry practice.
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). Trade receivables are
recognised initially at the transaction price
as they do not contain significant financing
components. The Company hold the trade
receivable with the objective of collecting the
contractual cash flows and therefore measure
them subsequently at amortised cost using
the effective interest rate method less loss
allowance, if any.
Contract liabilities: 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.
c) Other operating income
• The Rental income of the Company mainly
arises from leasing of machinery, unutilised
office space and investment properties.
These rental incomes are accounted for on
straight-line basis over the lease terms.
• Other operating income represents income
earned from the activities incidental
to business and is recognised when
performance obligation is satisfied and
right to receive the income is established
as per terms of contract.
d) Other income
• Dividend income is recognised when the
right to receive payment is established.
• Interest income is recognised using
Effective Interest rate method.
• Miscellaneous income is recognised when
performance obligation is satisfied and
right to receive the income is established
as per terms of contract.
2.2.10 Borrowing cost
Borrowing costs consist of interest and other costs
that the Company incurs in connection with the
borrowing of funds and are charged to statement
of profit and loss in the period in which they are
incurred except when it meets the criteria for
capitalisation as part of qualifying assets as per Ind
AS 23.
2.2.11 Taxes
Tax expense comprises current tax and deferred
income tax.
a) Current Income Tax
Current tax is determined as the tax payable in
respect of taxable income for the period and
is computed in accordance with relevant tax
regulations. Current income tax is recognised
in statement of profit and loss except to the
extent it relates to items recognised outside
profit or loss in which case it is recognised
either in other comprehensive income or 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.
Current tax assets and tax liabilities are offset
where the entity has a legally enforceable right
to offset and intends either to settle on a net
basis, or to realise the asset and settle the
liability simultaneously.
b) Deferred Tax
Deferred tax is provided for temporary
taxable/deductible difference arising on the
difference of tax base and accounting base
of assets/liabilities using the liability method
and are measured at the enacted tax rates or
substantively enacted tax rates at reporting
date.
Deferred tax is recognised in statement of profit
and loss except to the extent it relates to items
recognised outside profit or loss, in which case
it is recognised (either in other comprehensive
income or in equity).
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
profit will allow the deferred tax asset to
be recovered.
Deferred tax assets and liabilities are offset
when there is a legally enforceable right to
offset current tax assets and liabilities and
when the deferred tax balances relate to the
same taxation authority.
2.2.12 Foreign currencies
Functional and presentation currency
The functional currency and presentation currency
of the Company is Indian Rupees.
currency and the foreign currency at the date of the
transaction.
Foreign currency monetary items outstanding at
the reporting date are reported in the functional
currency using the closing rate (Closing selling rates
for liabilities and closing buying rate for assets).
Non-monetary items denominated in a foreign
currency which are carried at historical cost are not
retranslated and are reported using the exchange
rate at the date of the transaction.
Exchange differences on monetary items are
recognised in Statement of Profit and Loss in the
period in which they arise and are presented on net
basis.
Foreign Operations
Financial statements of foreign operations whose
functional currency is different from Indian Rupees
are translated into Indian Rupees as follows:
a) assets and liabilities (both monetary and non¬
monetary) are translated at the closing rate at
the date of Balance Sheet;
b) income and expenses are translated at average
exchange rate for the reporting period, unless
exchange rate fluctuate significantly during the
period, in which case, the exchange rates at
the dates of transaction are used; and
c) all resulting exchange differences are
recognised in other comprehensive income
and accumulated in equity as foreign
currency translation reserve for subsequent
reclassification to statement of profit and loss
on disposal of such foreign operations.
2.2.13 Employee benefit
a) Short-term employee benefits
Employee benefits such as wages and salaries,
short term compensated absences, and
Performance Related Pay (PRP) falling due
wholly within twelve months of rendering the
service are classified as short-term employee
benefits and undiscounted amount of such
benefits are expensed in the statement of profit
and loss in the period in which the employee
renders the related services.
b) Post-employment benefits
Defined Contribution Plan: The Company
has defined contribution plans which include
an employee pension scheme and a post¬
retirement medical benefit scheme.
The pension scheme was initially administered
through a separate trust, Ircon Defined
Contribution Superannuation Pension Scheme
2009 Trust, and has subsequently been
transferred to the National Pension System
(NPS).
The post-retirement medical benefit scheme is
administered through a trust fund (Ircon Medical
Trust) to which the Company contributes in
accordance with the Department of Public
Enterprises (DPE) guidelines.
The Contributions to these defined contribution
plans are recognised as an expense in the
statement of profit and loss in the period in
which the contributions become due. The
Company has no further payment obligations
once the contributions are made to such
Schemes/Trust.
Defined Benefit Plan: The Company's liability
towards gratuity and provident fund are in the
nature of defined benefit plans.
The gratuity is funded by the Company and is
managed by a separate trust (Ircon Employees
Group Gratuity Trust). The contributions to the
gratuity trust for the period are recognised
as expense and are charged to statement
of profit and loss. The Company pays fixed
contribution to the recognised provident fund
at predetermined rates to a separate trust
(Ircon Contributory Provident Fund Trust),
which invests the funds in permitted securities.
The contributions to the fund for the period
are recognised as expense and are charged to
statement of profit and loss. The obligation of
the company is to make such fixed contributions
and to ensure a minimum rate of return to the
members as specified by the Government of
India.
The Company's net obligation in respect of
defined benefit plans is measured separately
for each plan at the present value of the
estimated future cash flows using a discount
rate based on the market yield on government
securities of a maturity period equivalent to
the weighted average maturity profile of the
defined benefit obligations at each reporting
date. The fair value of the plan assets is reduced
from the gross obligation under the defined
benefit plans to recognise the obligation on a
net basis.
The calculation is performed by an independent
actuary using the projected unit credit method
and provided for if the circumstances indicate
that the Trusts may not be able to generate
adequate returns to cover the interest rates
notified by the Government.
Re-measurement, comprising actuarial gains
and losses, the return on plan assets (excluding
amounts included in net interest on the net
defined benefit liability or asset) is recognised
in other comprehensive income and is reflected
in retained earnings and the same is not eligible
to be reclassified to statement of profit and
loss.
c) Other long-term employee benefits
The Company treats leave encashment
expected to be carried forward beyond
twelve months and leave travel concession as
long-term employee benefit for measurement
purposes. The obligation recognised in respect
of these long-term benefits is measured at
present value of the obligation based on
actuarial valuation using the projected unit
credit method.
Long term employee benefit costs comprising
current service cost, interest cost and gains
or losses on curtailments and settlements, re¬
measurements including actuarial gains and
losses are recognised in the statement of profit
and loss as employee benefit expenses.
2.2.14 Cash and cash equivalents
For the purpose of presentation in the statement
of cash flows, cash and cash equivalents includes
unrestricted cash and short-term deposits with
original maturities of three months and less that are
readily convertible to known amounts of cash and
which are subject to an insignificant risk of change
in value.
2.2.15 Dividend
Annual Dividend distribution to the Company's
equity shareholders is recognised as liability in
the period in which dividend is approved by the
shareholders. Any interim dividend is recognised
as liability on approval by the Board of Directors.
Dividend payable is recognised directly in equity.
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