3 MATERIAL ACCOUNTING POLICIES
3.1 CURRENT/NON-CURRENT CLASSIFICATION
AH assets and liabilities are classified into current
and non-current.
a. Assets
An asset is classified as current when it satisfies
any of the following criteria:
i. It is expected to be realised in, or is intended
for sale or consumption in, the Company's
normal operating cycle;
ii. It is held primarily for the purpose of being
traded;
iii. It is expected to be realised within 12 months
after the reporting date; or
iv. It is cash or cash equivalent unless it is
restricted from being exchanged or used to
settle a liability for at least 12 months after the
reporting date.
Current assets include the current portion of
non-current financial assets. All other assets
are classified as non-current.
b. Liabilities
A liability is classified as current when it satisfies
any of the following criteria:
i. It is expected to be settled in the Company’s
normal operating cycle;
ii. It is held primarily for the purpose of being
traded;
iii. It is due to be settled within 12 months after
the reporting date; or
iv. The Company does not have an unconditional
right to defer settlement of the liability for at
least 12 months after the reporting date. Terms
of a liability that could, at the option of the
counterparty result in its settlement by the
issue of equity instruments do not affect its
classification.
Current liabilities include current portion
of non-current financial liabilities. All other
liabilities are classified as non-current.
c. Operating cycle
Operating cycle is the time between the acquisition
of assets for processing and their realisation in
cash or cash equivalents. The operating cycle of the
Company is less than twelve months.
3.2 FOREIGN CURRENCY
a. Functional and presentation currency
These standalone financial statements are
presented in Indian Rupees (?), which is also the
Company's functional currency.
b. Foreign currency transactions
Transactions in foreign currencies are translated to
the respective functional currencies of the Company
at the exchange rates prevailing on the date of
the transaction. Monetary items denominated in
foreign currencies are translated into the functional
currency at the year-end rates. Non-monetary items
denominated in foreign currencies and measured
at fair value are translated into the functional
currency at the exchange rate prevalent at the date
when the fair value was determined. Non-monetary
items denominated in foreign currencies and
measured at historical cost are translated into the
functional currency at the exchange rate prevalent
at the date of transaction. Foreign currency
exchange differences on settlement or translation
are recognised in the Statement of Profit and Loss.
3.3 FINANCIAL INSTRUMENTS
a. Initial recognition
Financial assets and liabilities are recognised when
the Company becomes a party to the contractual
provisions of the instrument. Financial assets and
liabilities are initially measured at fair value, except
for trade receivables which are initially measured
at transaction price. Transaction costs that are
directly attributable to the acquisition or issue of
financial assets and financial liabilities (other than
financial assets and financial liabilities at fair value
through profit or loss) are added to or deducted
from the fair value measured on initial recognition
of financial asset or financial liability.
b. Subsequent measurement
i. Non-derivative financial instruments
Financial assets carried at amortized cost
A financial asset is subsequently measured at
amortized cost if it is held within a business
model whose objective is to hold the asset in
order 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.
Financial assets at fair value through other
comprehensive income
A financial asset is subsequently measured
at fair value through other comprehensive
income if it 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.
Financial assets at fair value through profit or
loss
A financial asset which is not classified in any
of the above categories are subsequently fair
valued through profit or loss.
However, in cases where the Company has
made an irrevocable election for particular
investments in equity instruments that would
otherwise be measured at fair value through
profit or loss, the subsequent changes in fair
value are recognised in other comprehensive
income.
Financial liabilities
Financial liabilities are subsequently carried
at amortized cost using the effective interest
method, except for contingent consideration
recognised in a business combination which is
subsequently measured at fair value through
profit and loss. For trade and other payables
maturing within one year from the Balance
Sheet date, the carrying amounts approximate
fair value due to the short maturity of these
instruments.
ii. Derivative financial instruments and hedge
accounting
The Company holds derivative financial
instruments such as foreign exchange forward
contracts to mitigate the risk of changes in
exchange rates on foreign currency exposures.
The Company does not use derivative financial
instruments for speculative purposes. The
counter-party to the Company's foreign
currency forward contracts is generally a bank.
The Company also enters into option
contracts to purchase an additional stake
in its investment in an associate company.
Such derivatives are recognised in its balance
sheet when the Company becomes party to
contractual provisions of the instrument.
A contract to pay or receive a fixed amount on
the occurrence or non-occurrence of a future
event is considered to be a derivative, provided
that this future event depends on a financial
variable or a non-financial variable not specific
to a party to the contract. The Company
considers EBITDA, profit, sales volume (e.g.
revenue) or the cash flows of one counterparty
to be non-financial variable that are specific to
a party to the contract.
Cash flow hedge
The use of hedging instruments is governed by
the Company's policy approved by the Board of
Directors, which provides written principles on
the use of such financial derivatives consistent
with the Company's risk management strategy.
The Company designates certain foreign
exchange forward contracts as cash flow
hedges to mitigate the risk of foreign exchange
exposure on firm commitments and highly
probable forecast transactions.
Such hedging instruments are initially
measured at fair value and are re-measured
at subsequent reporting dates. The effective
portion of changes in the fair value of these
hedging instruments are recognised in other
comprehensive income and accumulated in
other equity under "Effective portion of cash
flow hedges", while any ineffective portion
is recognised immediately in the Statement
of Profit and Loss. Hedge accounting is
discontinued when the hedging instrument
expires or is sold, terminated, or exercised, or
no longer qualifies for hedge accounting. For
forecast transactions any cumulative gain or
loss on the hedging instrument recognised
in other equity is retained until the forecast
transaction occurs. When a hedged transaction
occurs or is no longer expected to occur, the
net cumulative gain or loss recognised in other
equity is transferred to the Statement of Profit
and Loss.
The amount recognised in other comprehensive
income is reclassified to profit or loss as a
reclassification adjustment in the same period
as the hedged cash flows affect profit or loss,
and in the same line item in the Statement of
Profit or Loss.
financial assets or financial liabilities, at fair
value through profit or loss
This category includes derivative financial
assets or liabilities which are not designated
as hedges.
Derivatives not designated as hedges are
recognised initially at fair value and attributable
transaction costs are recognised in the
Statement of Profit and Loss, when incurred.
Subsequent to initial recognition, these
derivatives are measured at fair value through
profit or loss and the resulting changes are
recognised in the Statement of Profit and Loss.
Assets/liabilities in this category are presented
as current assets/current liabilities if they are
either held for trading or are expected to be
realised within 12 months after the Balance
Sheet date.
c. Derecognition of financial instruments
The Company derecognises a financial asset when
the contractual rights to the cash flows from the
financial asset expire or it transfers the financial
asset and the transfer qualifies for derecognition
under Ind-AS 109. A financial liability (or a part
of a financial liability) is derecognised from the
Company's Balance Sheet when the obligation
specified in the contract is discharged or cancelled
or expires.
d. fair value measurement of financial instruments
When the fair value of financial assets and
financial liabilities cannot be measured based on
quoted prices in active markets, the Company
measures fair value using valuation techniques. The
method of assessing fair value results in general
approximation of value and such value may never
actually be realised.
For all other financial instruments the carrying
amount approximates fair value majorly due to
short maturity of those instruments.
e. 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.
3.4 PROPERTY, PLANT AND EQUIPMENT
a. Recognition and measurement
The cost of an item of property, plant and
equipment shall be recognised as an asset if, and
only if 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.
Property, plant and equipment are carried at cost
of acquisition or construction less accumulated
depreciation and/or accumulated impairment loss,
if any. The cost of an item of property, plant and
equipment comprises its purchase price, including
import duties and other non-refundable taxes or
levies and any directly attributable cost of bringing
the asset to its working condition for its intended
use; any trade discounts and rebates are deducted
in arriving at the purchase price. If significant parts
of an item of property, plant and equipment have
different useful lives, then they are accounted for
as separate items (major components) of property,
plant and equipment. Subsequent expenditure
is capitalised only if it is probable that future
economic benefits associated with the expenditure
will flow to the Company.
b. Capital work-in-progress and Capital advances
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
fixed assets outstanding at each balance sheet date
are disclosed under Other Non-Current Assets.
c. Depreciation
Depreciation on property, plant and equipment
is provided on the straight-line method over the
useful lives of the assets. The estimated useful
lives are as follows:
<1> For these class of assets, based on internal assessment,
the useful lives as given above are believed to best represent
the period over which the assets are expected to be used.
Hence, the useful lives for these assets are different from the
useful lives as prescribed under Part C of Schedule II of the
Companies Act, 2013.
Improvements to leased premises are depreciated
over the remaining non-cancellable period of the
lease.
Depreciation methods, useful lives and residual
values are reviewed at the end of each financial
year and adjusted if appropriate.
d. Derecognition
The carrying amount of an item of property, plant
and equipment is derecognised on disposal or when
no future economic benefits are expected from its
use or disposal. The gain or loss arising from the
derecognition of an item of property, plant and
equipment is measured as the difference between
the net disposal proceeds and the carrying amount
of the item and is recognised in the Statement of
Profit and Loss when the item is derecognised.
3.5 LEASES
A contract, or part of a contract, is a lease if that
conveys the right to use an asset (the underlying
asset) for a period of time in exchange for
consideration.
a. The Company as a lessee
The Company accounts for each lease component
within the contract as a lease separately from non¬
lease components of the contract and allocates
the consideration in the contract to each lease
component on the basis of the relative stand-alone
price of the lease component and the aggregate
stand-alone price of the non-lease components.
The Company recognises right-of-use asset
representing its right to use the underlying asset
for the lease term at the lease commencement
date. The cost of the right-of-use asset measured
at inception shall comprise of the amount of the
initial measurement of the lease liability adjusted
for any lease payments made at or before the
commencement date less any lease incentives
received, plus any initial direct costs incurred and
an estimate of costs to be incurred by the lessee
in dismantling and removing the underlying asset
or restoring the underlying asset or site on which it
is located. The right-of-use assets is subsequently
measured at cost less any accumulated
depreciation, accumulated impairment losses, if any
and adjusted for any remeasurement of the lease
liability. The right-of-use assets is depreciated using
the straight-line method from the commencement
date over the shorter of lease term or useful life
of right-of-use asset. The estimated useful lives of
right-of-use assets are determined on the same
basis as those of property, plant and equipment.
Right-of-use assets are tested for impairment
whenever there is any indication that their carrying
amounts may not be recoverable. Impairment loss,
if any, is recognised in the Statement of Profit and
Loss.
The Company initially measures the lease liability
at the present value of the lease payments that
are not paid at the commencement date of the
lease. The lease payments are discounted using
the interest rate implicit in the lease, if that rate
can be readily determined. If that rate cannot be
readily determined, the Company uses incremental
borrowing rate. For leases with reasonably similar
characteristics, the Company, on a lease by lease
basis, may adopt either the incremental borrowing
rate specific to the lease or the incremental
borrowing rate for the portfolio as a whole. The
lease payments shall include fixed payments,
variable lease payments that depend on an index
or a rate, residual value guarantees, exercise
price of a purchase option where the Company
is reasonably certain to exercise that option and
payments of penalties for terminating the lease,
if the lease term reflects the lessee exercising an
option to terminate the lease. The lease liability
is subsequently remeasured by increasing the
carrying amount to reflect interest on the lease
liability, reducing the carrying amount to reflect the
lease payments made and remeasuring the carrying
amount to reflect any reassessment or lease
modifications or to reflect revised in-substance
fixed lease payments.
The Company determines the lease term as the
non-cancellable period of a lease, together with
both periods covered by an option to extend
the lease if the Company is reasonably certain
to exercise that option; and periods covered by
an option to terminate the lease if the Company
is reasonably certain not to exercise that option.
In assessing whether the Company is reasonably
certain to exercise an option to extend a lease,
or not to exercise an option to terminate a lease,
it considers all relevant facts and circumstances
that create an economic incentive for the Company
to exercise the option to extend the lease, or not
to exercise the option to terminate the lease. The
Company revises the lease term if there is a change
in the non-cancellable period of a lease.
The Company recognises the amount of the re¬
measurement of lease liability as an adjustment to
the right-of-use asset. Where the carrying amount
of the right-of-use asset is reduced to zero and
there is a further reduction in the measurement
of the lease liability, the Company recognises any
remaining amount of the re-measurement in the
Statement of Profit and Loss.
The Company has elected not to apply the
requirements of Ind-AS 116 to short-term leases of
all assets that have a lease term of 12 months or
less and leases for which the underlying asset is
of low value. The lease payments associated with
these leases are recognised as an expense on a
straight-line basis over the lease term.
b. The Company as a lessor
Leases for which the Company is a lessor is
classified as a finance or operating lease. Whenever
the terms of the lease transfer substantially all the
risks and rewards of ownership to the lessee, the
contract is classified as a finance lease. All other
leases are classified as operating leases. When the
Company is an intermediate lessor, it accounts for
its interests in the head lease and the sublease
separately. The sublease is classified as a finance
or operating lease by reference to the right-of-use
asset arising from the head lease. For operating
leases, rental income is recognised on a straight
line basis over the term of the relevant lease. If
a head lease is a short term lease to which the
Company applies the exemption described above,
then it classifies the sub-lease as an operating
lease. If an arrangement contains lease and non¬
lease components, the Company applies Ind-AS
115 Revenue to allocate the consideration in the
contract.
3.6 INTANGIBLE ASSETS
a. Recognition and measurement
Intangible assets are stated at cost less accumulated
amortisation and accumulated impairment, if any.
In case of internally generated intangibles, costs
incurred during the research phase of a project are
expensed when incurred. Development activities
involve a plan or design for the production of new
or substantially improved products or processes.
Development expenditure is capitalised only if
development costs 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 to use or
sell the asset. The expenditure capitalised includes
the cost of materials, direct labour, overhead
costs that are directly attributable to preparing the
asset for its intended use, and directly attributable
borrowing costs (in the same manner as in the
case of property, plant and equipment). Other
development expenditure is recognised in the
Statement of Profit and Loss as incurred.
b. Amortisation
Perpetual software licenses are amortised over 4
years. However, time-based software licenses are
amortised over the license period.
Capitalised development costs are amortised over
a period of 3 to 4 years.
The estimated useful life of an identifiable intangible
asset is based on a number of factors including the
effects of obsolescence, demand, competition, and
other economic factors (such as the stability of the
industry, and known technological advances), and
the level of maintenance expenditures required to
obtain the expected future cash flows from the
asset.
Amortisation methods, useful lives and residual
values are reviewed at the end of each financial
year and adjusted if appropriate.
c. Derecognition
Intangible assets are derecognised on disposal or
when no future economic benefits are expected
from its use and subsequent disposal or when the
economic benefits are not measurable. The gain or
loss arising from the derecognition of an intangible
asset is measured as the difference between the
net disposal proceeds and the carrying amount
of the intangible asset and is recognised in the
Statement of Profit and Loss when the asset is
derecognised.
3.7 INVESTMENT IN SUBSIDIARIES, A JOINT
VENTURE AND AN ASSOCIATE
a. Subsidiaries are entities controlled by the
Company. The Company establishes control
when it is exposed, or has rights, to variable
returns from its involvement with the entity
and has the ability to affect those returns
through its power over the entity.
b. A joint venture is a type of joint arrangement in
which the Company has joint control, whereby
the Company has rights to the net assets
of the arrangement, rather than rights to its
assets and obligations for its liabilities.
c. An associate is an entity over which the
Company has significant influence. Significant
influence is the power to participate in the
financial and operating policy decisions of the
investee but is not control or joint control over
those policies.
d. The Company has elected to recognise its
investment in subsidiaries, a joint venture
and an associate at cost in accordance with
the option available in Ind-AS 27, ‘Separate
Financial Statements’. Cost includes cash
consideration paid on initial recognition,
adjusted for embedded derivative and
estimated contingent consideration (earnout),
if any.
e. Contingent consideration forming part of
any business combination and eligible to
be considered as purchase consideration is
measured and recognized as a liability at fair
value at the date of acquisition; subsequent
changes to fair value of the liability is recognized
in the Statement of Profit and Loss.
3.8 IMPAIRMENT
a. Impairment of financial assets (other than
investment in subsidiaries, a joint venture and
an associate)
The impairment provisions of financial assets are
based on assumptions about risk of default and
expected timing of collection.
The Company assesses at each reporting date
whether a financial asset or a group of financial
assets is impaired. Ind-AS 109 requires expected
credit losses to be measured through a loss
allowance. The Company recognises loss allowances
using the expected credit loss (ECL) model for the
financial assets which are not fair valued through
profit or loss.
The Company uses the practical expedient by
computing the expected credit loss allowance for
trade receivables based on simplified provision
matrix where customers are disaggregated based
on their geographical location. The provision matrix
takes into account historical credit loss experience
adjusted for forward looking information.
The Company incorporates forward looking
information into both assessments of whether
the credit risk of an instrument has increased
significantly since its initial recognition and its
measurement of ECL based on variety of external
actual and forecast information.
The Company uses judgment in making these
assumptions and selecting the inputs to the
impairment calculation, based on the Company’s
past history, existing market conditions as well
as forward looking estimates at the end of each
reporting period.
b. Impairment of investment in subsidiaries, a joint
venture and an associate
Investment in subsidiaries, a joint venture and
an associate are tested for impairment whenever
there is an indication that the recoverable amount
of an investment is less than its carrying amount
based on a number of factors including operating
results, business plans, future cash flows and
economic conditions. The recoverable amount of
an investment is determined based on higher of
value-in-use and fair value less cost to sell. If the
recoverable amount of an investment is less than
its carrying amount, the carrying amount is reduced
to its recoverable amount and an impairment loss
is recognised in the Statement of Profit and Loss.
c. Impairment of non- financial assets
property, plant and equipment and intangible
assets
The management periodically assesses using,
external and internal sources, whether there is
an indication that an asset may be impaired.
Impairment loss is recognised when the carrying
value of an asset exceeds its recoverable amount.
The recoverable amount is higher of the asset’s fair
value less cost of disposal and value in use. For the
purpose of impairment testing, assets are grouped
together into the smallest group of assets (cash
generating unit or CGU) that generates cash inflows
from continuing use that are largely independent of
the cash inflows of other assets or CGUs.
Intangible assets which are not yet available for
use are tested for impairment annually. Other
assets (tangible and intangible) are reviewed at
each reporting date to determine if there is any
indication of impairment. For assets in respect of
which any such indication exists and for intangible
assets mandatorily tested annually for impairment,
the asset’s recoverable amount is estimated.
If at the Balance Sheet date there is an indication
that a previously assessed impairment loss no
longer exists or has decreased, the assets or CGU’s
recoverable amount is estimated. For assets other
than goodwill, the impairment loss is reversed to
the extent that the asset’s carrying amount does not
exceed the carrying amount that would have been
determined, net of depreciation or amortisation,
if no impairment loss had been recognised. Such
a reversal is recognised in the Statement of Profit
and Loss.
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