2.2 Material accounting policies
(a) Current versus non-current classification
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.
A 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.
The operating cycle is the time between the
acquisition of assets for processing and their
realisation in cash and cash equivalents. The
Company has identified twelve months as its
operating cycle.
(b) Foreign currencies
Functional and presentation currency
The Company's financial statements are presented
in INR, which is also the Company's functional
currency. Presentation currency is the currency
in which the Company's financial statements are
presented. Functional currency is the currency of the
primary economic environment in which an entity
operates and is normally the currency in which the
entity primarily generates and expends cash. All
the financial information presented in Indian Rupees
(INR) has been rounded to the nearest of lakhs
rupees, except where otherwise stated.
Transactions and balances
Transactions in foreign currencies are initially
recorded by the Company's entities at their
respective functional currency spot rates at the
date the transaction first qualifies for recognition.
However, for practical reasons, the Company uses
an average rate if the average approximates the
actual rate at the date of the transaction.
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
profit or 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).
(c) Fair value measurement
The Company measures financial instruments
at fair value at each balance sheet date except
to certain instruments which are measured at
Amortized cost/ historic cost.
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 are 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 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 financial statements on a recurring basis,
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.
The Company determines the policies and procedures
for both recurring fair value measurement, such as
derivative instruments and unquoted financial assets
measured at fair value. External valuers are involved
for valuation of significant assets and liabilities. The
management selects external valuer on various
criteria such as market knowledge, reputation,
independence and whether professional standards
are maintained by valuer. The management decides,
after discussions with the Company's external
valuers, which valuation techniques and inputs to
use for each case.
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, in conjunction with the
Company's external valuers, also compares the
change in the fair value of each asset and liability
with relevant external sources to determine whether
the change is reasonable.
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.
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 29)
• Quantitative disclosures of fair value
measurement hierarchy (note 34)
• Financial instruments (including those carried
at amortised cost) (note 34)
d) Revenue recognition
The Company applyInd AS 115 "Revenue from
Contracts with Customers" which establishes a
comprehensive framework to depict timing and
amount of revenue to be recognised.
In arrangements for room revenue and related
services, the Company has applied the guidance in
Ind AS 115 for recognition of Revenue from contract
with customer, by applying the revenue recognition
criteria for each distinct performance obligation.
The arrangements with customers generally
meet the criteria for considering room revenue
and related services as distinct performance
obligations. For allocating the transaction price,
the Company has measured the revenue in respect
of each performance obligation of a contract at its
relative standalone selling price. The price that is
regularly charged for an item when sold separately
is the best evidence of its standalone selling price.
Revenue is recognized 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 towards satisfaction of a
performance obligation is measured at the amount
of transaction price (net of variable consideration)
allocated to that performance obligation. The
transaction price of goods sold and services
rendered is net of variable consideration on account
ofvarious discounts and schemes offered by the
Company as part of the contract. The Company
assesses its revenue arrangements against specific
criteria to determine if it is acting as principal or
agent. The Company has concluded that it is acting
as a principal in all of its revenue arrangements.
The specific recognition criteria described below
must also be met before revenue is recognized.
Value Added Tax (VAT)/Goods and Service
Tax(GST) is not received by the Company on its
own account. Rather, it is tax collected on value
added to the commodity by the seller on behalf of
the government. Accordingly, it is excluded from
revenue.
Rooms, Restaurant, Banquets and Other
Services
I ncome from guest accommodation is recognized
on a day to day basis after the guest checks into the
Hotels and are stated net of allowances. Incomes
from other services are recognized as and when
services are rendered. Sales are stated exclusive of
Value Added Taxes (VAT), and Goods and Service
Tax (GST). Difference of revenue over the billed as
at the year-end is carried in financial statement as
unbilled revenue separately.
Sale of goods
Revenue from the sale of goods is recognised when
the significant risks and rewards of ownership of
the goods have passed to the buyer, sale of food
and beverage are recognized at the points of
serving these items to the guests. Sales are stated
exclusive of VAT/ Goods and Service Tax (GST).
Interest income
For all financial instruments measured at amortized
cost, 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 net carrying amount of the financial asset
or liability. Interest income is included in finance
income in the income statement.
Dividends
Revenue is recognized when the Company's right
to receive the payment is established, which is
generally when shareholders approve the dividend.
Management and other related fee
The Company provides hotel management
services, loyalty program, grant licences to use its
trade mark & other intellectual property and other
allied services. Revenue from the management
services comprises fixed and variable income.
The Company recognizes revenue relating to the
fixed income over time by measuring the progress
towards complete satisfaction of the performance
obligation. In respect of variable income, revenue
is recognized on an accrual basis in accordance
with the terms of the relevant agreement.
(e) Taxes
Tax expense represents Current tax and Deferred
tax.
Current tax
The tax currently payable is based on taxable profit
for theyear. 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 and items that
are never taxable or deductible. The current tax is
calculated using tax rates that have been enacted
or substantively enacted by the end of the reporting
period.
Current tax assets and liabilities are measured at
the amount expected to be recovered from or paid
to the taxation authorities.
Current tax relating to items recognised outside
profit or loss is recognised outside profit or loss
(either in other comprehensive income or in equity).
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 provided using the balance sheet
approach on 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
and associates, 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 (including MAT credit) and any unused
tax losses. Deferred tax assets are recognised to
the extent that it is probable that taxable profit
will be available against which the deductible
temporary differences, and the carry forward of
unused tax credits and unused tax losses can be
utilised, 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
• In respect of deductible temporary differences
associated with investments in subsidiaries
and associates, deferred tax assets are
recognised only to the extent that it is probable
that the temporary differences will reverse in
the foreseeable future and taxable profit will
be available against which the temporary
differences can be utilised
The carrying amount of deferred tax assets
(including MAT credit available) 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.
Tax benefits acquired as part of a business
combination, but not satisfying the criteria for
separate recognition at that date, are recognised
subsequently if new information about facts and
circumstances change. Acquired deferred tax
benefits recognised within the measurement period
reduce goodwill related to that acquisition if they
result from new information obtained about facts
and circumstances existing at the acquisition date.
If the carrying amount of goodwill is zero, any
remaining deferred tax benefits are recognised in
OCI/ capital reserve depending on the principle
explained for bargain purchase gains. All other
acquired tax benefits realised are recognised in
profit or loss.
') Property, plant and equipment( including Capital
work in progress)
Property, Plant and equipment is stated at cost,
net of accumulated depreciation and accumulated
impairment losses, if any. Such cost includes the
cost of replacing part of the plant and equipment and
borrowing costs for long-term construction projects
if the recognition criteria are met. Such properties
are classified to the appropriate categories of
property, plant and equipment when completed
and ready for intended use. Depreciation of these
assets, on the same basis as other property assets,
commences when the assets are ready for their
intended use. Freehold land is not depreciated.
Capital work in progress is stated at cost.
Subsequent costs are included in the asset's
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. The carrying amount of
any component accounted for as a separate asset
is derecognised upon disposal or when no future
economic benefits are expected to arise from the
continued use of the asset. All other repairs and
maintenance are charged to profit or loss during
the reporting period in which they are incurred.
Freehold land is not depreciated. Capital work in
progress is stated at cost.
The present value of the expected cost for the
decommissioning of an asset after its use is
included in the cost of the respective asset if the
recognition criteria for a provision are met.
Depreciation on PPE is provided as per Schedule II
of Companies Act, 2013 on Straight Line Method
over its economic useful life of PPE as follows:
The Company, based on management estimates,
depreciates certain items of building, plant and
equipment over estimated useful lives which are
lower than the useful life prescribed in 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.
Building on leasehold land (other than perpetual
lease)/improvements to leased buildings are
depreciated over the useful life or the remaining
lease period /expected lease period, whichever is
lower.
An item of property, plant and equipment and any
significant part initially recognized is derecognized
upon disposal or when no future economic benefits
are expected from its use or disposal. Any gain
or loss arising on derecognition of the asset
(calculated as the difference between the net
disposal proceeds and the carrying amount of the
asset) is included in the income statement when
the asset is derecognized.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end, and adjusted
prospectively if appropriate.
(g) Intangible assets
Intangible assets acquired separately are measured
on initial recognition at cost. The cost of intangible
assets acquired in a business combination is their
fair value at the date of acquisition. Following
initial recognition, intangible assets are carried
at cost less any accumulated amortization and
accumulated impairment losses. Internally
generated intangibles, excluding capitalised
development costs, are not capitalised and the
related expenditure is reflected in profit or loss in
the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed
as 10 years for Brand (Keys Hotels) and 3 years for
other intangible assets which shall be amortised on
Straight line basis over its useful life.
Intangible assets with indefinite useful lives are
not amortized, but are tested for impairment at
each year end and whenever there is an indication
that the intangible assets may be impaired, either
individually or at the cash generating unit level.
The assessment of indefinite life is reviewed at
each period to determine whether the indefinite life
continues to be supportable. If not, the change in
useful life from indefinite to finite is made on a
prospective basis.
Gains or losses arising from derecognition of an
intangible asset are measured as the difference
between the net disposal proceeds and the carrying
amount of the asset and are recognized in the
income statement when the asset is derecognized.
(h) Investment properties
I nvestment properties are properties held to earn
rentals and/or for capital appreciation (including
property under construction for such purposes).
Investment properties are measured initially at
cost, including transaction costs. Subsequent
to initial recognition, investment properties are
stated at cost less accumulated depreciation and
accumulated impairment loss, if any.
The Company depreciates building component of
investment property over the remaining estimated
useful life on the date of purchase after considering
total economic useful life of 60 years.
Though the Company measures investment
property using deemed cost based measurement,
the fair value of investment property is disclosed
in the notes. Fair values are determined based on
an evaluation performed by an accredited external
independent valuer.
Investment properties are derecognised either
when they have been disposed of or when they
are permanently withdrawn from use and no future
economic benefit is expected from their disposal.
The difference between the net disposal proceeds
and the carrying amount of the asset is recognised
in profit or loss in the period of derecognition.
(i) Borrowing costs
Borrowing cost includes interest expense as per
Effective Interest Rate (EIR).
Borrowing costs directly attributable to the
acquisition or construction of an asset that
necessarily takes a substantial period of time to
get ready for its intended use are capitalised as
part of the cost of the asset until such time that
the assets are substantially ready for their intended
use. Where funds are borrowed specifically
to finance a project, the amount capitalised
represents the actual borrowing costs incurred.
Where surplus funds are available out of money
borrowed specifically to finance a project, the
income generated from such current investments
is deducted from the total capitalized borrowing
cost. Where the funds used to finance a project
form part of general borrowings, the amount
capitalised is calculated using a weighted average
of rates applicable to relevant general borrowings
of the Company during the year. Capitalisation
of borrowing costs is suspended and charged to
profit and loss during the extended periods when
the active development on the qualifying assets is
interrupted.
EIR is the rate that exactly discounts the estimated
future cash payments or receipts over the expected
life of the financial liability or a shorter period, where
appropriate, to the amortised cost of a financial
liability after considering all the contractual terms
of the financial instrument.
(j) Leases
The Company assesses that the contract is, or
contains, a lease if the contract conveys the right
to control the use of an identified asset for a period
of time in exchange for consideration. To assess
whether a contract conveys the right to control the
use of an identified asset, the Company assesses
whether:
(1) The contract involves the use of an identified
asset,
(2) The Company has substantially all of the
economic benefits from use of the identified
asset, and
(3) The Company has the right to direct the use of
the identified asset.
Company as a lessee
The Company recognizes 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 plus any initial direct costs
incurred. 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 asset is depreciated from the
commencement date over the shorter of the lease
term and useful life of the underlying asset. 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 measures the lease liability at the
present value of the lease payments over the lease
term. 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 adopts the
incremental borrowing rate for the entire portfolio
of leases as a whole. The lease payments shall
include fixed payments, variable lease payments,
exercise price of a purchase option and payments
of penalties for terminating 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 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 recognizes
any remaining amount of the re-measurement in
statement of profit and loss.
The Company has elected not to apply the
requirements of Ind AS 116 to leases for which
the underlying asset is of low value. The lease
payments associated with these low value leases
are recognized as an expense on a straight-line
basis over the lease term.
Company as a lessor
Leases where the Company does not transfer
substantially all the risks and rewards incidental to
ownership of the asset are classified as operating
leases. Lease rentals under operating leases are
recognized as income on a straight-line basis over
the lease term.
(k) Inventories
Stock of food and beverages, stores and operating
supplies are valued at lower of cost and net
realisable Value. Cost includes cost of purchase
and other costs incurred in bringing the inventories
to their present location and condition. Cost is
determined on a first in first out basis. Net realisable
value is the estimated selling price in the ordinary
course of business less estimated costs necessary
to make sale.
(l) Impairment of non-financial assets
The Company assesses at each reporting date
whether there is an indication that an asset may
be impaired. If any indication exists, or when
annual impairment testing for an asset is required,
the Company estimates the asset's recoverable
amount. An asset's recoverable amount is the
higher of an asset's or cash-generating unit's
(CGU) fair valueless costs of disposal and its value
in use. The recoverable amount is determined
for an individual asset, unless the asset does not
generate cash inflows that are largely independent
of those from other assets or Company's of assets.
Where the carrying amount of an asset or CGU
exceeds its recoverable amount, the asset is
considered impaired and is written down to its
recoverable amount. 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. In determining net selling price,
recent market transactions are taken into account,
if available. If no such transactions can be
identified, an appropriate valuation model is used.
These calculations are corroborated by valuation
multiples, quoted share prices for publicly traded
companies or other available fair value indicators.
The Company bases its impairment calculation on
detailed budgets and forecast calculations, which
are prepared separately for each of the Company's
CGUs to which the individual assets are allocated.
These budgets and forecast calculations generally
cover a period of five/six years. For longer periods,
a long-term growth rate is calculated and applied
to project future cash flows after the fifth year.
To estimate cash flow projections beyond periods
covered by the most recent budgets/forecasts, the
Company extrapolates cash flow projections in the
budget using a steady or declining growth rate for
subsequent years, unless an increasing rate can
be justified. In any case, this growth rate does not
exceed the long-term average growth rate for the
products, industries, or country in which the entity
operates, or for the market in which the asset is
used.
Impairment losses including impairment on
inventories, are recognised in the statement of
profit and loss.
An assessment is made at each reporting date
to determine whether there is an indication that
previously recognised impairment losses no longer
exist or have decreased. If such indication exists,
the Company estimates the asset's or CGU's
recoverable amount. A previously recognised
impairment loss is reversed only if there has been
a change in the assumptions used to determine
the asset's recoverable amount since the last
impairment loss was recognised. The reversal is
limited so that the carrying amount of the asset does
not exceed its recoverable amount, nor exceed the
carrying amount that would have been determined,
net of depreciation, had no impairment loss been
recognised for the asset in prior years. Such
reversal is recognised in the statement of profit
or loss unless the asset is carried at a revalued
amount, in which case, the reversal is treated as a
revaluation increase.
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