3 Material accounting policy information
3.1 Measurement of fair values
A number of the Company’s accounting policies and
disclosures require the measurement of fair values,
for both financial and non-financial assets and
liabilities. 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,
maximizing the use of relevant observable inputs and
minimizing the use of unobservable inputs. The
Company has an established control framework with
respect to the measurement of fair values. The
Company engages with external valuers for
measurement of fair values in the absence of quoted
prices in active markets.
All assets and liabilities for which fair value is
measured or disclosed in the standalone financial
statements are categorized 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 prices (unadjusted) in active
markets for identical assets or liabilities.
- Level 2: inputs other than quoted prices
included in Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices).
- Level 3: inputs for the asset or liability that
are not based on observable market data
(unobservable inputs).
When measuring the fair value of an asset or a
liability, the Company uses observable market data as
far as possible. If the inputs used to measure the fair
value of an asset or a liability fall into different levels
of the fair value hierarchy, then the fair value
measurement is categorized in its entirety in the same
level of the fair value hierarchy as the lowest level
input that is significant to the entire measurement.
The Company recognizes transfers between levels of
the fair value hierarchy at the end of the reporting
period during which the change has occurred.
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
summarizes accounting policy for fair value. Other
fair value related disclosures are given in the relevant
notes.
- Financial instruments (note 37)
- Disclosures for valuation methods,
significant estimates and assumptions (note 37)
- Quantitative disclosures of fair value
measurement hierarchy (note 37)
- Financial instruments (including those
carried at amortized cost) (note 37)
3.2 Property, plant and equipment
1. Recognition, initial measurement and
derecognition
The Company measures items of property, plant and
equipment at cost, which includes capitalized
borrowing costs, less accumulated depreciation and
accumulated impairment losses, if any. Cost of an
item of property, plant and equipment comprises its
purchase price, including import duties and non¬
refundable purchase taxes, after deducting trade
discounts and rebates, any directly attributable cost of
bringing the item to its working condition for its
intended use and estimated costs of dismantling and
removing the item and restoring the site on which it
is located.
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.
2. Subsequent expenditure
The Company capitalises subsequent expenditure
only if it is probable that the future economic benefits
associated with the expenditure will flow to the
Company.
3. Depreciation
The Company calculates depreciation on cost of
items of property, plant and equipment over their
estimated useful lives using the straight-line method,
and generally recognise in the statement of profit and
loss. Freehold land is not depreciated.
The estimated useful lives of items of property, plant
and equipment for the current and comparative
periods are as follows:
The Company reviews depreciation method, useful
lives and residual values at each financial year-end
and adjust if appropriate. Based on technical
evaluation and consequent advice, the management
believes that its estimates of useful lives as given
above best represent the period over which
management expects to use these assets.
3.3 Investment property
Investment property is property held either to earn
rental income or for capital appreciation or for both,
but not for sale in the ordinary course of business, use
in the production or supply of goods or services or for
administrative purposes.
1. Recognition, initial measurement and
derecognition
The Company measures items of investment property
at cost, which includes capitalized borrowing costs,
less accumulated depreciation and accumulated
impairment losses, if any. Cost of an item of
investment property comprises its purchase price,
including import duties and non- refundable purchase
taxes, after deducting trade discounts and rebates, any
directly attributable cost of bringing the item to its
working condition for its intended use and estimated
costs of dismantling and removing the item and
restoring the site on which it is located.
The cost of a self-constructed item of investment
property comprises the cost of materials and direct
labor, any other costs directly attributable to bringing
the item to working condition for its intended use, and
estimated costs of dismantling and removing the item
and restoring the site on which it is located.
The Company discloses fair values of investment
property in the notes. Fair value is determined by an
independent valuer who holds a recognized and
relevant professional qualification and has recent
experience in the location and category of the
investment property being valued.
Investment properties are de-recognized either when
they have been disposed off 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 recognized in
statement of profit or loss in the period of de¬
recognition.
2. Subsequent expenditure
The Company capitalises subsequent expenditure
only if it is probable that the future economic benefits
associated with the expenditure will flow to the
Company.
3. Depreciation
The Company calculates depreciation on cost of
items of property, plant and equipment over their
estimated useful lives using the straight-line method,
and generally recognise in the statement of profit and
loss.
3.4 Impairment of assets
1. Impairment of financial instruments
In accordance with Ind AS 109, the Company applies
expected credit loss (ECL) model for measurement
and recognition of impairment loss for financial
assets. The Company factors historical trends and
forward looking information to assess expected credit
losses associated with its assets and impairment
methodology applied depends on whether there has
been a significant increase in credit risk.
Trade receivables
In respect of trade receivables, the Company applies
the simplified approach of Ind AS 109 (provision
matrix approach), which requires measurement of
loss allowance at an amount equal to lifetime
expected credit losses. Lifetime expected credit
losses are the expected credit losses that result from
all possible default events over the expected life of a
financial instrument.
Other financial assets
In respect of its other financial assets, the Company
assesses if the credit risk on those financial assets has
increased significantly since initial recognition. If the
credit risk has not increased significantly since initial
recognition, the Company measures the loss
allowance at an amount equal to 12-month expected
credit losses, else at an amount equal to the lifetime
expected credit losses. The Company assumes that
the credit risk on a financial asset has not increased
significantly since initial recognition, if the financial
asset is determined to have low credit risk at the
balance sheet date.
The Company assumes that the credit risk on a
financial asset has increased significantly if it is more
than 180 days past due. The Company considers a
financial asset to be in default when: (i) the borrower
is unlikely to pay its credit obligations to the
Company in full, without recourse by the Company
to actions such as realizing security (if any is held);
or (ii) the financial asset is 365 days or past due.
Measurement of expected credit losses
Expected credit losses are a probability-weighted
estimate of credit losses. Credit losses are measured
as the present value of all cash shortfalls (i.e. the
difference between the cash flows due to the
Company in accordance with the contract and the
cash flows that the Company expects to receive).
Presentation of allowance for expected credit losses
in the balance sheet
Loss allowances for financial assets measured at
amortized cost are deducted from the gross carrying
amount of the assets. For debt and securities at
FVTOCI, the loss allowance is charged to profit or
loss and its recognized in OCI.
3.4 Impairment of assets (cont'd)
2. Impairment of non-financial assets
The Company's non-financial assets other than
deferred tax assets, are reviewed at each reporting
date to determine whether there is any indication of
impairment. If any such indication exists, then the
asset's recoverable amount is estimated. For
impairment testing, assets that do not generate
independent cash inflows are grouped together into
cash-generating units (CGUs). Each CGU represents
smallest group of assets that generates cash inflows
that are largely independent of the cash inflows or
other assets or CGUs.
The recoverable amount of a CGU (or an individual
asset) is the higher of its value in use and its fair value
less costs to sell. Value in use is based on the
estimated future cash flows, 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 CGU (or the
asset).
An impairment loss is recognized if the carrying
amount of an asset or CGU exceeds its estimated
recoverable amount. Impairment losses are
recognized in the statement of profit and loss. In
respect of assets for which impairment loss has been
recognized in prior periods, the Company reviews at
each reporting date whether there is any indication
that the loss has decreased or no longer exists.
An impairment loss is reversed if there has been a
change in the estimates used to determine the
recoverable amount. Such a reversal is made only to
the extend that the asset's carrying amount does not
exceed the carrying amount that would have been
determined, net of depreciation or amortization, if no
impairment loss has been recognized.
3.5 Revenue recognition
The Company derives its revenue primarily from sale
of electricity and interest income.
Revenue from different sources is recognized as
below:
- Sale of electricity generated from Wind
Turbine Generators:
i) The Company recognises the income from
supply of power over time on the supply of units
generated from plant to the grid as per terms of the
Power Purchase Agreement (PPA) and Wheeling and
Banking Agreement. The Company considers
whether there are other promises in the contract that
are separate performance obligations to which a
portion of the transaction price needs to be allocated.
In determining the transaction price for the sale of
power, the Company considers the effects of variable
consideration and existence of a significant financing
component. There is only one performance obligation
in the arrangement and therefore, allocation of
transaction price is not required. Invoices are usually
payable within 30 days. Transaction price represents
the contract price, as there are no discounts or other
variable considerations.
ii) Contract balances: A contract asset is the
right to consideration in exchange for goods or
services transferred to the customer. 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. Also,
refer to accounting policies in section 3.4 for
impairment of financial assets.
- Interest income
The Company recognises the interest income using
the effective interest rate method.
In calculating interest income, the effective interest
rate is applied to the gross carrying amount of the
asset (when the asset is not credit impaired).
However, for financial assets that have become
credit-impaired subsequent to initial recognition,
interest income is calculated by applying the effective
interest rate to the amortized cost of the financial
asset. If the asset is no longer credit-impaired, then
the calculation of interest income reverts to the gross
basis.
3.6 Financials instruments
1. Recognition and initial measurement
Trade receivables and debt securities issued are
initially recognized when they are originated. All
other financial assets and financial liabilities are
initially recognized when the Company becomes a
party to the contractual provisions of the instrument.
A financial asset or financial liability is initially
measured at fair value plus, for an item not at fair
value through profit and loss (FVTPL), adjusted with
transaction costs that are directly attributable to its
acquisition or issue. However, trade receivables do
not contain a significant financing component and are
measured at transaction price.
2. Classification and subsequent measurement
A. Financial assets
On initial recognition, a financial asset is classified as
measured at:
- amortized cost;
- FVOCI - debt investment;
- FVOCI - equity investment; or
- Fair Value Through statement of Profit and
Loss (FVTPL)
Financial assets are not reclassified subsequent to
their initial recognition, except if and in the period the
Company changes its business model for managing
financial assets.
A financial asset is measured at amortized cost if it
meets both of the following conditions and is not
designated as at FVTPL:
- the asset is held within a business model
whose objective is to hold assets 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.
At initial recognition, the Company measures a
financial asset at its fair value plus, in the case of a
financial asset not at fair value through profit or loss,
transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of
financial assets carried at fair value through profit or
loss are expensed in profit or loss.
On initial recognition of an equity investment that is
not held for trading, the Company may irrevocably
elect to present subsequent changes in the
investment’s fair value in OCI (designated as FVOCI
- equity investment). This election is made on an
investment- by- investment basis. All financial assets
not classified as measured at amortized cost or
FVOCI as described above are measured at FVTPL.
This includes all derivative financial assets. On initial
recognition, the Company may irrevocably designate
a financial asset that otherwise meets the
requirements to be measured at amortized cost or at
FVOCI as at FVTPL if doing so eliminates or
significantly reduces an accounting mismatch that
would otherwise arise.
B. Financial assets: Business model assessment
The Company makes an assessment of the objective
of the business model in which a financial asset is
held at a portfolio level because this best reflects the
way the business is managed and information is
provided to management. The information
considered includes:
- the stated policies and objectives for the
portfolio and the operation of those policies in
practice. These include whether management’s
strategy focuses on earning contractual interest
income, maintaining a particular interest rate profile,
matching the duration of the financial assets to the
duration of any related liabilities or expected cash
outflows or realizing cash flows through the sale of
the assets;
- how the performance of the portfolio is
evaluated and reported to the Company's
management;
- the risks that affect the performance of the
business model (and the financial assets held within
that business model) and how those risks are
managed;
- how managers of the business are
compensated - e.g. whether compensation is based on
the fair value of the assets managed or the contractual
cash flows collected; and
- the frequency, volume and timing of sales of
financial assets in prior periods, the reasons for such
sales and expectations about future sales activity.
Transfers of financial assets to third parties in
transactions that do not qualify for derecognition are
not considered sales for this purpose, consistent with
the Company's continuing recognition of the assets.
Financial assets that are held for trading or are
managed and whose performance is evaluated on a
fair value basis are measured at FVTPL.
C. Financial assets: Assessment whether
contractual cash flows are solely payments of
principal and interest
For the purposes of this assessment, ‘principal’ is
defined as the fair value of the financial asset on
initial recognition. ‘Interest’ is defined as
consideration for the time value of money and for the
credit risk associated with the principal amount
outstanding during a particular period of time and for
other basic lending risks and costs (e.g. liquidity risk
and administrative costs), as well as a profit margin.
In assessing whether the contractual cash flows are
solely payments of principal and interest, the
Company considers the contractual terms of the
instrument. This includes assessing whether the
financial asset contains a contractual term that could
change the timing or amount of contractual cash
flows such that it would not meet this condition. In
making this assessment, the Company considers:
- contingent events that would change the
amount or timing of cash flows;
- terms that may adjust the contractual coupon
rate, including variable interest rate features;
- prepayment and extension features; and
- terms that limit the Company's claim to cash
flows from specified assets (e.g. non- recourse
features).
D. Financial assets: Subsequent measurement
and gains and losses
Financial liabilities are classified as measured at
amortized cost or FVTPL. A financial liability is
classified as at FVTPL if it is classified as held- for-
trading, or it is a derivative or it is designated as such
on initial recognition. Financial liabilities at FVTPL
are measured at fair value and net gains and losses,
including any interest expense, are recognized in
profit or loss. Other financial liabilities are
subsequently measured at amortized cost using the
effective interest method. Interest expense and
foreign exchange gains and losses are recognized in
profit or loss. Any gain or loss on derecognition is
also recognized in profit or loss.
Recognition and initial measurement
The Company classifies financial liabilities at initial
recognition, as financial liabilities at fair value
through profit or loss and amortized cost.
At initial recognition, the Company measures a
financial liability at its fair value plus, in the case of
a financial liability not at fair value through profit or
loss, transaction costs that are directly attributable to
the financial liability. Transaction costs of financial
liability carried at fair value through profit or loss are
expensed in profit or loss.
Subsequent measurement
The measurement of financial liabilities depends on
their classification, as described below:
Amortized cost
This is the category most relevant to the Company.
After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortized
cost using the effective interest rate (EIR) method.
Gains and losses are recognized in profit or loss when
the liabilities are derecognized as well as through the
EIR amortization process. Amortized cost is
calculated by taking into account any discount or
premium on acquisition and fees or costs that are an
integral part of the EIR. The EIR amortization is
included as finance costs in the statement of profit
and loss.
3. Derecognition
A. Financial assets :
The Company derecognizes a financial asset when
the contractual rights to the cash flows from the
financial asset expire, or it transfers the rights to
receive the contractual cash flows in a transaction in
which substantially all of the risks and rewards of
ownership of the financial asset are transferred or in
which the Company neither transfers nor retains
substantially all of the risks and rewards of ownership
and does not retain control of the financial asset. If
the Company enters into transactions whereby it
transfers assets recognized on its balance sheet, but
retains either all or substantially all of the risks and
rewards of the transferred assets, the transferred
assets are not derecognized.
B. Financial liabilities :
The Company derecognizes a financial liability when
its contractual obligations are discharged or
cancelled, or expire. The Company also derecognizes
a financial liability when its terms are modified and
the cash flows under the modified terms are
substantially different. In this case, a new financial
liability based on the modified terms is recognized at
fair value. The difference between the carrying
amount of the financial liability extinguished and the
new financial liability with modified terms is
recognized in profit or loss.
4. 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 realize the
asset and settle the liability simultaneously.
3.7 Employee benefits
1. Defined contribution plan
The Company pays provident fund contributions to
publicly administered provident funds as per local
regulations. The Company has no further payment
obligations once the contributions have been paid.
The contributions are accounted for as defined
contribution plans and the contributions are
recognized as employee benefit expense when they
are due.
2. Defined benefit plans
The Company's net obligation in respect of defined
benefit plans is calculated separately for each plan by
estimating the amount of future benefit that
employees have earned in the current and prior
periods, discounting that amount and deducting the
fair value of any plan assets.
The calculation of defined benefit obligations is
performed annually by a qualified actuary using the
projected unit credit method. When the calculation
results in a potential asset for the Company, the
recognised asset is limited to the present value of
economic benefits available in the form of any future
refunds from the plan or reductions in future
contributions to the plan. To calculate the present
value of economic benefits, consideration is given to
any applicable minimum funding requirements.
Re-measurement of the net defined benefit liability,
which comprise actuarial gains and losses, the return
on plan assets (excluding interest) and the effect of
the asset ceiling (if any, excluding interest), are
recognised immediately in OCI. Net interest expense
(income) on the net defined liability (assets) is
computed by applying the discount rate, used to
measure the net defined liability (asset), to the net
defined liability (asset) at the start of the financial
year after taking into account any changes as a result
of contribution and benefit payments during the year.
Net interest expense related to defined benefit plans
are recognised in statement of profit or loss. Current
service cost is recognized in the statement of profit or
loss.
When the benefits of a plan are changed or when a
plan is curtailed, the resulting change in benefit that
relates to past service or the gain or loss on
curtailment is recognised immediately in profit or
loss, The Company recognises gains and losses on the
settlement of a defined benefit plan when the
settlement occurs.
3. Short-term benefits
Liabilities for wages and salaries, including non¬
monetary benefits that are expected to be settled
wholly within 12 months after the end of the period
in which the employees render the related service are
recognized and measured at the amounts expected to
be paid when the liabilities are settled. Short-term
employee benefit obligations are measured on an
undiscounted basis. The liabilities are presented as
current employee benefit obligations in the balance
sheet.
Compensated absence, which is a short term defined
benefit, is accrued based on a full liability method
based on current salaries at the balance sheet date for
unexpired portion of leave.
3.8 Income taxes
Income tax comprises current and deferred tax. It is
recognized in the statement of profit and loss except
to the extent that it relates to an item directly
recognized in equity or in other comprehensive
income.
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. The tax rates and tax laws
used to compute the amount are those that are enacted
or substantively enacted, at the reporting date.
Current income tax relating to items recognized
outside profit or loss is recognized outside profit or
loss (either in other comprehensive income or in
equity). Current tax also includes any tax arising from
dividends.
Deferred tax
Deferred tax is provided using the liability method 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
assets are recognized to the extent that it is probable
that the underlying tax loss or deductible temporary
difference will be utilized against future taxable
income. This is assessed based on the Company’s
forecast of future operating results, adjusted for
significant non-taxable income and expenses and
specific limits on the use of any unused tax loss or
credit. 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
liabilities are recognised for all taxable temporary
differences except in respect of taxable temporary
differences associated with investment in
subsidiaries, when the timing of reversal of the
temporary differences can be controlled and it is
probable that the temporary differences will not be
reverse in the foreseeable future.
The Company offsets, the current tax assets and
liabilities (on a year on year basis) and deferred tax
assets and liabilities, where it has a legally
enforceable right and where it intends to settle such
assets and liabilities on a net basis.
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