2C Summary of material accounting policies1. Use of estimates
Estimates and assumptions used in the preparation of these financial statements and disclosures
made therein are based upon Management's evaluation of the relevant facts and circumstances as of
the date of the financial statements, which may differ from the actual results at a subsequent date.
Accounting estimates and judgments are used in various line items in the financial statements:
• Business model assessment
• Fair value of financial instruments
• Provision for employee benefits
• Provision for tax expenses
• Residual value and useful life of property, plant and equipment
• Impairment of financial and non financial assets
2. Revenue recognition
Interest income
I nterest income from debt instruments is recognised using the effective interest rate (EIR) method
on all financials assets subsequently measured under amortised cost or fair value through other
comprehensive income (FVTOCI). The EIR is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset to the gross carrying amount of a financial
asset. When calculating the effective interest rate, the Company estimates the expected cash flows by
considering all the contractual terms of the financial instrument but does not consider the expected
credit losses.
The EIR (and therefore, the amortised cost of the asset) is calculated by considering any discount or
premium on acquisition, fees and costs that are an integral part of the EIR. The Company recognises
interest income using a rate of return that represents the best estimate of a constant rate of return
over the expected life of the instrument.
Interest on financial assets subsequently measured at fair value through profit or loss (FVTPL) is
recognised at the contractual rate of interest.
Dividends
Dividends are recognised in the Statement of Profit and Loss only when right to receive income
is established.
Sales of goods
Revenue towards satisfaction of a performance obligation is measured at the amount of transaction
price (net of variable consideration) allocated to that performance obligation. Amounts disclosed as
revenue are net of goods and services taxes (GST), returns, discounts, rebates and incentives and
other variable consideration. Sales are accounted for on dispatch from the point of sale corresponding
to transfer of control to the buyer. The nature of contracts of the Company are such that no material
part performance obligations would remain unfulfilled at the end of any accounting period.
Other income
The Company recognises income (including rent etc.) on accrual basis. However, where the ultimate
collection of the same lacks reasonable certainty, revenue recognition is postponed to the extent
revenue is reasonably certain and can be reliably measured.
3. Property, plant and equipment and depreciation
Property, plant and equipment (PPE)
The Company had elected to continue with carrying value of all PPE as the deemed cost of PPE i.e.
historical cost. PPE are stated at acquisition or construction cost less accumulated depreciation and
impairment losses, if any. Land is carried at cost of acquisition.
If significant parts of an item of PPE have different useful lives, then they are accounted for as
separate items (major components) of PPE. All other repair and maintenance costs are recognised in
the Statement of Profit and Loss as incurred.
Depreciation
Depreciation on PPE is provided on straight-line method using the rates arrived at based on the
useful lives as specified in the Schedule II of the Companies Act, 2013. Leasehold improvements are
depreciated over the period of lease terms.
Impairment of non financial assets
An assessment is done at each Balance Sheet date as to whether there are any indications that an
asset may be impaired. If any such indication exists, an estimate of the recoverable amount of the
asset/Cash Generating Unit (CGU) is made. Where the carrying value of the asset/CGU exceeds the
recoverable amount, the carrying value is written down to the recoverable amount.
4. Investments and financial assets
Recognition and initial measurement
Financial assets are initially recognised on the trade date, i.e., the date that the Company becomes
a party to the contractual provisions of the instrument. All financial assets are recognised initially
at fair value. Further, in the case of financial assets not recorded at fair value through profit or loss,
transaction costs, that are attributable to the acquisition of the financial asset, are added to the fair
value. However, trade receivables that do not contain a significant financing component are measured
at transaction price.
Subsequent measurement
Subsequent measurement of financial assets depends on the Company's business model for managing
the financial asset and the cash flow characteristics of the financial asset.
The Company classifies its financial assets in the following measurement categories:
• those to be measured subsequently at amortised cost
• those to be measured subsequently at fair value through profit or loss (FVTPL), and
• those to be measured subsequently at fair value through other comprehensive income (FVTOCI)
The classification is done depending upon the Company's business model for managing the financial
assets and the contractual terms of the cash flows.
For assets classified as 'measured at fair value', gain/(loss) will either be recorded in profit or loss or
other comprehensive income, as elected. For assets classified as 'measured at amortised cost', this will
depend on the business model and contractual terms of the cash flows.
Business model assessment
The Company determines its business model at the level that best reflects how it manages groups of
financial assets to achieve its business objective.
The Company's business model is not assessed on an instrument-by-instrument basis, but at a higher
level of aggregated portfolios and is based on observable factors such as:
• How the performance of the business model and the financial assets held within that business
model are evaluated and reported to the entity's key management personnel
• The risks that affect the performance of the business model (and the financial assets held within
that business model) and, in particular, the way those risks are managed
• The expected frequency, value and timing of sales are also important aspects of the
Company's assessment
If cash flows after initial recognition are realised in a way that is different from the Company's original
expectations, the Company does not change the classification of the remaining financial assets held
in that business model, but incorporates such information when assessing newly originated or newly
purchased financial assets going forward.
The SPPI test (Solely Payments of Principal and Interest)
As a second step of its classification process the Company assesses the contractual terms of financial
instruments to identify whether they meet the SPPI test.
' Principal' for the purpose of this test is defined as the fair value of the financial asset at initial
recognition and may change over the life of the financial asset. '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, as well as profit margin.
Subsequently measured at amortised cost
Financial assets that are held for collection of contractual cash flows where those cash flows
represent solely payments of principal and interest are measured at amortised cost e.g. debentures,
bonds, certificate of deposits, open ended target maturity funds etc. A gain/(loss) on a financial asset
that is subsequently measured at amortised cost is recognised in the Statement of Profit and Loss
when the asset is derecognised or impaired. Interest income from these financial assets is included in
investment income using the effective interest rate method.
Subsequently measured at FVTPL
Financial assets that do not meet the criteria for amortised cost, are measured at FVTPL e.g.
investments in mutual funds. A gain/(loss) on a financial asset that is subsequently measured at
FVTPL is recognised in profit or loss and presented net in the Statement of Profit and Loss with other
gain/(loss) in the period in which it arises.
Equity instruments subsequently measured at FVTOCI
The Company subsequently measures all equity investments at FVTPL, unless the Company's
Management has elected to classify irrevocably some of its equity investments as equity instruments
at FVTOCI, when such instruments meet the definition of equity under Ind AS 32 Financial
Instruments: Presentation. Such classification is determined on an instrument-by-instrument basis.
Gain/(loss) on these equity instruments is never recycled to Statement of Profit and Loss.
Dividends are recognised in Statement of Profit and Loss as dividend income when the right of the
payment has been established, except when the Company benefits from such proceeds as a recovery
of part of the cost of the instrument, in which case, such gain is recorded in OCI. Equity instruments at
FVTOCI are not subject to an impairment assessment.
Impairment of financial assets
The Company assesses on a forward-looking basis the expected credit losses associated with its
assets at amortised cost. The impairment methodology applied depends on whether there has been a
significant increase in credit risk and if so, assess the need to provide for the same in the Statement of
Profit and Loss.
Since the Company makes investments in highly rated fixed income securities, which are categorised
as 'subsequently measured at amortised cost', the risk parameters such as tenor, the probability
of default corresponding to the credit rating by rating agency (viz. CRISIL, ICRA), for each of these
instruments is considered in estimating the probable credit loss over life time of such securities.
ECL impairment loss allowance (or reversal) is recognised during the period only if material and is
recognised as income/expense in the Statement of Profit and Loss. This amount is reflected under the
head 'other expenses' in the Statement of Profit and Loss.
Reclassification of financial assets and liabilities
The Company does not reclassify its financial assets subsequent to their initial recognition, apart
from the exceptional circumstances in which the Company acquires, disposes of, or terminates a
business line.
Derecognition of financial assets
A financial asset is derecognised only when:
• The rights to receive cash flows from the asset have expired or
• The Company has transferred its right to receive cash flows from the asset or has assumed an
obligation to pay the received cash flows in full without material delay to a third party under a
'passthrough' arrangement; and either: (a) the Company has transferred substantially all the risks
and rewards of the asset; or (b) the Company has neither transferred nor retained substantially all
the risks and rewards of the asset, but has transferred control of the assets.
Any gain or loss on derecognition will be recognised in the Statement of Profit and Loss.
5. Financial liabilities
Financial liabilities are classified as measured at amortised cost or FVTPL. Financial liabilities at FVTPL
are measured at fair value and net gain and loss, including any interest expense, are recognised in
Statement of Profit and Loss. Other financial liabilities are subsequently measured at amortised cost
using the effective interest rate method. Interest expense and foreign exchange gain and loss are
recognised in the Statement of Profit and Loss. Any gain or loss on derecognition is also recognised in
the Statement of Profit and Loss.
Recognition and initial measurement
All financial liabilities are recognised initially at fair value and, in the case of payables, net of directly
attributable transaction costs.
Subsequent measurement
After initial recognition, all financial liabilities are subsequently measured at amortised cost using the
effective interest rate method. Any gain or loss arising on derecognition of liabilities are recognised in
the Statement of Profit and Loss.
Derecognition
The Company derecognises financial liability when the obligation under the liability is discharged,
cancelled or expired.
6. Employee benefits
Short-term employee benefits and defined contribution plan
Liabilities for salaries, including non-monetary benefits and accumulating leave balance in respect of
employees' services up to the end of the reporting period, are recognised as liabilities (and expensed),
and are measured at the amounts expected to be paid when the liabilities are settled.
The Company also recognises a liability and records an expense for bonuses (including performance-
linked bonuses) where contractually obliged or where there is a past practice that has created a
constructive obligation.
The Company has made contribution to superannuation fund, provident fund and pension scheme as
per the scheme of the Company or to Government authority.
Defined benefits plans (Gratuity Obligation)
The liability or asset recognised in the Balance Sheet in respect of defined benefit gratuity plans is the
present value of the defined benefit obligation at the end of the reporting period less the fair value of
plan assets. The defined benefit obligation is calculated annually by actuaries using the projected unit
credit method. The calculation includes assumptions with regard to discount rate, salary escalation
rate, attrition rate and mortality rate. Management determines these assumptions in consultation with
the plan's actuaries and past trend.
Remeasurements as a result of experience adjustments and changes in actuarial assumptions are
recognised in other comprehensive income. Payment for present liability of future payment of gratuity
is being made to approved gratuity fund viz, Life Insurance Corporation of India (LIC). However, any
deficits in plan assets managed by LIC as compared to actuarial liability determined by an appointed
actuary are recognised as a liability.
Compensated absences
Compensated absences entitlements are recognised as a liability, in the calendar year of rendering of
service, as per the policy of the Company. As accumulated leave can be availed and/or encashed at
any time during the tenure of employment, the liability is recognised on the basis of an independent
actuarial valuation. The compensated absences is calculated annually by actuaries using the projected
unit credit method.
7. Taxation
Current tax
Current income tax assets and liabilities are measured at the amount expected to be recovered
from or paid to the taxation authorities, in accordance with the Income Tax Act, 1961 and the
Income Computation and Disclosure Standards prescribed therein. The tax rates and tax laws used
to compute the amount are those that are enacted or substantively enacted, at the reporting date.
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 income 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 other comprehensive income or directly in equity.
Deferred tax
Deferred tax is provided on temporary differences at the reporting date between the tax bases of
assets and liabilities, and their carrying amounts for financial reporting purposes at the reporting date.
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. The carrying amount of deferred tax assets
is reviewed at each reporting date by the Company 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.
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.
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