3 Material Accounting policies3.1. Classification of Current and Non-current
All assets and liabilities have been classified as current or non-current as per the Company’s
normal operating cycle and other criteria set out in the schedule III to the Act. Based on the
nature of products / services and time between acquisition of assets for processing / rendering
of services and their realization in cash and cash equivalents, the Company has ascertained the
operating cycle as twelve months for the purpose of current or non-current classification of
assets and liabilities.
3.2 Property, plant and equipment(‘PPE’) and Depreciation
a. Property, plant and equipment are stated at cost of acquisition / construction less
accumulated depreciation and accumulated impairment losses, if any. Gross carrying
amount of all property, plant and equipment is measured using cost model.
b. Cost of an item of property, plant and equipment includes purchase price including non
- refundable taxes and duties, borrowing cost directly attributable to the qualifying asset,
any costs directly attributable to bringing the asset to the location and condition necessary
for its intended use and the present value of the expected cost for the dismantling/
decommissioning of the asset.
c. Parts (major components) of an item of property, plant and equipment having different
useful lives are accounted as separate items of property, plant and equipment.
d. Subsequent expenditures related to an item of property, plant and equipment are added to
its book value only if they increase the future benefits from the existing asset beyond its
previously assessed standard of performance.
e. Property, plant & equipment are eliminated from Consolidated Financial Statements
either on disposal or when retired from active use. Assets held for disposal are stated
at net realizable value. Losses arising in the case of retirement of property, plant and
equipment and gains or losses arising from the disposal of property, plant & equipment
are recognized in the statement of profit and loss in the year of occurrence.
f. Depreciation
Depreciation on property, plant and equipment (other than freehold land and capital work
in progress) is provided on a written down value (WDV) over their useful lives which is
in consonance with the useful life mentioned in Schedule II to the Companies Act, 2013:
Depreciation methods, useful lives and residual values are reviewed periodically,
including at the end of each financial year and adjusted prospectively.
In case of assets purchased or derecognized during the year, depreciation on such assets
is calculated on a pro-rata basis from the date of such addition or as the case may be, upto
the date on which such asset has been derecognized.
3.3 Impairment of Non Financial Assets
The carrying amounts of assets are reviewed at each balance sheet date for any indication of
impairment based on internal / external factors. An impairment loss is recognised wherever
the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is
the higher of a) the fair value of the assets less the cost of disposal and b) its value in use.
Value in use is the present value of future cash flows expected to derive from an asset or Cash¬
Generating Unit (CGU).
Based on the assessment done at each balance sheet date, recognised impairment loss is further
provided or reversed depending on changes in circumstances. After recognition of impairment
loss or reversal of impairment loss as applicable, the depreciation charge for the asset is adjusted
in future periods to allocate the asset’s revised carrying amount, less its residual value (if any),
on a systematic basis over its remaining useful life. If the conditions leading to recognition of
impairment losses no longer exist or have decreased, impairment losses recognised are reversed
to the extent it does not exceed the carrying amount that would have been determined after
considering depreciation had no impairment loss has been recognised in earlier years.
3.4 Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity.
(a) Financial Assets:
I. Initial measurement:
All financial assets are recognised initially at fair value plus, 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. Financial assets are classified, at
initial recognition, as subsequently measured at amortised cost, fair value through
other comprehensive income (OCI), and fair value through profit or loss.
The classification of financial assets at initial recognition depends on the financial
asset’s contractual cash flow characteristics and the Company’s business model for
managing them. The business model for managing financial assets refers to how
it manages its financial assets in order to generate cash flows. The business model
determines whether cash flows will result from collecting contractual cash flows,
selling the financial assets, or both.
II. Subsequent measurement:
a. Financial assets at amortised cost
Financial assets are subsequently measured at amortised cost if these financial
assets are held within a business whose objective is to hold these assets to
collect contractual cash flows and the contractual terms of the financial assets
give rise on specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
b. Financial assets at fair value though other comprehensive income.
Financial assets are measured at fair value through other comprehensive
income if these financial assets are held within a business whose objective is
achieved by both collecting contractual cash flows on specified dates that are
solely payments of principal and interest on the principal amount outstanding
and selling financial assets.
c. Financial assets at fair value through profit or loss
Financial assets are measured at fair value through profit or loss unless they
are measured at amortised cost or at fair value through other comprehensive
income on initial recognition. The transaction costs directly attributable to the
acquisition of financial assets and liabilities at fair value through profit or loss
are immediately recognised in standalone statement of profit and loss.
d. Investment in subsidiaries
Investment in subsidiaries are measured at cost less impairment loss, if any.
III. Derecognition
The Company derecognises a financial asset only when the contractual rights to
the cash flows from the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another entity.
IV. Impairment:
A financial asset is regarded as credit impaired or subject to a significant increase
in credit risk, when one or more events that may have a detrimental effect on the
estimated future cash flow of the assets have occurred. The Company applies the
expected credit loss model recognizing impairment loss on financial assets. The
Company follows a ‘simplified approach’ for recognition of impairment loss
allowance on trade receivables.
(b) Financial Liabilities:
I. Initial recognition and measurement:
All financial liabilities are recognised initially at fair value and, in the case of loans
and borrowings and payables, net of directly attributable transaction costs.
II. Subsequent measurement
a. Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial
liabilities held for trading and financial liabilities designated upon initial
recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for
the purpose of repurchasing in the near term. Separated embedded derivatives
are also classified as held for trading unless they are designated as effective
hedging instruments.
Gains or losses on liabilities held for trading are recognised in the statement of
profit and loss.
Financial liabilities designated upon initial recognition at fair value through
profit or loss are designated as such at the initial date of recognition, and
only if the criteria in Ind AS 109 are satisfied. For liabilities designated as
FVTPL, fair value gains/ losses attributable to changes in own credit risk are
recognized in OCI. These gains/ losses are not subsequently transferred to the
standalone statement of profit and loss. However, the Company may transfer
the cumulative gain or loss within equity. All other changes in fair value of
such liability are recognised in the statement of profit and loss. The Company
has not designated any financial liability as at fair value through profit or loss.
b. Financial liabilities at amortized cost (Loans and Borrowings)
After initial recognition, interest-bearing loans and borrowings are subsequently
measured at amortised cost using the Effective Interest Rate (EIR) method.
Gains and losses are recognised in the statement of profit and loss when the
liabilities are derecognised as well as through the EIR amortisation process.
Amortised 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
amortisation is included under the finance costs in the standalone statement of
profit and loss.
III. Derecognition:
A financial liability is derecognised when the obligation under the liability is
discharged or cancelled or expires. When an existing financial liability is replaced
by another from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange or modification
is treated as the derecognition of the original liability and the recognition of a new
liability. The difference in the respective carrying amounts is recognized in the
standalone statement of profit and loss
(c) Compound financial instruments
The liability component of a compound financial instrument is recognised initially at fair
value of a similar liability that does not have an equity component. The equity component
is recognised initially as the difference between the fair value of the compound financial
instrument as a whole and the fair value of the liability component. Any directly
attributable transaction costs are allocated to the liability and the equity components, if
material, in proportion to their initial carrying amounts.
Subsequent to the initial recognition, the liability component of a compound financial
instrument is measured at amortised cost using the effective interest rate method. The
equity component of a compound financial instrument is not re-measured subsequent to
initial recognition except on conversion or expiry.
(d) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the
balance sheet if there is a currently enforceable legal right to offset the recognised amounts
and there is an intention to settle on a net basis, to realise the assets and settle the liabilities
simultaneously.
(e) Re-classification
The Company determines the classification of financial assets and liabilities on initial
recognition. After initial recognition, no re-classification is made for financial assets
which are equity instruments and financial liabilities. For financial assets which are debt
instruments, a reclassification is made only if there is a change in the business model
for managing those assets. Changes to the business model are expected to be infrequent.
The management determines the change in the business model as a result of external
or internal changes which are significant to the Company’s operations. A change in the
business model occurs when the Company either begins or ceases to perform an activity
that is significant to its operations. If the Company reclassifies financial assets, it applies
the reclassification prospectively from the reclassification date which is the first day of the
immediately next reporting period following the change in business model. The Company
does not restate any previously recognised gains, losses (including impairment gains or
losses) or interest.
3.5 Income Taxes
(a) Current tax:
Tax expenses for the year comprise of current tax, deferred tax charge or credit and the
adjustments of taxes for earlier years. In respect of amounts adjusted outside profit or loss
(i.e. in other comprehensive income or equity), the corresponding tax effect, if any, is also
adjusted outside profit or loss.
Provision for current tax is made as per the provisions of the Income Tax Act, 1961.
(b) 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 liabilities are recognised for all taxable
temporary differences, and deferred tax assets are recognised for all deductible temporary
differences, carry forward tax losses and allowances to the extent that it is probable
that future taxable profits will be available against which those deductible temporary
differences, carry forward tax losses and allowances can be utilised.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
in the year when the asset is realized 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
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
taxation authority.
Deferred tax assets are recognised only to the extent that it is probable that future taxable
profit will be available against which such deferred tax assets can be utilized. In situations
where the Company has unused tax losses and unused tax credits, deferred tax assets are
recognised only if it is probable that they can be utilized against future taxable profits.
Deferred tax assets are reviewed for the appropriateness of their respective carrying
amounts at each Balance Sheet date.
At each reporting date, the Company re-assesses unrecognised deferred tax assets. It
recognises previously unrecognised deferred tax assets to the extent that it has become
probable that future taxable profits allow deferred tax assets to be recovered.
3.6 Cash and cash equivalents
Cash and cash equivalents include cash in hand, bank balances and any deposits with original
maturities of three months or less (that are readily convertible to known amounts of Cash and
cash equivalents and subject to an insignificant risk of changes in value). However, for the
purpose of the Statement of cash flows, in addition to the above items, any bank overdrafts /
cash credits that are integral part of the Company’s cash management, are also included as a
component of Cash and cash equivalents.
|