5. ACCOUNTING POLICIES
5.1 CASH & CASH EQUIVALENTS
Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term investments
with an original maturity of three months or less.
5.2 FINANCIAL INSTRUMENTS
The Company recognizes financial assets and financial liabilities when it becomes a party to the contractual
provisions of the instrument.
Company has a business model of 'Hold to collect' with sole purpose of collecting principal and interest from
loans, thus as per Ind AS 109- 'Financial Instruments' Loans are measured at amortized cost.
Other financial assets or liabilities maturing within one year from the balance sheet date are measured at the
carrying value as the same approximate the fair value due to the short maturity of these instruments.
The valuation of listed shares is considered at market price and that of security receipts as per the valuation report
as at Balance Sheet date. Monetary Assets and liabilities denominated in foreign currencies at the reporting date
are translated into the functional currency at the exchange rate at that date and valued at fair value as on the
balance sheet date.
5.3 IMPAIRMENT OF FINANCIAL ASSETS
I n accordance with Ind AS 109, the Company applies Expected Credit Loss (ECL) model for measurement and
recognition of impairment loss of the financial assets on the basis of their credit risk exposure.
For the same, ECL is measured as per the management policy after performing due diligence of Company's
historical data in regards to the respective asset. Also, since company is a RBI registered ND-SI- NBFC and as per
RBI guidelines, a 0.4% provision for Standard Assets is created against Company's credit exposures.
The Company shows overdue installment amount of customers under trade receivables.
Expected Credit Loss model:
Company's Credit loss system is based on its credit risk function and the risk perceives. Under Ind AS, credit loss
provisioning is mainly based on past trends and judgment of the entity. Implementation of expected credit losses
not only consider historical data but also incorporates consideration to forward looking information.
Both 12 months ECL and life time ECL are calculated on individual and collective basis, depending on the nature of
the underlying portfolio of financial instrument.
Determining significant increase in credit risk
It is very judgmental to determine the significant increase in credit risk, which enable entity to move from stage 1
to stage 2. i.e. to move from 12 month expected losses to life time expected losses. Entity need to assess significant
increase in credit risk as compared to its initial recognition level by considering significant changes in financial
position of a borrower, expected or current delay in payment, historical trend of the repeat borrowers etc.
Company also has a policy to perform an assessment, at the end of each reporting period, of whether a financial
instrument's credit risk has increased significantly since initial recognition.
Forward looking information
ECL is based on history of financial asset and includes forward-looking statement; however, it is a forecast about
future conditions over the entire expected life of a financial instrument. The forward-looking information is based
on:
- Internal historical credit loss experience, and the period of time over which its historical data has been captured
and the corresponding economic conditions represented in the past.
- Effects that were not present in the past or to remove the effects that are not relevant for the future.
- Macroeconomic factors such as interest rates.
The Calculations of ECL
Company calculates ECL on the basis of probability-weighted average scenarios on the basis of historical data.
The calculation of ECL has following key elements of Company's internal estimates:
Probability of default (PD)
It is an estimate of the likelihood of default over a given time horizon.
Exposure at default
Estimate of an exposure at a future default date -expected changes in exposure after the reporting date.
Loss Given Default
Estimate of the loss arising on default. It is based on the difference between contractual cash flows that are due
and expected to receive including from collateral. It is generally referred as a percentage of exposure at default.
Discount rate
Used to discount an expected loss to a present value at the reporting date using the effective interest rate.
ECL system
Stage1: At stage one 12 months ECL is recognized which is calculated as the portion of total outstanding advances,
that are overdue till 30 days, that result from a default event on the financial instrument that are possible within
12 months after the reporting date. Company calculates the 12 months ECL provision based on the expectation
of default occurring in 12 months following the reporting date. These expected 12 month default probabilities are
applied to an EAD and multiplied by the expected LGD.
Stage 2: When a loan has shown a significant increase in the credit risk, i.e., where the same is overdue till 90 days,
PDL records a provision for life time ECL. PDs and LGDs in this case are estimated over life span of the financial
instrument.
Stage 3: When a loan is considered credit-impaired, i.e., where the same is overdue for past 90 days, Company
recognize the lifetime expected credit losses. In this scenario PD is estimated at 100%. For Company, stage 3
incorporates the loans which are due past 90 days but, in certain cases where the internal assessment of the
individual borrowers reflects that the overdue amount can be recovered in the near future then the same is
subjected to some additional provision other than the prescribed provisioning.
Conclusion
ECL concept is to recognize the expected loss on the defaulted advances on timely basis so as to present a
true and fair view of financial position of the Company. Also, Ind AS states that entity can adopt any ECL model
to present its historical trends adjusted for its forward-looking information. However, as per Company's internal
policy, the Company follows a policy of writing off 100% of Sub-Standard Assets in respect oof these cases where
possibility of recoveries are remote which does incorporate the requirements of Ind AS of better presentation of
financial position.
Company ECL model is subjected to review every year.
5.4 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 balance sheet when the obligation
specified in the contract is discharged or cancelled or expires.
5.5 INVESTMENTS
Investments are carried at cost in the separate financial statements. Investments in subsidiary is measured at the
previous GAAP carrying amount as per the provisions of Ind AS 27 - 'Separate Financial Statements'.
5.6 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation and impairment, if any or at fair
market value if the same present a better presentation of Company's financial position.
Costs directly attributable to acquisition are capitalized until the property, plant and equipment are ready for use,
as intended by the Management. 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.
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain or loss on disposal of an item of property, plant
and equipment is recognized in the statement of profit and loss.
Depreciation methods, useful lives and residual values are reviewed periodically, including at each financial year
end. Company has restated the useful life of Building as per the report of an independent valuer.
Advances, if any, paid towards the acquisition of property, plant and equipment outstanding at each Balance
Sheet date is classified as capital advances under other non-current assets and the cost of assets not ready
to use before such date are disclosed under 'Capital Work-in-Progress'. Subsequent expenditures relating to
property, plant and equipment are capitalized only when it is probable that future economic benefits associated
with these will flow to the Company and the cost of the item can be measured reliably. Repairs and maintenance
costs are recognized in the Statement of Profit and Loss when incurred. The cost and related accumulated
depreciation are eliminated from the Financial Statements upon sale or retirement of the asset and the resultant
gains or losses are recognized in the Statement of Profit and Loss.
5.7 IMPAIRMENT OF TANGIBLE ASSETS
Property, plant and equipment are evaluated for recoverability whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. For the purpose of impairment testing, the recoverable
amount is determined on an individual asset basis unless the asset does not generate cash flows that are largely
independent of those from other assets. If such assets are considered to be impaired, the impairment is to be
recognized in the Statement of Profit and Loss and is measured by the amount by which the carrying value of the
assets exceeds the estimated recoverable amount of the asset. An impairment loss is reversed in the Statement
of Profit and Loss if there has been a change in the estimates used to determine the recoverable amount. The
carrying amount of the asset is increased to its revised recoverable amount, provided that this amount does not
exceed the carrying amount that would have been determined (net of any accumulated depreciation) had no
impairment loss been recognized for the asset in prior years.
5.8 INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization and impairment or fair market value if the
same present a better presentation of Company's financial position. Intangible assets are amortized over their
respective individual estimated useful lives on a straight-line basis, from the date that they are available for use.
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). Amortization methods and useful lives are reviewed periodically including at
each financial year end.
Software product development costs are also expensed as incurred unless technical and commercial feasibility
of the project is demonstrated, future economic benefits are probable. The cost during the development phase
shall be capitalized as the cost of the app. The costs which can be capitalized include the cost of material, direct
labour and overhead costs that are directly attributable to preparing the asset for its intended use. Over the
period of time the Company has developed its own ERP software which is a core strength of the Company, the
revaluation of which shall be taken up at later stage.
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