1.1 SUMMARY OF MATERIAL ACCOUNTING POLICIES
a) Statement of compliance
The financial statements of Patel Engineering Limited
("the Company or PEL”) have been prepared to comply,
in all material respects, with the Indian Accounting
Standards (”Ind AS”) as specified under section 133 of
the Companies Act, 2013 read together with the Rule 4
of the Companies (Indian Accounting Standards) Rules,
2015 and amendment thereof issued by the Ministry of
Corporate Affairs in exercise of the power conferred by
Section 133 of the Companies Act, 2013 and the other
relevant provisions of the Act, pronouncements of the
regulatory bodies applicable to the Company.
These financial statements have been approved for
issue by the Board of Directors, at their meeting held on
May 13, 2025.
b) Basis of preparation
The financial statements are prepared under the
historical cost convention, on a going concern basis
and accrual method of accounting, except for certain
financial assets and liabilities as specified in defined
benefit plans which have been measured at actuarial
valuation as required by relevant Ind AS. The accounting
policies applied are consistent with those used in the
previous year, except otherwise stated.
The standalone financial statements are presented
in Indian Rupees and all values are rounded off to
the nearest millions (Rupees 000,000), except where
otherwise indicated. Any discrepancies in any table
between totals and sums of the amounts listed are due
to rounding off.
The Company adopted Disclosure of Accounting
Policies (Amendments to Ind AS 1) from April 1, 2023.
Although the amendments did not result in any
changes in the accounting policies themselves, they
impacted the accounting policy information disclosed
in the financial statements.
The amendments require the disclosure of ‘material’
rather than ‘significant’ accounting policies. The
amendments also provide guidance on the application
of materiality to disclosure of accounting policies,
assisting entities to provide useful, entity-specific
accounting policy information that users need
to understand other information in the financial
statements.
c) Current/non-current classification
The Company as required by Ind AS 1 presents assets
and liabilities in the balance sheet based on current /
non-current classification.
Deferred tax assets and liabilities are classified as non¬
current assets and liabilities.
The Company has ascertained its operating cycle as
twelve months for the purpose of current / non-current
classification of its assets and liabilities, as it is not
possible to identify the normal operating cycle.
d) Critical accounting estimates and judgements:
The preparation of financial statements in conformity
with Generally Accepted Accounting Principles, requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent liabilities at the date of
the financial statements and the results of operations
during the reporting period. Although these estimates
are based upon management’s best knowledge of
current events and actions, actual results could
differ from these estimates. Revisions to accounting
estimates are recognised prospectively.
The areas involving critical estimates or judgements are:
- Estimation of defined benefit obligation
- Estimation of useful life of property, plant and
equipment and intangibles
- Estimation of total contract revenue and costs for
revenue recognition
- Estimation of recognition of deferred taxes
- Estimation of impairment of financial assets (i.e.
expected credit loss on trade receivables)
- Estimation of provision and contingent liabilities
- Estimation on discounting of lease liability on
application of Ind AS 116
e) Property, plant and equipment
Property, plant and equipment (PPE), except land, are
stated at net of recoverable taxes, trade discount
and rebates less accumulated depreciation and
accumulated impairment losses, if any. Land is stated
at revalued amount determined by an independent
registered valuer from time to time.
Such cost comprises of purchase price and any
attributable cost of bringing the assets to its working
condition for its intended use. Property, plant and
equipment costing ' 5,000 or less are not capitalised
and charged to the statement of profit and loss.
Machinery spares that meet the definition of PPE are
capitalised.
Capital work-in-progress in respect of assets which
are not ready for their intended use are carried at cost,
comprising of direct costs, related incidental expenses
and attributable interest.
Subsequent expenditure is capitalised only if it is
probable that the future economic benefits associated
with the expenditure will flow to the Company and the
cost can be measured reliably.
The carrying amount of an item of PPE are
derecognised on disposal or when no future economic
benefits are expected from its use or disposal. Any gain
or loss arising on de-recognition of the asset
(calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is
included in the profit or loss.
f) Intangible assets
Intangible assets are stated at cost of acquisition net
of recoverable taxes less accumulated depreciation /
amortisation and impairment loss, if any.
Such cost comprises of purchase price and any
attributable cost of bringing the assets to its working
condition for its intended use. Subsequent expenditure
is capitalised only if it is probable that the future
economic benefits associated with the expenditure will
flow to the Company and the cost can be measured
reliably.
g) Depreciation
Depreciation on the property, plant and equipment
(other than freehold land) is provided based on useful
life of the assets as prescribed in Schedule II to the Act.
Depreciation on property, plant and equipment, which
are added/disposed off during the year, is provided on
pro-rata basis with reference to the month of addition/
deletion, in the profit or loss.
The residual values, useful lives and methods of
depreciation of property, plant and equipment are
reviewed at each financial year end and, if expectations
differ from previous estimates, the change(s) are
accounted for as a change in an accounting estimate in
accordance with Ind AS 8, Accounting Policies, Changes
in Accounting Estimates and Errors.
h) Impairment of non-financial assets
The carrying amount of assets/cash generating units
are reviewed at each balance sheet date if there
is any indication of impairment based on internal/
external factors. An impairment loss is recognised in
the statement of profit and loss whenever the carrying
amount of an asset or cash generating unit exceeds its
recoverable amount. The recoverable amount of the
assets (or where applicable, that of cash generating unit
to which the asset belongs) is estimated as the higher
of its net selling price and its value in use. A previously
recognised impairment loss is increased or reversed
depending on changes in circumstances. However, the
carrying value after reversal is not increased beyond the
carrying value that would have prevailed by charging
usual depreciation if there was no impairment.
i) Investments in subsidiaries, joint ventures and
associates
Investments in subsidiaries, joint ventures and
associates are recognised at cost less accumulated
impairment (if any) as per Ind AS 27, except where
investments accounted for in accordance with Ind AS
105, non-current assets held for sale and discontinued
operations, when they are classified as held for sale.
j) Inventories
The stock of land, construction materials, stores, spare
parts, embedded goods and fuel is valued at cost
(on weighted average basis), or net realisable value,
whichever is lower and work-in-progress of construction
contracts at contract rate. Cost includes expenditures
incurred in acquiring the inventories, conversion costs
and other costs incurred in bringing them to their
existing location and condition. Net realisable value is
the estimated selling price in the ordinary course of
business less the estimated costs of completion and the
estimated cost necessary to make the sale.
Work-in-progress in respect of project development
and buildings held as stock-in-trade are valued at cost
or net realizable value, whichever is lower.
k) Recognition of income and expenditure
Revenue toward satisfaction of a performance
obligation is measured at the amount of transaction
price (net of variable consideration) allocated to that
performance obligation. The Company satisfies a
performance obligation and recognises revenue over
time, if one of the following criteria’s are met:
1. The customer simultaneously receives and
consumes the benefits provided by the
Company’s performance as the Company
performs; or
2. The Company’s performance creates or enhances
an asset that the customer controls as the asset
is created or enhanced; or
3. The Company’s performance does not create an
asset with an alternative use to the Company and
the Entity has an enforceable right to payment for
performance completed to date.
i) Construction revenue
The Company constructs various
infrastructure projects on behalf of clients.
Under the terms of the contracts, where
the Company is contractually restricted
from redirecting the properties to another
customer and has an enforceable right
to payment for work done; revenue is
recognised over a period of time. The
percentage-of-completion of a contract is
determined by the proportion that contract
costs incurred for work performed up to
the reporting date bear to the estimated
total contract costs. This is achieved by
estimating total revenue including claims /
variations and total cost till completion of
the contract and the profit is recognised
in proportion to the value of work done
when the outcome of the contract can be
estimated reliably. Revenue also includes
claims / variations when it is highly
probable of recovery based on estimate
and assessment of each item by the
management based on their judgement
of recovery. The management considers
that this input method is an appropriate
measure of the progress towards complete
satisfaction of these performance
obligations under Ind AS 115.
The Company becomes entitled to invoice
customers for construction based on
achieving a series of performance related
milestones. When a particular milestone is
achieved, the customer is sent a statement
of work completed assessed by expert.
Previously recognised contract asset for
any work performed is reclassified to
trade receivables at the point at which it is
invoiced to the customer. Advances received
from customers in respect of contracts are
treated as liabilities and adjusted against
progress billing as per terms of the contract.
Progress payments received are adjusted
against amount receivable from customers
in respect of the contract work performed.
Significant judgement is required to
evaluate assumptions related to the
amount of net contract revenues,
including the impact of any performance
incentives, liquidated damages, and other
forms of variable consideration. When
the outcome of a construction contract
cannot be estimated reliably, contract
revenue is recognised only to the extent of
contract cost incurred that are likely to be
recoverable.
Consideration is adjusted for the time value
of money if the period between the transfer
of goods or services and the receipt of
payment exceeds twelve months and there
is a significant financing benefit either to
the customer or the Company.
Revenue from trading and consultancy
service are recognise when it transfers
control of a product or service to a
customer.
ii) Revenue from real estate development
contracts
The Company constructs and sells
residential properties under long-term
contracts with customers. Such contracts
are entered into before or after construction
of the residential properties begins. Under
the terms of the contracts, the Company is
contractually restricted from redirecting the
properties to another customer and does
not have an enforceable right to payment
for work done. Revenue from construction
of real estate properties is therefore
recognised at a point of time.
Revenue from building development is
measured based on the consideration to
which the Company expects to be entitled
in a contract with a customer and excludes
amounts collected on behalf of third parties.
The Company recognises revenue when it
transfers control of a product or service to a
customer.
l) Interest in joint arrangements
As per Ind AS 111 - Joint arrangements, investment in
joint arrangement is classified as either joint operation
or joint venture. The classification depends on the
contractual rights and obligations of each investor
rather than legal structure of the joint arrangement.
The Company recognises its direct right to assets,
liabilities, revenue and expenses of joint operations and
its share of any jointly held or incurred assets, liabilities,
revenues and expenses. These have been incorporated
in the Standalone Financial Statement under the
appropriate headings.
m) Foreign currency transaction/translations
Transactions in foreign currency including acquisition
of property, plant and equipment are recorded at
the prevailing exchange rates on the date of the
transaction. All monetary assets and monetary
liabilities in foreign currencies are translated at the
relevant rates of exchange prevailing at the year-end.
Foreign exchange gains and losses resulting from
the settlement of such transactions and from the
translation of monetary items denominated in foreign
currency at prevailing reporting date exchange rates are
recognised in profit or loss.
Revenue transactions at the foreign branch/projects
are translated at average rate. Property, plant and
equipment are translated at rate prevailing on the date
of purchase. Net exchange rate difference is recognized
in the statement of profit and loss. Depreciation is
translated at rates used for respective assets.
n) Financial instrument
A financial instrument is any contract that gives rise to
a financial asset of one entity and financial liability or
equity instrument of another entity.
(I) Financial asset:
Initial recognition and measurement :
All financial assets are recognized initially at fair value
plus, in the case of financial assets not recorded at
fair value through P&L, transaction costs that are
attributable to the acquisition of the financial asset.
However, trade receivables that do not contain a
significant financing component are measured at
transaction price. Purchase or sales of financial assets
that require delivery of assets within a time frame
established by regulation or convention in the market
place are recognized on the trade date i.e. the date that
the Company commits to purchase or sell the asset.
Subsequent measurement :
For the purpose of subsequent measurement financial
assets are classified as measured at:
• Amortised cost
• Fair value through profit and loss (FVTPL)
• Fair value through other comprehensive income
(FVTOCI).
(a) Financial asset measured at amortized cost:
Financial assets held within a business
model whose objective is to hold financial
assets in order 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 are measured at
amortized cost using effective interest
rate (EIR) method. The EIR amortization
is recognized as finance income in the
statement of profit and loss. The Company
while applying above criteria has classified
the following at amortized cost:
(a) Trade receivables
(b) Investment in subsidiaries, associates
and joint ventures
(c) Loans
(d) Other financial assets
(b) Financial assets measured at fair value
through other comprehensive income :
Financial assets that are held within a
business model whose objective is achieved
by both, selling financial assets and
collecting contractual cash flows that are
solely payments of principal and interest,
are subsequently measured at fair value
through other comprehensive income. Fair
value movements are recognized in the
other comprehensive income (OCI). Interest
income measured using the EIR method and
impairment losses, if any are recognized
in the Statement of Profit and Loss. On
derecognition, cumulative gain or loss
previously recognised in OCI is reclassified
from the equity to ‘other income’ in the
statement of profit and loss.
(c) Financial assets at fair value through profit
or loss (FVTPL) :
Financial asset are measured at fair value
through profit and loss if it does not meet
the criteria for classification as measured
at amortized cost or at FVTOCI. All fair value
changes are recognized in the statement of
profit and loss.
Equity instruments
All investments in equity instruments
classified under financial assets are initially
measured at fair value , the group may,
on initial recognition, irrevocably elect
to measure the same either at FVTOCI or
FVTPL.
De-recognition of financial assets:
Financial assets are derecognized when the
contractual rights to the cash flows from
the financial asset expire or the financial
asset is transferred and the transfer
qualifies for derecognition. On derecognition
of a financial asset in its entirety, the
difference between the carrying amount
(measured on the date of recognition) and
the consideration received (including any
new asset obtained less any new liability
assumed) shall be recognized in the
statement of profit and loss.
Impairment of financial assets:
In accordance with Ind AS 109, the Company
applies expected credit loss (ECL) model by
adopting the simplified approach using a
provision matrix reflecting current condition
and forecasts of future economic conditions
for measurement and recognition of
impairment loss on the following financial
assets and credit risk exposure:
(a) Financial assets that are debt
instruments, and are measured
at amortized cost e.g. loans, debt
securities, deposits, trade receivables
and bank balance
(b) Lease receivables
(c) Trade receivables or any contractual
right to receive cash or another
financial asset
(d) Loan commitments which are not
measured at FVTPL
(e) Financial guarantee contracts which
are not measured at FVTPL
(II) Financial liability
Initial recognition and measurement :
Financial liabilities are recognized initially at fair value
plus any transaction cost that are attributable to the
acquisition of the financial liability except financial
liabilities at FVTPL that are measured at fair value.
Subsequent measurement :
Financial liabilities are subsequently measured at
amortised cost using the EIR method. Financial
liabilities carried at fair value through profit or loss are
measured at fair value with all changes in fair value
recognised in the statement of profit and loss.
Financial liabilities at amortized cost:
Amortized cost for financial liabilities represents
amount at which financial liability is measured at initial
recognition minus the principal repayments, plus or
minus the cumulative amortization using the effective
interest method of any difference between the initial
amount and the maturity amount.
The Company is classifying the following under
amortized cost
- Borrowings from banks
- Borrowings from others
- Trade payables
- Other financial liabilities
Derecognition:
A financial liability shall be derecognized when, and
only when, it is extinguished i.e. when the obligation
specified in the contract is discharged or cancelled or
expires. The difference between the carrying amount
and fair value of the liabilities shall be recognised in the
statement of profit and loss.
o) Financial derivative and hedging transactions
In respect of financial derivative and hedging contracts,
gain / loss are recognized on mark-to-market basis and
charged to the statement of profit and loss along with
underlying transactions.
p) Fair value measurement
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, regardless of whether that price
is directly observable or estimated using another
valuation technique. In estimating the fair value of an
asset or a liability, the Company takes into account
the characteristics of the asset or liability if market
participants would take those characteristics into
account when pricing the asset or liability at the
measurement date. Fair value for measurement and/
or disclosure purposes in these Standalone Financial
Statement is determined on such a basis, except for
leasing transactions that are within the scope of Ind
AS 17 - leases, and measurements that have some
similarities to fair value but are not fair value, such as
net realisable value in Ind AS 2 - inventories or value in
use in Ind AS 36 - impairment of assets.
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:
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
Standalone Financial Statement 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.
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.
q) Employee benefits
Short-term employee benefits :
Short-term employee benefits are expensed as the
related service is provided. A liability is recognised for
the amount expected to be paid if the Company has
a present legal or constructive obligation to pay this
amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Defined contribution plans :
Contribution towards provident fund/family pensions
are made to the recognized funds, where the Company
has no further obligations. Such benefits are classified
as defined contribution schemes as the Company
does not carry any further obligations, apart from the
contributions made on a monthly basis.
Defined benefit plans :
Provision for incremental liability in respect of gratuity
and leave encashment is made as per independent
actuarial valuation on projected unit credit method
made at the year-end.
Remeasurement of the net defined benefit liability,
which comprise actuarial gains and losses and the
return on plan assets (excluding interest) and the
effect of the asset ceiling (if any, excluding interest),
are recognized immediately in other comprehensive
income (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). Net interest expense and other expenses
related to defined benefit plans are recognised in
statement of profit and loss.
r) Taxation
The tax expenses for the period comprises of current
tax and deferred income tax. Tax is recognised in
Statement of Profit and Loss, except to the extent
that it relates to items recognised in the Other
Comprehensive Income. In which case, the tax is also
recognised in Other Comprehensive Income.
Current tax:
Provision for current tax is recognised based on the
estimated tax liability computed after taking credit for
allowances and exemptions in accordance with the
Income Tax Act, 1961.
Deferred tax:
Deferred tax assets and liabilities are recognised for
the future tax consequences attributable to temporary
differences between the Standalone Financial
Statement carrying amount of existing assets and
liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured at the tax rates that
are expected to apply in the period in which the liability
is settled or the asset realised; using the enacted tax
rates or tax rates that are substantively enacted at
the balance sheet dates. The effect on the deferred
tax assets and liabilities of a change in tax rate is
recognised in the period that includes the enactment
date. Deferred tax assets are recognised to the extent it
is probable that taxable profit will be available against
which the deductible temporary differences, and the
carry forward of unused tax losses can be utilised. The
carrying amount of Deferred tax liabilities and assets
are reviewed at the end of each reporting period.
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