2. Material accounting policies
2.1 Use of estimates, judgements and
assumptions
The preparation of financial statements in conformity with Ind
AS requires the management to make judgments, estimates
and assumptions that affect the reported amounts of
revenues, expenses, assets and liabilities and the disclosure
of contingent liabilities, at the end of the reporting year.
Although these estimates are based on the management's
best knowledge of current events and actions, uncertainty
about these assumptions and estimates could result in the
outcomes requiring a material adjustment to the carrying
amounts of assets or liabilities in future periods. Estimates
and underlying assumptions are reviewed on an ongoing
basis. Revisions to the accounting estimates are recognised in
the period in which the estimates are known or materialised.
Some of the judgements, which have a significant risk of
causing a material adjustment to the carrying amounts of
assets and liabilities are:
a) Business model assessment
Classification and measurement of financial assets
depends on the results of the solely payments of
principal and interest (SPPI) and the business model
test. The Company determines the business model at
a level that reflects how groups of financial assets are
managed together to achieve a particular business
objective. This assessment includes judgement
reflecting all relevant evidence including how the
performance of the assets is evaluated and measured,
the risks that affect the performance of the assets and
how these are being managed. The Company monitors
financial assets on a continuous basis to assess
whether the business model for which the financial
assets are held continues to be appropriate and if it
is not appropriate whether there has been a change
in business model and so a prospective change to the
classification of the assets.
b) Fair value of financial instruments
The fair value of financial instruments is the price that
would be received upon selling of an asset or paid
upon transfer of a liability in an orderly transaction
in the principal (or most advantageous) market at the
measurement date under current market conditions
(i.e. an exit price) regardless of whether that price is
directly observable or estimated using another valuation
technique. When the fair values of financial assets and
financial liabilities recorded in the balance sheet cannot
be derived from active markets, they are determined
using a variety of valuation techniques that include the
use of valuation models. The inputs to these models
are taken from observable markets where possible,
but where this is not feasible, estimation is required
in establishing fair values. Judgements and estimates
include considerations of liquidity and model inputs
related to items such as credit risk (both own and
counterparty), funding value adjustments, correlation
and volatility.
c) Effective Interest Rate (EIR) method
EIR methodology recognises interest income / expense
using a rate of return that represents the best estimate
of a constant rate of return over the expected behavioral
life of loans given / taken and recognises the effect of
potentially different interest rates at various stages and
other characteristics of the product life cycle (including
prepayments, penalty interest and charges).
This estimation, by nature, requires an element of
judgement regarding the expected behavior and life¬
cycle of the instruments, as well as expected changes
to interest rates and other fee income/expense that are
integral parts of the instrument.
d) Impairment of financial asset
The measurement of impairment losses across all
categories of financial assets requires judgement, in
particular, the estimation of the amount and timing
of future cash flows and collateral values when
determining impairment losses and the assessment of a
significant increase in credit risk. These estimates are
driven by a number of factors, changes in which can
result in different levels of allowances (Refer Note 2.21).
e) Provisions and other contingent liabilities
The Company operates in a regulatory and legal
environment that, by nature, has a heightened element of
litigation risk inherent to its operations. Cases where the
Company can reliably measure the outflow of economic
benefits in relation to a specific case and considers such
outflows probable, it recognises a provision against the
same. Where the probability of outflow is considered
remote, or probable, but a reliable estimate cannot be
made, a contingent liability is disclosed for the same.
f) Defined benefit plans
The cost of the defined benefit gratuity plan and the
present value of the gratuity obligation are determined
using actuarial valuations. An actuarial valuation
involves making various assumptions that may differ
from actual developments in the future. These include
the determination of the discount rate, future salary
increases and mortality rates. Due to the complexities
involved in the valuation and its long-term nature, a
defined benefit obligation is highly sensitive to changes
in these assumptions. All assumptions are reviewed at
each reporting date.
g) Deferred tax assets
The extent to which deferred tax assets can be
recognised is based on an assessment of the probability
of the future taxable income against which the deferred
tax assets can be utilised.
h) Useful Life of Property, Plant and Equipment
(PPE) and Intangible assets
The Company reviews its estimate of the useful life of
PPE and intangible assets at each reporting date, based
on the expected utility of the PPE and intangible assets.
Uncertainties in these estimates relate to technical and
economic obsolescence that may change the utility
of PPE and intangible assets. In case of a revision of
useful life, the unamortised depreciable amount is
charged over the remaining useful life of the PPE and
intangible assets.
i) Share-Based Payments
The Company measures the cost of equity-settled
transactions with employees using Black-Scholes Model
to determine the fair value of the liability incurred on
the grant date. Estimating fair value for share-based
payment transactions requires determination of the
most appropriate valuation model, which is dependent
on the terms and conditions of the grant.
This estimate also requires determination of the most
appropriate inputs to the valuation model including the
expected life of the share option, volatility and dividend
yield and making assumptions about them.
2.2 Cash and cash equivalents
Cash and cash equivalent comprises cash/ stamp on hand,
demand deposits and time deposits with original maturity
of 3 months or less from the date of acquisition, highly
liquid investments that are readily convertible in the known
amounts of cash and which are subject to insignificant risk of
change in value, debit balance in cash credit account.
Deposits held with bank, with original maturity of more than
three months but less than twelve months is a part of bank
balance other than cash and cash equivalents.
For the purpose of the statement of cash flow, cash and cash
equivalents consists of cash at banks and on hand and short
term deposits, as defined above.
2.3 Revenue Recognition
a) Interest and related income
Interest income for all financial instruments measured
either at amortised cost or at fair value through other
comprehensive income, is recorded using the effective
interest rate (EIR). EIR is the rate that exactly discounts
the estimated future cash payments or receipts over
the expected life of the financial instrument or a shorter
period, where appropriate, to the gross carrying
amount of the financial asset. The calculation takes into
account all contractual terms of the financial instrument
(for example- prepayment options) and includes any
discount or premium on acquisition, fees or incremental
costs that are directly attributable and are an integral
part of the EIR, but not future credit losses.
The Company calculates interest income by applying
the EIR to the gross carrying amount of financial assets
other than credit-impaired assets. When a financial
asset becomes credit-impaired and is, therefore,
regarded as 'Stage 3', the Company calculates interest
income by applying the EIR on net amount (i.e. gross
carrying amount less allowance for expected credit
loss). If the financial assets cures and is no longer
credit-impaired, the Company reverts to calculating
interest income on a gross basis.
Interest income on all trading assets measured at fair
value through profit and loss (FVTPL) is recognised
using the contractual interest rate under interest income
and the fair value impact is recognised in net gain / loss
on fair value changes.
b) Dividend income
Dividend income is recognised when the Company's
right to receive the payment is established, it is probable
that the economic benefits associated with the dividend
will flow to the entity and the amount of the dividend
can be measured reliably. This is generally when
shareholders approve the dividend.
c) Profit on derecognition of financial assets
When the Company transfers the financial asset in a
transfer that qualifies for derecognition in its entirety
then whole of the interest spread and net servicing
fees (over the expected life of the asset) is recognised
at present value on the date of derecognition itself as
interest-only strip / net servicing fees receivable and
correspondingly recognised as profit on derecognition
of financial asset.
d) Fees and commission income
Fees and commissions income i.e. login fee, penal
interest on defaults, pre-payment / other charges, fees
on corporate agency, fees for advertising in offices /
website etc. (other than for those items to which Ind AS
109 Financial Instruments are applicable) is recognised
in accordance with the terms of the relevant contracts
/ agreements and when it is probable that the Company
will collect the consideration.
e) Other income
Income from operating leases are recognised
in the statement of profit and loss as per the
contractual rentals.
Interest on tax refunds and other claims where quantum
of accruals cannot be ascertained with reasonable
certainty, are recognised as income only when
revenue is virtually certain which generally coincides
with receipts.
Other Income represents income earned from the
activities incidental to the business and is recognised
when the right to receive the income is established as
per the terms of the contract.
2.4 Property, plant and equipment (PPE) and
Intangible assets
a) PPE
PPE are stated at cost (including directly attributable
expenses) less accumulated depreciation and impairment
losses, if any. Cost includes deemed cost which
represents the carrying value of PPE recognised as at
01st April 2017 measured as per the previous Generally
Accepted Accounting Principles (GAAP). The cost of
PPE comprises the purchase price (excluding tax credits
availed, if any) and any attributable cost of bringing
the asset to its working condition for its intended use.
Subsequent expenditure related to PPE are capitalised
only when it is probable that future economic benefits
associated with these will flow to the Company and
the cost of item can be measured reliably. Other
repairs and maintenance costs are expensed off as and
when incurred.
An item of PPE and any significant part initially
recognised is derecognised upon disposal or when no
future economic benefits are expected from its use.
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 statement of profit and loss when the
asset is derecognised.
Capital work in progress includes assets which
are not ready for the intended use at the end of the
reporting year and is carried at cost including directly
attributable expenses.
b) Intangible assets
Intangible assets acquired separately are measured on
initial recognition at cost (excluding tax credits availed,
if any) and are capitalised only when it is probable that
future economic benefits associated with these will flow
to the Company and the cost of item can be measured
reliably. Cost comprises the purchase price (excluding
tax credits availed, if any) and any attributable cost of
bringing the asset to its working condition for its intended
use. Subsequent expenditure related to Intangible assets
are capitalised only when it is probable that future
economic benefits associated with these will flow to the
Company and the cost of item can be measured reliably.
Intangible assets developed internally and meeting the
criteria specified under Ind AS 38, are measured on
initial recognition at cost (excluding tax credits availed,
if any) and are capitalized only when it is probable that
future economic benefits associated with these will flow
to the Company and the cost of item can be measured
reliably. Cost comprises of development phase costs
(excluding tax credits availed, if any) and any attributable
cost of bringing the asset to its working condition for its
intended use.
Subsequent to initial recognition, intangible assets
including those developed internally are carried at cost
less any accumulated amortisation and accumulated
impairment losses (if any).
An intangible asset is derecognised 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 statement of
profit and loss when the asset is derecognised.
Intangible assets which are not ready for the intended
use at the end of the reporting year are disclosed as
Intangible assets under development.
2.5 Depreciation and amortisation
a) Depreciation
Depreciation on PPE is provided on straight-line method
as per the useful life prescribed in Schedule II to the
Companies Act, 2013, except for networking equipment
and mobile phone instruments that are depreciated over
a period of five years and three years respectively based
on technical evaluation. Leasehold improvements are
amortised over the period of five years however, where
the lease term is less than five years amortisation is
restricted to the underlying lease term.
All PPE individually costing H5,000/- or less are fully
depreciated in the year of purchase.
Depreciation on additions to PPE is provided on a pro¬
rata basis from the date the asset is available for use.
Depreciation on sale / derecognition of PPE is provided
for up to the date of sale / derecognition, as the case
may be.
The residual values, useful lives and methods of
depreciation of PPE are reviewed at each financial year-
end and changes (if any) are then treated as changes in
accounting estimates.
b) Amortisation
Intangible assets Including internally developed assets
are amortised over a period of five years or less on
straight-line method except website development costs,
which are amortised over a period of three years on a
straight-line basis from the date when the assets are
available for use or the life whichever is less.
The amortisation period and the amortisation method for
these Intangibles with a finite useful life are reviewed at
each financial year-end. Changes in the expected useful
life or the expected pattern of consumption of future
economic benefits embodied in the asset are accounted
for by changing the amortisation period or methodology,
as appropriate, which are then treated as changes in
accounting estimates.
2.6 Investment Property
Investment property comprises freehold properties that are
held to earn rentals or for capital appreciation or both.
Investment properties are measured initially at cost,
including transaction costs. Subsequent to initial recognition,
investment properties are stated at cost less accumulated
depreciation and accumulated impairment loss, if any.
Subsequent expenditure is capitalised to the assets carrying
amount only when it is probable that future economic benefit
associated with the expenditure will flow to the Company and
the cost of the item can be measured reliably. All other repair
and maintenance costs are recognised in statement of profit
or loss as incurred.
Investment properties are depreciated using the straight¬
line method over their estimated useful lives prescribed in
Schedule II of the Companies Act, 2013.
Though the Company measures investment property using
cost based measurement, the fair value of investment
property is disclosed in the notes. Fair values are determined
based on an annual evaluation performed by a registered
independent valuer.
Investment properties are derecognised 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
recognised in profit or loss in the period of derecognition.
2.7 Foreign currency
Transactions in foreign currencies are initially recorded by
the Company at their respective functional currency spot
rates at the date the transaction first qualifies for recognition.
Foreign currency denominated monetary assets and liabilities
are translated at the functional currency spot rates of
exchange at the reporting date and exchange gains and losses
arising on settlement and restatement are recognized in the
statement of profit and loss except for differences arising on
cash flow hedges.
Non-monetary items that are measured at historical cost in a
foreign currency are translated using the spot exchange rates
as at the date of initial recognition.
2.8 Leases
The Company assesses at contract inception whether a
contract is, or contains, a lease. That is, if the contract
conveys the right to control the use of an identified asset for
a period of time in exchange for consideration.
Company as a lessee
The Company applies a single recognition and measurement
approach for all leases, except for short-term leases and
leases of low-value assets. The Company recognises lease
liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
The Company determines the lease term as the non¬
cancellable term of the lease, together with any periods
covered by an option to extend the lease if it is reasonably
certain to be exercised, or any periods covered by an option
to terminate the lease, if it is reasonably certain not to
be exercised.
Right-of-use assets - The Company recognises right-of-
use assets at the commencement date of the lease (i.e.,
the date the underlying asset is available for use). Right-
of-use assets are measured at cost, less any accumulated
depreciation and impairment losses (if any), and adjusted for
any remeasurement of lease liabilities. The cost of right-of-
use assets includes the amount of lease liabilities recognised,
initial direct costs incurred and lease payments made at or
before the commencement date less any lease incentives
received. Right-of-use assets are depreciated on a straight¬
line basis over the lease term.
Lease liability - At the commencement date of the lease,
the Company recognises lease liabilities measured at the
present value of lease payments to be made over the lease
term. The lease payments include fixed payments less
any lease incentives receivable. Variable lease payments
that do not depend on an index or a rate are recognised as
expenses (unless they are incurred to produce inventories)
in the period in which the event or condition that triggers the
payment occurs.
In calculating the present value of lease payments, the
Company uses its incremental borrowing rate at the lease
commencement date because the interest rate implicit in the
lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect
the accretion of interest and reduced for the lease payments
made. In addition, the carrying amount of lease liabilities is
remeasured if there is a modification, a change in the lease
term, a change in the lease payments or a change in the
assessment of an option to purchase the underlying asset.
Short-term leases and leases of low-value assets - The
Company applies the short-term lease recognition exemption
to its short-term leases (i.e., those leases that have a lease
term of 12 months or less from the commencement date
and do not contain a purchase option). It also applies the
lease of low-value assets recognition exemption to leases of
office equipment that are considered to be low value. Lease
payments on short-term leases and leases of low-value
assets are recognised as expense.
Company as a lessor
The Company as an intermediate lessor, accounts for the
head lease and the sublease as two separate contracts.
The sub-lease is classified as a finance or operating lease
by reference to the right-of-use asset arising from the
head lease.
2.9 Borrowing costs
Borrowing costs consists of interest and other cost that the
Company incurred in connection with the borrowing of funds.
Borrowing costs charged to the Statement of Profit and Loss
on the basis of effective interest rate method.
2.10 Impairment of non-financial assets
The carrying amount of assets is reviewed at each reporting
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 wherever the carrying
amount of an asset exceeds its recoverable amount.
After impairment, depreciation/amortisation is provided on
the revised carrying amount of the asset over its remaining
useful life.
If at the reporting date there is an indication that previously
assessed impairment loss no longer exists, the recoverable
amount is reassessed and the asset is reflected at the
recoverable amount subject to maximum of depreciable
historical cost.
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