NOTE-27 SIGNIFICANT ACCOUNTING POLICIES:
COMPANY OVERVIEW & NATURE OF OPERATIONS:
The Company was incorporated in 1988. The company is a public limited company incorporated and domiciled in India has its registered office at PRERNA, Survey No 820/1, Opp: ananddham Derasar, S G Highway, Makarba. Ahmedabad - 380058, Gujarat, India. The company has its primary listings on the BSE Limited in India. The company’s main business is Real Estate and development in residential and commercial segment.
1.1 BASIS OF PREPARATION OF FINANCIAL STATEMENTS:Statement of Compliance:
These financial statements have been prepared in accordance with the Indian Accounting Standards (Ind AS) as specified under section 133 of the Companies Act 2013 read together with the Rules notified there under to the extent applicable and the other relevant provisions of the Act, pronouncements of the regulatory bodies applicable to the company.
The financial statements have been prepared on going concern and accrual basis. The accounting policies are applied consistently to all the periods presented in the financial statements.
1.2 BASIS OF MEASUREMENT:
The Ind AS Financial Statements have been prepared on a going concern basis using historical cost convention and fair value measurement, wherever applicable and on an accrual method of accounting, except for certain financial assets and liabilities as specified and defined benefit plans which have been measured at actuarial valuation as required by relevant Ind AS.
1.3 BASIS FOR CLASSIFICATION OF ASSETS & LIABILITIES:
All the 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 Schedule III to the Companies Act, 2013. Based on the nature of products and the time between the acquisition of assets or processing and their realization in cash and cash equivalent, project related assets and liabilities have been classified into current and non-current based on operating cycle of respective projects. The Company has ascertained its operating cycle to be 12 months for the purpose of current - non-current classification for all other assets and liabilities.
1.4 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 recognized prospectively.
The areas involving critical estimates or judgments are:
- Estimation of Useful life of Property, plant and equipment and intangibles (Note 1.5.i)
- Estimation of impairment (Note 1.5.iv)
- Estimation of taxes (Note 1.5.v)
- Estimation of cost of project for revenue recognition (Note 1.5.vi)
- Estimation of provision and contingent liabilities (Note 25)
i. PROPERTY, PLANT & EQUIPMENT:
A. Property, Plant & Equipment are stated at cost of acquisition or construction net of accumulated depreciation and accumulated impairment losses, if any. Cost comprises the purchase price and other directly attributable costs. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.
B. Depreciation on fixed assets:
Depreciation is provided based on a pro-rata basis on the useful life of the assets as prescribed in Schedule II of the Companies Act, 2013 on the “Written down value” method in respect of all assets.
C. The company had elected to consider the carrying value of all its property, plant and equipment appearing in the financial statements prepared in accordance with Accounting Standards notified under section 133 of the Companies Act 2013 read together with the Rules notified there under and used the same as deemed cost on transition to Ind AS.
ii. INTANGIBLE ASSET
Intangible Assets are recognized when it is probable that the future economic benefits that are attributable to the assets will flow to the company and the cost of asset can be measured reliably.
Intangible Assets are stated at cost, net of accumulated amortization and accumulated impairment loss, if any. Cost includes any expenditure directly attributable on making the asset ready for its intended use.
Intangible assets with finite lives are amortized over their useful economic life. The amortization period and the amortization method for finite-life intangible assets is reviewed at each financial year end and adjusted prospectively, if appropriate.
iii. BORROWING COST:
Borrowing costs attributable to the acquisition, construction or production of qualifying assets (i.e. assets that necessarily take substantial period of time to get ready for their intended use or sale) are capitalized as part of the cost of such asset up to the date when such asset is ready for its intended use or sale. Other borrowing costs are recognized as an expense in the period in which they are incurred. Further, interest earned out of borrowed funds from temporary investments is reduced from the borrowing cost.
iv. 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.
A Financial Asset:-
Initial recognition and measurement:
All financial instruments are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through Profit & Loss, transaction costs that are attributable to the acquisition of the financial asset, 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:
• Amortized cost
• Fair value through profit and loss (FVTPL)
• Fair value through other comprehensive income (FVOCI)
(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 & Loss. The company while applying above criteria has classified the following at amortized cost:
(a) Trade receivables
(b) Investment in Subsidiaries
(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 recognized 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 & loss (FVTPL):
Financial Asset are measured at Fair value through Profit & 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 & 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 FVOCI 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 & 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) Financial Assets that are debt instruments and are measured at FVTOCI.
(c) Lease receivables under Ind AS 116.
(d) Trade receivables or any contractual right to receive cash or another financial asset
(e) Loan commitments which are not measured at FVTPL
(f) Financial guarantee contracts which are not measured at FVTPL
B. 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 amortized 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 recognized 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.
v. INCOME TAXES:
Income tax expense for the year comprises of current tax and deferred tax. Provision for Current Tax is computed as per Total Income Returnable under the Income Tax Act, 1961 taking into account available deductions and exemptions.
Deferred tax is recognized in respect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the corresponding amounts used for taxation purposes. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized.
vi. REVENUE RECOGNITION:
The Company derives revenues primarily from sale of properties comprising of both commercial and residential units. The Company recognizes revenue when it determines the satisfaction of performance obligations at a point in time and subsequently over time when the Company has enforceable right for payment for performance completed to date. Revenue is recognized upon transfer of control of promised products to customer in an amount that reflects the consideration which the Company expects to receive in exchange for those products.
In arrangements for sale of units the Company has applied the guidance given in IND AS 115, on “Revenue from contracts with customers”, by applying the revenue recognition criteria for each distinct performance obligation. The arrangements with customers generally meet the criteria for considering sale of units as distinct performance obligations. For allocating the transaction price, the Company has measured the revenue in respect of each performance obligation of a contract at its relative standalone selling price. The price that is regularly charged for an item when sold separately is the best evidence of its standalone selling price. The transaction price is also adjusted for the effects of the time value of money if the contract includes a significant financing component. Any consideration payable to the customer is adjusted to the transaction price, unless it is a payment for a distinct product or service from the customer.
The full revenue is recognized on sale of property when the company has transferred to the buyer all significant risks & rewards of ownership and when the seller has not to perform any substantial acts to complete the contract.
vii. RETIREMENT & OTHER EMPLOYEE BENEFITS:-
As per explanation provided by the company, as per past records, because of certain basic requirement of continuous services, no employee became eligible for retirement benefits, hence nothing has been provided in the books of accounts towards retirement benefits. Further regarding Provident and other employee’s fund, company has not crossed the basic limit, hence PF and other laws are not made applicable to the company.
viii. IMPAIRMENT OF ASSETS:
An asset is treated as impaired when the carrying cost of asset exceeds its recoverable value. Recoverable value is being higher of value in use and net selling price. Value in use is computed at net present value of cash flow expected over the balance useful life of the assets. An impairment loss is recognized in the year in which an asset is identified as impaired as an expense in the Profit and Loss Account
ix. INVENTORY:
Inventories are valued at the lower of cost and net realizable value.
A. In case of the inventory of Raw-materials, they are valued at cost using FIFO method.
B. The Closing stock of WIP has been valued at cost.
C. The closing stock of finished goods is valued at cost or net realizable value, whichever is less.
x. TRANSACTIONS IN FOREIGN CURRENCY:
A. Foreign currency transactions are translated into the functional currency using exchange rates at the date of the transaction.
B. Monetary items denominated in foreign currencies at the period end are restated at year end rates.
C. Nonmonetary foreign currency items are carried at cost.
D. Any income or expense on account of exchange difference either on settlement or on transaction is recognized in the statement of profit and loss.
xi. LEASES:
At the inception of a contract, the Company assesses whether a contract is or contains, a lease. A contract is, or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange of consideration.
As a Lessee:
Right of use Asset:
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. At the commencement date, a lessee shall measure the right-of- use asset at cost which comprises initial measurement of the lease liability, any lease payments made at or before the commencement date, less any lease incentives received, any initial direct costs incurred by the lessee; and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease.
Lease Liability:
At the commencement date, a lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee’s incremental borrowing rate.
Short-term lease and leases of low-value assets:
The Company has elected not to recognize right-of-use assets and lease liabilities for short- term leases that have a lease term of less than 12 months or less and leases of low-value assets, including IT Equipment. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
The election for short-term leases shall be made by class of underlying asset to which the right of use relates. A class of underlying asset is a grouping of underlying assets of a similar nature and use in Company’s operations. The election for leases for which the underlying asset is of low value can be made on a lease-by-lease basis.
At present there is no lease contract in the company.
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