2.2 Material Accounting Polices
A summary of the material accounting policies applied in the preparation
of the financial statements are as given below. These accounting policies
have been applied consistently to all periods presented in the financial
statements.
1. Investment in Subsidiaries and associates
A subsidiary is an entity that is controlled by the Company. Control
is the power to govern the financial and operating policies of an entity
so as to obtain benefits from its activities.
An associate is an entity over which the Company has significant
influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee, but is not
control or joint control over those policies.
The Company’s investments in subsidiaries and its associate are
accounted for at cost except when investment or a portion thereof
is classified as held for sale, in which case it is accounted for in
accordance with Ind AS 105.
2. Current versus non-current classification.
The Company presents assets and liabilities in the balance sheet based on
current/ non-current classification. An asset as current when it is:
• Expected to be realized or intended to sold or consumed in normal
operating cycle
• Held primarily for the purpose of trading
• Expected to be realized within twelve months after the reporting
period, or
• Cash or cash equivalent unless restricted from being exchanged or
used to settle a liability for at least twelve months after the reporting
period
All other assets are classified as non-current.
A liability is current when:
• It is expected to be settled in normal operating cycle
• It is held primarily for the purpose of trading
• It is due to be settled within twelve months after the reporting period,
or
• There is no unconditional right to defer the settlement of the liability
for at least twelve months after the reporting period
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and
liabilities.
Operating Cycle
Based on the nature of products / activities of the company and the normal
time between acquisition of assets and their realisation in cash or cash
equivalents, the company has determined its operating cycle as 12 months
for the purpose of classification of its assets and liabilities as current and
non-current.
3. Foreign Currency
Transactions in foreign currencies are initially recorded by the Company at
its functional currency spot rates at the date the transaction first qualifies
for recognition.
The rate that approximates the actual rate at the date of the transaction or
the monthly average rate is used for all transactions.
Monetary assets and liabilities denominated in foreign currencies are
translated at the functional currency spot rates of exchange at the reporting
date.
Exchange differences arising on settlement or translation of monetary items
are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in
a foreign currency are translated using the exchange rate at the date of
the transaction. Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date when the
fair value is determined. The gain or loss arising on translation of non¬
monetary items measured at fair value is treated in line with the recognition
of the gain or loss on the change in fair value of such items (i.e., translation
differences on items whose fair value gain or loss is recognised in OCI or
profit or loss are also recognised in OCI or profit or loss, respectively).
4. Taxes
Income tax expense represents the sum of the tax currently payable and
deferred tax.
Current income tax
Current income tax assets and liabilities are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax
rates and tax laws used to compute the amount are those that are enacted
or substantively enacted, at the reporting date.
Current income tax is recognised in profit or loss, except to the extent that
it relates to items recognised in other comprehensive income or directly
in equity. In this case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.
Management periodically evaluates positions taken in the tax returns with
respect to situations in which applicable tax regulations are subject to
interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is provided using the balance sheet 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 assets are recognized for all deductible temporary differences,
the carry forward of unused tax credits and any unused tax losses. Deferred
tax assets are recognized to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences, and
the carry forward of unused tax credits and unused tax losses can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting
date and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to
be utilized.
Unrecognized deferred tax assets are re-assessed at each reporting period
date and are recognized to the extent that it has become probable that
future taxable profits will allow the deferred tax asset to be recovered.
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.
Current income tax and deferred tax are recognized in profit or loss, except
to the extent that it relates to items recognized in other comprehensive
income or directly in equity. In this case, the tax is also recognized in other
comprehensive income or directly in equity, respectively.
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 taxable entity and the
same taxation authority.
Additional income taxes that arise from the distribution of dividends are
recognized at the same time that the liability to pay the related dividend is
recognized.
5. Intangible assets
Recognition and Initial Measurement
Intangible assets acquired separately are measured on initial recognition at
cost. Following initial recognition, intangible assets are carried at cost less
any accumulated amortization and accumulated impairment losses.
Intangible Assets are recognized when it is probable that the future economic
benefits that are attributable to the asset will flow to the Company and cost
of the asset can be measured reliably.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortized over the useful economic
life and assessed for impairment whenever there is an indication that
the intangible asset may be impaired. The amortization period and the
amortization method for an intangible asset with a finite useful life are
reviewed at least at the end of each reporting period. Changes in the
expected useful life or the expected pattern of consumption of future
economic benefits embodied in the asset are considered to modify the
amortization period or method, as appropriate, and are treated as changes
in accounting estimates. The amortization expense on intangible assets with
finite lives is recognized in the statement of profit and loss unless such
expenditure forms part of carrying value of another asset.
The Company amortizes cost of computer software over their estimated
useful lives of 3 years using Straight-line method. Amortization on additions
to/deductions from Intangible Assets during the period is charged on
pro-rata basis from/up to the date on which the asset is available for use/
disposed.
Derecognition
An intangible asset is derecognized when no future economic benefits are
expected from their use or upon their disposal. Gains or losses arising from
derecognition of an intangible asset are measured as the difference between
the net disposal proceeds and the carrying amount of the asset and are
recognized in the statement of profit or loss when the asset is derecognized.
6. 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 recognizes lease liabilities to make lease payments and right-of-use
assets representing the right to use the underlying assets.
i) Right-of-use assets
The Company recognizes 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, and adjusted for any re¬
measurement 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 shorter of the lease term and the estimated
useful lives of the assets, as follows:
Land- 89 years
Office building - 5 years
If ownership of the leased asset transfers to the Company at the end
of the lease term or the cost reflects the exercise of a purchase option,
depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment.
ii) Lease liabilities
At the commencement date of the lease, the Company recognizes
lease liabilities measured at the present value of lease payments to be
made over the lease term. The lease payments include fixed payments
(including in substance fixed payments) less any lease incentives
receivable, variable lease payments that depend on an index or a rate,
and amounts expected to be paid under residual value guarantees. The
lease payments also include the exercise price of a purchase option
reasonably certain to be exercised by the Company and payments
of penalties for terminating the lease, if the lease term reflects the
Company exercising the option to terminate. Variable lease payments
that do not depend on an index or a rate are recognised as expenses 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 re-measured if there is a modification, a change
in the lease term, a change in the lease payments (e.g., changes to
future payments resulting from a change in an index or rate used to
determine such lease payments) or a change in the assessment of an
option to purchase the underlying asset.
The Company’s lease liabilities are included in Interest-bearing loans
and borrowings.
iii) Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption
to its short-term leases contracts (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 that are considered to be low value.
Lease payments on short-term leases and leases of low-value assets are
recognised as expense over the lease term.
Company as a lessor
Accounting for finance lease
Leases are classified as finance leases when substantially all of the
risks and rewards of ownership transfer from the Company to the
lessee. Amounts due from lessees under finance leases are recorded
as receivables at the Company’s net investment in the leases. Finance
lease income is allocated to accounting periods so as to reflect a
constant periodic rate of return on the net investment outstanding
in respect of the lease.
Accounting for operating lease
Leases in which the Company does not transfer substantially all the
risks and rewards incidental to ownership of an asset are classified as
operating leases. Rental income arising is accounted for on a straight¬
line basis over the lease terms and is included in revenue in the
statement of profit or loss due to its operating nature. Initial direct
costs incurred in negotiating and arranging an operating lease are
added to the carrying amount of the leased asset and recognised over
the lease term on the same basis as rental income. Contingent rents
are recognised as revenue in the period in which they are earned.
. Impairment of assets other than goodwill
At the end of each reporting period, the Company reviews the carrying
amounts of its assets (including investments in subsidiaries and associates)
to determine whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment
loss (if any). When it is not possible to estimate the recoverable amount of
an individual asset, the Company estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs of disposal and
value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have
not been adjusted. For the purpose of impairment testing, assets that
cannot be tested individually are grouped together into the smallest group
of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets (the
“cash-generating unit”, or “CGU”).
If the recoverable amount of an asset (or cash-generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset (or
cash-generating unit) is reduced to its recoverable amount. An impairment
loss is recognized immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying amount of
the asset (or a cash-generating unit) is increased to the revised estimate of
its recoverable amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been determined had no
impairment loss been recognized for the asset (or cash-generating unit) in
prior years. A reversal of an impairment loss is recognized immediately in
profit or loss.
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