Summary of Material Accounting Policies:
Note 2:¬
2.1 Basis of Preparation
a) Statement of Compliance
These financial statements have been prepared in
accordance with Indian Accounting Standards (Ind-
AS) notified under section 133 of the Companies Act
2013 and Companies (Indian Accounting Standards)
Rules 2015 as amended from time to time.
b) Basis of Measurement
The financial statements have been prepared under
the historical cost convention and on accrual basis
except for the following items that have been
measured at fair value as required by relevant Ind-AS.
i. Defined benefit Plan and other long term
employee benefits
ii. Certain financial assets and liabilities measured
at fair value.
c) Use of estimates and judgement
The preparation of financial statements is in
conformity with Ind AS that requires management to
make judgements, estimates and assumptions that
affect the application of accounting policies and the
reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities at the date of
financial statements and the reported amount of
income and expenses. Examples of such estimates
include estimates of future obligations under
employee retirement benefit plans and estimated
useful life of property plant and equipment. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed
on a periodic basis. Future results could differ due to
changes in these estimates. Difference between the
actual result and the estimates are recognised in the
period in which the results are known /materialize.
All financial information are presented in Indian
rupees and all values are rounded to the nearest
crore rupees with two decimal points except where
otherwise stated. Due to rounding off the numbers
presented throughout the document may not add
up precisely to the totals and percentages may not
precisely reflect the absolute figures.
2.2 Cash Flow Statement
Cash flow statement is reported using the indirect method
whereby profit / (loss) before tax is adjusted for the effects
of transactions of non-cash nature and any deferrals or
accruals of past or future cash receipts or payments.
The cash flows from operating investing and financing
activities of the company are segregated based on the
available information.
2.3 Property plant and equipment
a) Property plant and equipment are measured at cost
less accumulated depreciation and impairment
losses if any.
Cost of asset includes the following
i. Cost directly attributable to the acquisition of
the assets
ii. Incidental expenditure during the construction
period is capitalized as part of the indirect
construction cost to the extent to which the
expenditure is directly related to construction
or is incidental thereto.
iii. Present value of the estimated costs of
dismantling & removing the items & restoring
the site on which it is located if recognition
criteria are met.
b) Cost of replacement, major inspection, repair of
significant parts and borrowing costs for long¬
term construction projects are capitalised if the
recognition criteria are met.
c) Upon sale of assets cost and accumulated
depreciation are eliminated from the financial
statements and the resultant gains or losses are
recognized in the statement of profit and loss.
Depreciation
a) Depreciation on Property plant and Equipment
is provided on Straight Line basis (SLM) over the
useful life of the assets as specified in Schedule
II of the Companies Act, 2013 except in the case
of (i) Furniture & Fixtures and (ii) Mobiles Phones
& Tablets. In both the categories of these assets
Management has estimated the useful life after
taking into consideration the economic benefits
embodied in these assets and other factors such as
technical obsolescence and wear and tear etc.
The estimated useful life of significant items of
property plant and equipment are as follows:
Particulars Estimated Useful Life
(b) Each part of an item of Property Plant and Equipment
is depreciated separately if the cost of part is
significant in relation to the total cost of the item
and useful life of that part is different from the useful
life of remaining asset.
(c) Leasehold improvements are amortized over the
lower of estimated useful life and lease term.
(d) Depreciation methods useful lives and residual
values are reviewed at each reporting date.
(e) Depreciation on individual assets acquired for
C5000/- or less is depreciated at the rate of 100% in
the year of purchase itself. However, Mobile phones
& Tablets provided to employees are charged to
statement of profit and loss irrespective of its value.
(f) The Company provides mobile phones and tablets
to its employees based on defined eligibility criteria
to facilitate business operations. The Expenditure
incurred on procurement of mobile phones and
tablets provided to employees is recognised as an
expense in the Statement of Profit and Loss at the
time of purchase, considering the nature, usage,
and relatively low value of such items. These are
not capitalised as Property, Plant and Equipment.
Earlier, such items were capitalised under Property,
Plant and Equipment and depreciated over their
estimated useful lives in accordance with the
Company's depreciation policy.
2.4 Capital Work-in-Progress
Capital work-in-progress, representing assets under
assembly or expenditure incurred in respect of assets
under development and not ready for their intended
use, are carried at cost. Cost includes related acquisition
expenses, construction cost, and other expenditure that
are attributable to for development/ assembly of asset.
2.5 Intangible Assets
Intangible assets are recognized when it is probable that
the future economic benefits that are attributable to the
asset will flow to the enterprise and the cost of the asset
can be measured reliably. Intangible assets are stated
at historical cost less accumulated amortization and
impairment loss if any.
Intangible assets comprise of license fees other
implementation costs for system software and other
application software acquired for in-house use. The costs
are capitalized in the year in which the relevant software
is implemented for use. The cost of an intangible asset
comprises its purchase price including any import duties
and other taxes and any directly attributable expenditure
on making the asset ready for its intended use, intangible
assets not ready for intended use as on reporting date is
recognised as intangible assets under development.
Amortization of Intangible Assets
Intangible assets are amortized over their respective
estimated useful lives on a straight- line basis from the
date that they are available for use.The estimated useful
life of acquired softwares (other than SAP software) are
finite i.e 3 years and estimated useful life of SAP software
is 6 years. Amortisation methods useful lives and residual
values are reviewed at each reporting date.
2.6 Impairment of non-financial assets
An asset is treated as impaired when the carrying cost
of assets exceeds its recoverable value and impairment
loss is charged to the Statement of Profit & Loss in the
year in which an asset is identified as impaired. At each
reporting date company assesses the estimate amount
of impairment loss. The impairment loss recognized in
prior accounting periods is reversed if there has been a
change in the estimate of recoverable amount. Reversal
of impaired loss is recognized in the Statement of
Profit & Loss.
2.7 Investments in Subsidiaries, Associates and
Joint Arrangements
a) Investment in Subsidiaries and Associates
Investments in subsidiaries and associates are
accounted for at cost less impairment loss, if any, in
standalone financial statements.
b) Joint Arrangement
Investment in joint arrangement are classified
as either joint operation or joint ventures. The
classification depends on the contractual rights and
obligations of each investors rather than the legal
structure of the joint arrangement.
i) Joint Operations
Company recognizes its direct right to the
assets, liabilities, revenue and expenses of
joint operations and its share of any jointly
held or incurred assets, liabilities, revenue
and expenses.
ii) Joint Venture
Investments in Joint Venture are accounted for
at cost less impairment loss, if any, in separate
financial statements.
2.8 Inventories
Inventories include components and stores purchased for
execution of contracts and operation activities are valued
at lower of cost or net realizable value. Cost is determined
on First in First out (FIFO) basis.
2.9 Lease Receivables
In respect of IRFC Funded Projects of MoR amount
receivable from MoR are shown as Lease Receivables.
Lease receivables are adjusted periodically on receipt
of funds from MoR based on the demand from IRFC for
repayment of borrowings for these projects.
2.10 Revenue from Contracts with Customers
2.10.1 Company Recognises revenue from contracts with
customers based on a five-step criteria as set out in
Ind AS-115: -
(i) Identification of the contracts with a customer: - A
contract is defined as an agreement between two
or more parties that creates enforceable rights
and obligations and sets out the criteria for every
contract that must be met.
(ii) Identification of the performance obligations in the
contract: A performance obligation is a promise in
a contract with a customer to transfer a good or
service to the customer.
(iii) Determination of the transaction price: The
transaction price is the amount of consideration
to which the company expects to be entitled in
exchange for transferring promised goods or
services to a customer excluding amounts collected
on behalf of third parties.
(iv) Allocation of the transaction price to the performance
obligations in the contract: For a contract that has
more than one performance obligation the Company
allocates the transaction price to each performance
obligation in an amount that depicts the amount of
consideration to which the Company expects to be
entitled in exchange for satisfying each performance
obligation.
(v) Recognition of revenue when or as the Company
satisfies a performance obligation.
2.10.2 The Company satisfies a performance obligation
and recognises revenue over the period of time when
one of the following criteria is met:
(i) The customer simultaneously receives and
consumes the benefits provided by the Company's
performance as the Company performs
(ii) The Company's performance creates or enhances
an asset that the customer controls as the asset is
created or enhanced.
(iii) The Company's performance does not create an
asset with an alternative use to the company and
the company has an enforceable right to payment
for performance completed to date.
For performance obligations where one of the above
conditions are not met revenue is recognised at the
point in time at which performance obligation is
satisfied.
2.10.3 The company uses the input method to measure the
progress of work. Considering the current nature of
contracts, management has assessed the use of input
method to be the most suited method to measure the
progress towards complete satisfaction of a performance
obligation satisfied over time.
i) For Cost Plus contracts: Revenue is recognised based
on input method i.e. cost incurred by including
eligible items of expenditure in the bills raised on
the clients and charging specified margin thereon.
ii) Fixed Price Contracts: Revenue is recognised based
on input method with reference to percentage of
completion as at the reporting date i.e contract
revenue are recognised as revenue by reference to
the stage of completion based on the contract costs
incurred for work performed till the reporting date,
relative to the estimated total Contract Cost.
In other cases, where the outcome of a performance
obligation is not reasonably measured, but costs
incurred are expected to be recovered, the revenue
is recognised only to the extent of the costs incurred
upto the end of reporting period.
iii) Unbilled Revenue represents value of performance
obligation performed in accordance with the
contracts terms but not billed to the Client.
2.10.4 Technical Management & Consultancy fees: Revenue is
accounted when right to receive the income is established
as per terms of contract.
2.10.5 Claims are accounted as income in the year of
acceptance by client or evidence of acceptance received.
2.10.6 Services and Construction Contracts- Some contracts
include multiple performance obligations, such as
Construction Execution and related maintenance
services. Where contracts include multiple performance
obligations, the transaction price is allocated to
each obligation based on stand-alone selling prices.
Consideration towards Construction Execution or
maintenance services is identified and accounted for as
a separate performance obligation. Where these are not
directly observable, they are estimated using an expected
cost-plus margin approach.
2.11 Other Revenue Recognition
(i) In case of IRFC funded projects, amount of interest
accrued for the year on the Loan is shown as finance
cost and the same amount which is receivable from
Ministry of Railways is shown as recovery from MoR
under the head other Income.
(ii) Dividend income is recognized when the right to
receive is established.
(iii) Interest income is recognized using Effective Interest
Rate Method.
(iv) The rental income of the company mainly arises from
leasing of machinery and investment properties.
These rental incomes are accounted for on straight¬
line basis over the lease terms.
2.12 Employee Benefits
a) Short Term Employee Benefits
All employee benefits payable wholly within twelve
months of rendering the services are classified
as short term employee benefits. Benefits such
as salaries, wages and short- term compensated
absences, Performance Related Pay (PRP), etc. are
recognized in the period in which the employee
renders the related service.
b) Long Term Employee Benefits
The obligation for long-term employee benefits
such as Long-term compensated absences, Half pay
leave & LTC is accounted for on actuarial valuation
made at the end of the year. Actuarial gains/losses
are recognised in the statement of profit and loss
for the year.
c) Post Employment Benefits
(i) Defined contribution plans:The Company
makes defined contribution to
a. provident fund scheme, CGIS and
employee state insurance scheme.
b. the RVNL Medical and Welfare Trust in
respect of RVNL Medical and Welfare
Scheme.
c. National Plan Scheme by the Govt. of
India (PFRDA) in respect of the pension
scheme.
The contribution paid/payable under the
schemes is recognized during the period in
which the employee renders the related service.
(ii) Defined benefit plans: Gratuity is a post¬
employment defined benefit plan. The asset or
liability recognized in the balance sheet is the
present value of the defined benefit obligation
at the balance sheet date less fair value of
plan assets. The defined benefit obligation
is calculated by an independent actuary
using projected unit credit (PUC) method.
Actuarial gains and losses are recognised
immediately in Other Comprehensive Income.
The gratuity plan provides a lump-sum
payment to vested employees based on the
Employees' service and last drawn salary at
the time retirement, death, incapacitation,
or on completion of terms of employment.
The present value of the defined benefit plan
liability is calculated using a discount rate
which is determined by reference to market
yields at the end of the reporting period on
government bonds.
The gratuity is funded by the Company and is
managed by a separate trust (RVNL Employees
Gratuity Trust). The contributions to the gratuity
trust for the period are recognized as expense
and are charged to statement of profit and loss.
d) Retirement benefits of the 'staff on deputation' have
been accounted for on the basis of the guidelines of
the Ministry of Railways.
e) Re-measurements recognised in Other
Comprehensive Income are comprising actuarial
gains or losses, the return on plan assets (excluding
amount included in the net interest on the net defined
benefit liability or asset) that are not reclassified to
profit or loss from Other Comprehensive Income in
subsequent periods.
2.13 Functional and presentation currency
Items included in the financial statements are measured
using the currency of the primary economic environment
in which the Company operates (Functional Currency).
The financial statements are presented in Indian rupees
which is also the functional and presentation currency
of company.
Foreign Currency Transactions
i. All foreign currency transactions are translated into
functional Currency at the rate prevalent on the date
of transaction.
ii. Non-monetary items are translated at the rate on the
date of initial transaction.
iii. Monetary items denominated in foreign currency
are translated at the prevailing closing buying rate
at each reporting date.
iv. Foreign exchange gain or losses in respect of
monetary and non-monetary items is recognised in
statement of profit and loss.
2.14 Borrowing Cost
Borrowing costs that are attributable to the acquisition
construction or production of a qualifying asset are
capitalized as part of cost of such asset till such time as
the asset is ready for its intended use. A qualifying asset is
an asset that necessarily requires a substantial period of
time to get ready for its intended use. All other borrowing
costs are recognized as an expense in the period in which
they are incurred.
2.15 Tax expenses represents the sum of current tax
and deferred tax
a) Current Income Tax
i. Taxes including current income-tax are
computed using the applicable tax rates
and tax laws.
ii. The tax rates and tax laws used to compute
the amount are those that are enacted or
substantively enacted at the reporting date in
the countries where the company operates and
generates taxable income.
iii. Current income tax assets and liabilities for
current and prior periods are measured at
the amount expected to be recovered from
or paid to the taxation authorities Liability for
additional taxes if any is provided / paid as and
when assessments are completed.
iv. Current tax related to OCI Item are recognized
in Other Comprehensive Income (OCI).
b) Deferred tax
i. Deferred income tax is recognized using
balance sheet approach.
ii. Deferred income tax assets and liabilities are
recognized for temporary differences which is
computed using the tax rates and tax laws that
have been enacted or substantively enacted at
the reporting date.
iii. Deferred income tax asset 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.
iv. The carrying amount of deferred income
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
income tax asset to be utilized.
v. Deferred tax related to OCI Item are recognized
in Other Comprehensive Income (OCI).
2.16 Leases
The Company's leased asset primarily consists of leases
for land and buildings. The Company assesses whether
a contract contains a lease at inception of a contract.
The Company recognizes right-of-use assets at the
commencement date of the lease. 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.
• If ownership of the leased asset is transferred 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.
Lease liabilities
• The Company recognizes lease liabilities measured
at the present value of future lease payments less
any lease incentives receivable. In addition, the
carrying amount of lease liabilities is re-measured if
there is a modification, a change in the lease term or
a change in the lease payments.
• The Company applies the 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. It also applies
to the 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 on a
straight-line basis over the lease term.
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