3 Summary of Material Accounting Policies
(a) Use of Judgements, Estimates and Assumptions
The preparation of the Company's financial
statements requires management to make
judgements, estimates and assumptions that
affect the reported amounts of revenues,
expenses, assets and liabilities, and the
accompanying disclosures, and the disclosure
of contingent liabilities. Uncertainty about these
assumptions and estimates could result in
outcomes that require a material adjustment to
the carrying amount of assets or liabilities affected
in future periods. Estimates and underlying
assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised
in the period in which the estimates are revised
and in future periods which are affected.
Estimates and Assumptions
The Financial Statements have been prepared
on the historical cost basis except for certain
financial instruments that are measured at fair
values at the end of each reporting period.
The key assumptions concerning the future and
other key sources of estimation uncertainty at
the reporting date, that have a significant risk of
causing a material adjustment to the carrying
amounts of assets and liabilities within the next
financial years, are described below:
Useful lives of property, plant and equipment
including Impairment thereof
The Company reviews the useful life of property,
plant and equipment at the end of each reporting
period. This reassessment may result in change
in depreciation expense in future periods. The
company assess the impairment in the carrying
value of tangible assets at each reporting date
using best available information.
Recovery of trade receivable
Judgements are required in assessing the
recoverability of overdue trade receivables and
determining whether a provision against those
receivables is required. Factors considered
include the credit rating of the counterparty,
the amount and timing of anticipated future
payments and any possible actions that can be
taken to mitigate the risk of non-payment.
Provisions and contingent liabilities
The company is a party to certain legal disputes,
the outcomes of which can not be assessed with
a high degree of certainty. Base on the legal
views and advice and management estimates,
provisions are recognised or contingent
liabilities are disclosed based on application of
managements judgements. Contingent liabilities
are disclosed in Note 40.
Management applies its judgement in
determining whether or not a provision should
be recorded or a contingent liability should be
disclosed.
Defined benefit plans (gratuity benefits)
The cost of the defined benefit gratuity plan
and other post-employment medical benefits
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.
(b) Classification of Current and Non-Current
The Company presents assets and liabilities in the
balance sheet based on current/ non - current
classification.
An asset is treated as current when it is:
i) Expected to be realized or intended to
be sold or consumed in normal operating
cycle,
ii) Held primarily for the purpose of trading,
iii) Expected to be realized within twelve months
after the reporting year, or
iv) Cash or Cash equivalent unless restricted
from being exchanged or used to settle a
liability for at least twelve months after the
reporting year.
v) The assets is intended for sale or
consumption.
All other assets are classified as noncurrent.
A liability is current when:
i) It is expected to be settled in normal
operating cycle,
ii) It is held primarily for the purpose of trading,
iii) It is due to be settled within twelve months
after the reporting year, or
iv) There is no unconditional right to deter the
settlement of the liability for at least twelve
months after the reporting year.
The Company classifies all other liabilities as non -
current.
Deferred tax assets and liabilities are classified as non
- current assets and liabilities, as applicable.
The operating cycle is the time between the acquisition
of assets for processing and their realization in cash
and cash equivalents. The company has identified
twelve months as its operating cycle.
(c) Property, plant and equipment.
Property, plant and equipment are stated at cost
of acquisition or construction less accumulated
depreciation / amortization and impairment
losses, if any. The cost comprises of the acquisition
/ installation price (net of GST credit wherever
applicable) and any attributable cost of bringing
the property, plant and equipment to its working
condition for its intended use.
Capital work-in-progress includes cost of property,
plant and equipment under installation / under
development / under Dry Docking as at the
balance sheet date.
Subsequent expenditures related to an item
of property, plant and equipment are added
to its gross book value only if it increases the
future benefits from the existing asset beyond its
previously assessed standard of performance.
When a major inspection/ overhaul is performed,
its cost is recognized in the carrying amount of
the related property, plant and equipment as
a replacement if the recognition criteria are
satisfied. All other repair and maintenance costs
are recognized in statement of profit and loss as
incurred.
The Company identifies and determines separate
useful life for each major component of property,
plant and equipment, if they have useful life that
is materially different from that of the remaining
asset. The Company has identified expenditure
incurred on dry-docking as a separate
component which is capitalised as the cost of the
relevant vessel and is amortized systematically
over the interval until the subsequent scheduled
dry-docking.
Items such as Machinery spares is recognised in
accordance with Ind AS 16 "Property, Plant and
Equipment" when they meet the definition of
property, plant and equipment. Otherwise, such
items are classified as inventories.
Properly, plant and equipment not ready for the
intended use on the date of Balance Sheet are
disclosed as "Capital work-in-progress". Advances
given towards acquisition of fixed property, plant
and Equipments outstanding at each Balance
Sheet date are disclosed as Capital Advances
under "Other Non Current Assets".
Losses arising from the retirement of, and gains
and losses arising from disposal of property, plant
and equipment are measured as the difference
between the net disposal proceeds and the
carrying amount of the property, plant and
equipment and are recognised in the statement
of profit and loss when the property, plant and
equipment is derecognised.
The residual values, useful life and methods of
depreciation of property, plant and equipment
are reviewed at each financial year end and
adjusted prospectively, if appropriate.
(d) Depreciation on Property, plant and equipment
Depreciation on property, plant and equipment
is provided using the Straight Line Method basis
so as to write off the original cost of the asset less
its estimated residual value over the estimated
useful life. The Management estimates the useful
life for property, plant and equipment as follows.
represent the period over which the management
expects to use these property, plant and
equipment. The useful life for these property, plant
and equipment are different from the useful life
as prescribed under Part C of schedule II of the
Companies Act 2013. The Management believes
that these estimated useful life are realistic and
reflect fair approximation of the period over
which the assets are likely to be used.
Residual Value:
The useful life and residual values of the
Company's assets are determined by the
Management at the time the asset is acquired
and reviewed periodically, including at each
financial year end. The life are based on
historical experience with similar assets as well as
anticipation of future events, which may impact
their life, such as changes in technology.
(e) intangible Assets and Amortisation
Intangible assets are recognised when it is
probable that the future economic benefits
that are attributable to the assets will flow to the
Company and the cost of the asset can be
measured reliably.
Intangible assets are stated at cost of acquisition
less accumulated amortization and impairment
losses, if any. Intangible assets are amortized over
their estimated useful economic life. Computer
Software cost is amortized over a period of five
years using straight-line method.
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 and Loss when the asset
is derecognized.
The amortisation period and the amortisation
method for an intangible asset with a finite useful
life are reviewed at least at the end of each
reporting period.
(f) Assets classified as held for sale
An item of Property, plant and equipment is
classified as asset held for sale at the time when
the Management is committed to sell / dispose
off the asset and the asset is expected to be sold
/ disposed off within one year from the date of
classification. Assets classified as held for sale are
measured at the lower of their carrying amount
and fair value less costs to sell.
Assets classified as held for sale are presented
separately in the balance sheet. Property, plant
and equipment and intangible assets once
classified as held for sale to owners are not
depreciated or amortised.
(g) impairment of Non Financial Assets
As at each balance sheet date, the Company
assesses whether there is an indication that an
asset may be impaired and also whether there
is an indication of reversal of impairment loss
recognized in the previous periods. If any indication
exists, or when annual impairment testing for an
asset is required, if any, the Company determines
the recoverable amount and impairment loss
is recognized when the carrying amount of an
asset exceeds its recoverable amount.
(h) inventories
Inventories consist of fuel, stores, consumables
and work in progress for running of fleets &
providing charter hire services. These are valued
at lower of cost and net realizable value after
providing for obsolescence, if any. Cost is
determined on weighted average basis. Net
realisable value is the estimated selling price in
the ordinary course of business, less estimated
costs of completion and the estimated costs
necessary to make the sale.
An item of spare part meets the definition of
'property, plant and equipment' and satisfies
the recognition criteria as per paragraph 7 of
Ind AS 16, such an item of spare is recognised
as property, plant and equipment. If that spare
part does not meet the definition and recognition
criteria as cited in paragraph 7 of Ind AS 16 that
spare is recognised as inventory. Spare parts are
generally available for use from the date of its
purchase. Accordingly, spare parts recognised as
property, plant and equipment are depreciated
when the same are available for use.
(i) investments in subsidiaries
Non-current Investments in equity shares in
subsidiaries are carried at cost less accumulated
impairment losses, if any. Where an indication of
impairment exists, the carrying amount of the
investment is assessed and written down to its
recoverable amount. On disposal of investments
in subsidiaries, the difference between net
disposal proceeds and the carrying amounts are
recognised in the Statement of Profit and Loss.
(j) Cash and cash equivalents
Cash and cash equivalents include cash in
hand, demand deposits with banks, other short
term highly liquid financial instruments which are
readily convertible into known amounts of cash
that are subject to an insignificant risk of change
in value and having original maturities of three
months or less.
Fixed deposit having residual maturity up to twelve
months from the reporting period is considered as
part of bank balances other than cash and cash
equivalent. Fixed deposit with residual maturity
more than twelve months from reporting period
is classified under other non-current assets.
(k) Retirement and other employee benefits
Retirement benefits in the form of Provident
Fund are a defined contribution scheme. The
Company's contributions paid / payable towards
these defined contribution plan is recognized as
expense in the Statement of Profit and Loss during
the year in which the employee renders the related
service. There are no other obligations other than
the contribution payable to the respective fund.
If the contribution payable to the scheme for
service received before the balance sheet date
exceeds the contribution already paid, the deficit
payable to the scheme is recognized as a liability
after deducting the contribution already paid.
If the contribution already paid exceeds the
contribution due for services received before the
balance sheet date, then excess is recognized
as an asset to the extent that the pre-payment
will lead to, for example, a reduction in future
payment or a cash refund.
Contribution to Superannuation Fund, a defined
contribution plan, is made to the Life Insurance
Corporation of India, as per the arrangement with
them, and the contributions are charged to the
Statement of Profit and Loss for the year when the
contributions to the respective funds are due.
Gratuity, a defined benefit scheme is covered by
a Group Gratuity cum Life Assurance Policy with
Life Insurance Corporation of India ("LIC"). Annual
contribution to the fund is as determined by LIC.
The shortfall between the accumulated funds
available with LIC and liability as determined on
the basis of an actuarial valuation is provided for
as at the year-end. The cost of providing benefits
under the defined benefit plan is determined
using the projected unit credit method.
Remeasurements, comprising of actuarial
gains and losses, the effect of the asset ceiling,
excluding amounts included in net interest on
the net defined benefit liability and the return on
plan assets (excluding amounts included in net
interest on the net defined benefit liability), are
recognised immediately in the balance sheet
with a corresponding debit or credit to retained
earnings through OCI in the year in which they
occur. Remeasurements are not reclassified to
profit or loss in subsequent years.
Past service costs are recognised in profit or loss
on the earlier of:
The date of the plan amendment or curtailment
and the date that the company recognises
related restructuring costs.
Net interest is calculated by applying the
discount rate to the net defined benefit liability
or asset. The Company recognises the following
changes in the net defined benefit obligation as
an expense in the statement of profit and loss:
Service costs comprising current service
costs, past-service costs, gains and losses on
curtailments and nonroutine settlements; and
Net interest expense or income.
Short term compensated absences are provided
for based on estimates. The Company presents
these as a current liability in the balance sheet,
to the extent it does not have an unconditional
right to defer its settlement for 12 months after the
reporting date.
The Company treats accumulated leave
expected to be carried forward beyond twelve
months, as long-term employee benefit for
measurement purposes. Such long-term
compensated absences are provided for based
on the actuarial valuation using the projected unit
credit method at the year-end. Actuarial gains/
losses are immediately taken to the statement of
profit and loss and are not deferred.
(l) Foreign Currency transactions
The Company's financial statements are
presented in INR, which is also the Company's
Functional Currency.
i) Initial Recognition
Foreign currency transactions are recorded
in the reporting currency by applying, to the
foreign currency amount, the exchange
rate between the reporting currency and the
foreign currency at the fortnightly average
rates.
ii) Conversion
At each balance sheet date, foreign
currency monetary items are reported using
the closing exchange rate. Non-monetary
items, which are measured in terms of
historical cost denominated in a foreign
currency, are reported using the exchange
rate at the date of the transaction.
iii) Exchange Differences
Exchange differences arising on the
settlement of monetary items or on
reporting Company's monetary items at
rates different from those at which they
were initially recorded during the year, or
reported in previous financial statements,
are recognized as income or as expenses in
the year in which they arise. The gain or loss
arising on translation of non-monetary items
is recognised in line with the gain or loss of
the item that gave rise to the translation
difference. (i.e. translation differences on
items whose gain or loss is recognised in other
comprehensive income or the statement of
profit and loss is also recognised in other
comprehensive income or the statement of
profit and loss respectively).
(m) Taxes on Income
Tax expense comprises of Current Tax, Deferred
Tax and tax adjustments of earlier years. Current
Income tax liability on shipping income is
determined based on the net tonnage of each
of its vessels, in accordance with section 115VT
of the Income Tax Act, 1961. Income other than
shipping income is taxed in accordance with the
other provisions of the Income Tax Act, 1961.
Deferred Tax
Deferred tax is provided using the liability method
on temporary differences between the tax
bases of assets and liabilities and their carrying
amounts for the financial reporting purposes at
the reporting date.
Deferred tax are measured at the tax rates that
are expected to apply in the year when the asset
is realised or the liability is settled, based on tax
rates (and tax laws) that have been enacted or
substantively enacted at the reporting date.
Deferred tax liabilities / Assets are not recognised
for all taxable temporary differences, except
for Non shipping income/ Expenses, since the
Company is assessed under section 115VT of the
Income Tax Act, 1961.
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 utilised.
Unrecognised deferred tax assets are re-assessed
at each reporting date and are recognised to the
extent that it has become probable that future
taxable profits will allow the deferred tax asset to
be recovered.
Deferred tax relating to items recognised outside
profit or loss is recognised outside profit or loss
(either in other comprehensive income or in
equity). Deferred tax items are recognised in
correlation to the underlying transaction either in
OCI or directly in equity.
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.
(n) Revenue Recognition.
i) Revenue from Contract with Customers
Revenue is recognised in the Statement of
Profit and Loss when:
• Identification of the contract, or
contracts, with a customer
• Identification of the performance
obligations in the contract
• Determination of the transaction price
• Allocation of the transaction price to
the performance obligations in the
contract; and
• Recognition of revenue when, or as, we
satisfy a performance obligation
Revenue is recognised when the
performance obligation has been satisfied,
which happens upon the transfer of control
to the customer at an amount that reflects
the consideration to which the Company
expects to be entitled in exchange for the
services. Revenue is recognised when or
as performance obligations are satisfied
by transferring the promised services to the
customer, i.e. at a point in time or over time
provided that the stage of completion can
be measured reliably.
Revenue mainly comprises charter hire
from the vessels, which is recognised on
a straight-line basis over the period of the
charter. Revenues from supply of crew and
services are classified as other operating
revenue and recognised on rendering of the
service, based on day rate charges as per
the terms of the agreements.
Cost of services rendered includes port
expenses, bunkers (Fuel Oil), commissions,
hire of boat/steamers, stores, spares, repair
and maintenance expenses, Insurance
expenses etc.
Employee Benefit Expenses - Which
comprise of shore staff & floating staff
expenses. Financial expenses - Financial
expenses comprise interest expenses. Other
expenses - Other expenses which comprise
office expenses, provisions, managements
cost and other expenses relating to
administration.
The Company collects Goods and Service
Tax (GST) on behalf of the government and,
therefore, it is not an economic benefit
flowing to the Company. Hence, it is
excluded from revenue.
ii) interest & Dividend income
For all financial instruments measured at
amortised cost, interest income is recorded
using the effective interest rate, which is the
rate that exactly discounts the estimated
future cash payments or receipts through
the expected life of the financial instruments
or a shorter period, where appropriate, to the
net carrying amount of the financial asset.
Interest income is included in other income
in the statement of profit and loss. Dividend
income is recognised when the Company's
right to receive dividend is established by
the Balance Sheet date.
(o) Leases
The Company as a Lessee
The Company assesses whether a contract
contains a lease, at inception of a contract. 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
for consideration. To assess whether a contract
conveys the right to control the use of an identified
asset, the Company assesses whether:
1. The contract involves the use of an identified
asset
2. The Company has substantially all of the
economic benefits from use of the asset
through the period of the lease and
3. The Company has the right to direct the use
of asset.
As the date of commencement of the lease, the
Company recognizes a right-of-use-asset ("ROU")
and a corresponding lease liability for all lease
arrangements in which it is a lessee, except for
leases with a term of twelve months or less (short¬
term leases) and low value leases. For these
short-term and low value leases, the Company
recognizes the lease payments as an operating
expense on a straight-line basis over the term of
the lease.
Certain Lease arrangements includes the options
to extend or terminate the lease before the end
of the lease term. ROU assets and lease liabilities
includes these options when it is reasonably
certain that they will be exercised.
The of right-of-use assets are initially recognized
at cost, which comprises the initial amount of
the lease liability adjusted for any lease payment
made prior to the commencement date of the
lease plus any initial direct costs less any lease
incentives. They are subsequently measured
at cost less accumulated depreciation and
impairment losses.
Right-to-use assets are depreciated from the
commencement date on a straight-line basis
over the shorter of the lease term and useful life
of the underlying asset. Right of use assets are
evaluated for recoverability whenever events
or changes in circumstances indicate that their
carrying amounts may not be recoverable.
For the purpose of impairment testing, the
recoverable amount (i.e. the higher of the fair
value less cost to sell and the value-in-use) is
determined on an individual asset basis unless
the asset does not generate cash flows that
are largely independent of those from other
assets. In such cases, the recoverable amount
is determined for the Cash Generating Unit (CGU)
to which the assets belongs.
The lease liability is initially measured at amortized
cost at the present value of the future lease
payments. The lease payments are discounted
using the interest rate implicit in the lease or, if
not readily determinable, using the incremental
borrowing rates in the country of changes its
assessment if whether it will exercise an extension
or a termination option.
The discount rate is generally based on the
incremental borrowing rate specific to the lease
being evaluated or for a portfolio of leases with
similar characteristics.
Lease liability and ROU asset have been
separately presented in the respective Note
and lease payments have been classified as
financing cash flows.
The Company as a lessor
Leases for which the Company is a lessor is
classified as a finance or operating lease.
Whenever the terms of the lease transfer
substantially all the risks and rewards of ownership
to the lessee, the contract is classified as a
finance lease. All other leases are classified as
operating leases.
When the Company is an intermediate lessor, it
accounts for its interests in the head lease and
the sublease separately. The sublease is classified
as a finance or operating lease by reference to
the right-of-use asset arising from the head lease.
For operating leases, rental income is recognized
on a straight line basis over the term of the
relevant lease.
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