NOTE No. 1. MATERIAL ACCOUNTING POLICIES
Reporting Entity
Shervani Industrial Syndicate Limited (the "Company") is a
listed entity and domiciled in India and limited by shares
(CIN: L45202UP1948PLC001891). The company is
engaged in the business of Real Estate, Development of
Infrastructure Facilities & Information Technology. The Equity
shares of the company are listed on Bombay Stock
Exchange in India.
The address of the company's registered office is 2- Kanpur
Road, Prayagraj- 211001.
1. Material Accounting Policies
The Company has consistently applied the following
accounting policies to all periods presented in the financial
statements.
1.1 Basis of Preparation
The financial statements of the Company have been
prepared in accordance with Indian Accounting Standards
(Ind AS) notified under the Companies (Indian Accounting
Standards) Rules, 2015.
1.2 Current and Non-Current Classification
The Company presents assets and liabilities in the Balance
Sheet based on current/ non-current classification. An asset
is treated as current when:
(a) it expects to realise the asset, or intends to sell or
consume it, in its normal operating cycle;
(b) it holds the asset primarily for the purpose of
trading;
(c) it expects to realise the asset within twelve months
after the reporting period; or
(d) the asset is cash or a cash equivalent (as defined in
Ind AS 7) unless the asset is 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.
An entity shall classify a liability as current when:
(a) it expects to settle the liability in its normal
operating cycle;
(b) it holds the liability primarily for the purpose of
trading;
(c) the liability is due to be settled within twelve months
after the reporting period; or
(d) it does not have an unconditional right to defer
settlement of the liability for at least twelve months
after the reporting period. Terms of a liability that
could, at the option of the counterparty, result in its
settlement by the issue of equity instruments do not
affect its classification.
All other liabilities are classified as non-current.
1.3 Revenue Recognition
1.3.1 Revenue from Sale of Real Estate
The Company recognises revenue from contracts (Ind AS
115) with customers when it satisfies a performance
obligation by transferring promised good or service to a
customer. The revenue is recognised to the extent of
transaction price allocated to the performance obligation
satisfied. Performance obligation is satisfied over time when
the transfer of control of asset (good or service) to a
customer is done over time and in other cases, performance
obligation is satisfied at a point in time. For performance
obligation satisfied over time, the revenue recognition is
done by measuring the progress towards complete
satisfaction of performance obligation.
Revenue is measured at the fair value of the consideration
received or receivable, taking into account contractually
defined terms of payment and excluding taxes, levies or
duties collected on behalf of the government / other statutory
bodies. The taxes, levies or duties are not considered to be
received by the Company on its own account and are
excluded from net revenue.
1.3.2 Interest
Interest income is recognised using the Effective Interest
Method.
1.3.3 Dividend
Dividend income from investments is recognised when the
rights to receive payment is established.
1.3.4 Other Claims
Other claims (including interest on delayed realization from
customers) are accounted for, when there is certainty of
realisation.
1.4 Property, Plant and Equipment (PPE)
Land is carried at historical cost. Historical cost includes
expenditure which are directly attributable to the acquisition
of the land like, rehabilitation expenses, resettlement cost
etc.
After recognition, an item of all other Property, plant and
equipment are carried at its cost less any accumulated
depreciation and any accumulated impairment losses under
Cost Model. The cost of an item of property, plant and
equipment comprises:
(a) its purchase price, including import duties and non¬
refundable purchase taxes, after deducting trade
discounts and rebates.
(b) any costs directly attributable to bringing the asset
to the location and condition necessary for it to be
capable of operating in the manner intended by
management.
(c) the initial estimate of the costs of dismantling and
removing the item and restoring the site on which it
is located, the obligation for which an entity incurs
either when the item is acquired or as a
consequence of having used the item during a
particular period for purposes other than to
produce inventories during that period.
Each part of an item of property, plant and equipment with a
cost that is significant in relation to the total cost of the item
depreciated separately. However, significant part(s) of an
item of PPE having same useful life and depreciation method
are grouped together in determining the depreciation
charge.
Costs of the day to-day servicing described as for the 'repairs
and maintenance' are recognised in the statement of profit
and loss in the period in which the same are incurred.
Subsequent Measurement
Subsequent cost of replacing parts of an item of property,
plant and equipment are recognised in the carrying amount
of the item, if 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. The carrying
amount of those parts that are replaced is derecognised in
accordance with the derecognition policy mentioned below.
When major inspection is performed, its cost is recognised in
the carrying amount of the item of property, plant and
equipment as a replacement if 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.
Any remaining carrying amount of the cost of the previous
inspection (as distinct from physical parts) is derecognised.
An item of Property, plant or equipment is derecognised
upon disposal or when no future economic benefits are
expected from the continued use of assets. Any gain or loss
arising on such derecognition of an item of property plant
and equipment is recognised in profit and Loss.
Depreciation
Depreciation on property, plant and equipment, except
freehold land, is provided on straight line method based on
useful life specified in schedule II to the Companies Act,
2013.The residual value of Property, plant and equipment is
considered as 5% of the original cost of the asset.
Depreciation on the assets added / disposed of during the
year is provided on pro-rata basis with reference to the
month of addition / disposal.
Capital Expenses incurred by the company on
construction/development of certain assets which are
essential for production, supply of goods or for the access to
any existing Assets of the company are recognised as
Enabling Assets under Property, Plant and Equipment.
Investment Property
Property (land or a building or part of building or both) held to
earn rentals or capital appreciation or both rather than for,
use in the production or supply of goods or services or for
administrative purpose; or sale in the ordinary course of
business are classified as investment property.
Investment property is measured initially as its cost,
including related transaction costs and where applicable
borrowing cost. Investment Properties are depreciated using
straight line method based on useful life specified in
schedule II to the Companies Act, 2013.The residual value of
Property, plant and equipment is considered as 5% of the
original cost of the asset.
1.5 Financial Instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
1.5.1 Financial assets
1.5.1 Initial recognition and measurement
All financial assets are recognised initially at fair value, in the
case of financial assets not recorded at fair value through
profit or loss, plus transaction costs that are attributable to
the acquisition of the financial asset. Purchases or sales of
financial assets that require delivery of assets within a time
frame established by regulation or convention in the market
place (regular way trades) are recognised on the trade date,
i.e., the date that the Company commits to purchase or sell
the asset.
1.5.2 Subsequent measurement
For purposes of subsequent measurement, financial assets
are classified in four categories:
• Debt instruments at amortised cost
• Debt instruments at fair value through other
comprehensive income (FVTOCI)
• Debt instruments, derivatives and equity instruments at
fair value through profit or loss (FVTPL)
• Equity instruments measured at fair value through other
comprehensive income (FVTOCI)
1.5.2.1 Equity investments in subsidiaries and
associates
In accordance of Ind AS 101 (First time adoption of Ind AS),
the carrying amount of these investments as per previous
GAAP as on the date of transition is considered to be the
deemed cost. Subsequently Investment in subsidiaries and
associates are measured at cost.
1.5.2.2 Other Equity Investment
All other equity investments in scope of Ind AS 109 are
measured at fair value through Other Comprehensive
Income (OCI).
For all other equity instruments, the Company may make an
irrevocable election to present in other comprehensive
income subsequent changes in the fair value. The Company
makes such election on an instrument by-instrument basis.
The classification is made on initial recognition and is
irrevocable.
If the Company decides to classify an equity instrument as at
FVTOCI, then all fair value changes on the instrument,
excluding dividends, are recognized in the OCI. There is no
recycling of the amounts from OCI to P&L, even on sale of
investment. However, the Company may transfer the
cumulative gain or loss within equity.
Equity instruments included within the FVTPL category are
measured at fair value with all changes recognized in the
P&L.
1.5.3 Financial Liabilities
1.5.3.1 Initial Recognition and Measurement
The Company's financial liabilities include trade and other
payables, loans and borrowings including bank overdrafts.
All financial liabilities are recognised initially at fair value and,
in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
1.5.4 Offsetting of Financial Instruments
Financial assets and financial liabilities are offset and the net
amount is reported in the consolidated balance sheet if there
is a currently enforceable legal right to offset the recognised
amounts and there is an intention to settle on a net basis, to
realise the assets and settle the liabilities simultaneously.
1.6 Borrowing Costs
Borrowing costs are expensed as incurred except where
they are directly attributable to the acquisition, construction
or production of qualifying assets i.e. the assets that
necessarily takes substantial period of time to get ready for
intended use, in which case they are capitalised as part of
the cost of those asset up to the date when the qualifying
asset is ready for its intended use.
1.7 Taxation
Tax expenses for the period comprises current and deferred
tax. Tax is recognised in statement of Profit and Loss, except
to the extent that it relates to items recognised in the
comprehensive income or in equity. In which case, the tax is
also recognised in other comprehensive income or equity.
Current Tax: Current Tax assets and liabilities are measured
at the amount expected to be recovered from or paid to the
taxation authorities, based on tax rates and laws that are
enacted at the Balance Sheet date.
Deferred Tax: Deferred Tax recognised on temporary
difference between the carrying amounts of assets and
liabilities in the financial statements and the corresponding
tax bases used in the computation of taxable profit.
Deferred tax liabilities and assets are measured at the tax
rates that are expected to apply in the period in which the
liability is settled or the asset realised, based on tax rates
(and tax laws) that have been enacted or substantively
enacted by the end of the reporting period. The carrying
amount of Deferred tax liabilities and assets are reviewed at
the end of each reporting period.
1.8 Employee Benefits
(i) Short Term Employee Benefits
Short-term employee benefits are expensed as the related
service is provided. A liability is recognised for the amount
expected to be paid if the Company has a present legal or
constructive obligation to pay this amount as a result of past
service provided by the employee and the obligation can be
estimated reliably.
(ii) Defined Contribution Plans
Obligations for contributions to defined contribution plans
are expensed as the related service is provided. The
company has following defined contribution plans:
a) Provident Fund
(iii) Defined Benefit Plans
The company net obligation in respect of defined benefit
plans is calculated separately for each plan by estimating the
amount of future benefit that employees have earned in the
current and prior periods, discounting that amount and
deducting the fair value of any plan assets.
The calculation of defined benefit obligations is performed
annually by a qualified actuary using the projected unit credit
method. When the calculation results in a potential asset for
the company, the recognised asset is limited to the present
value of economic benefits available in the form of any future
refunds from the plan or reductions in future contributions to
the plan. To calculate the present value of economic benefits,
consideration is given to any applicable minimum funding
requirements.
Remeasurement of the net defined benefit liability, which
comprise actuarial gains and losses, the return on plan
assets (excluding interest) and the effect of the asset ceiling
(if any, excluding interest), are recognised immediately in
Other Comprehensive Income. Net interest expense
(income) on the net defined liability (assets) is computed by
applying the discount rate, used to measure the net defined
liability (asset), to the net defined liability (asset) at the start
of the financial year after taking into account any changes as
a result of contribution and benefit payments during the year.
Net interest expense and other expenses related to defined
benefit plans are recognised in profit or loss.
When the benefits of a plan are changed or when a plan is
curtailed, the resulting change in benefit that relates to past
service or the gain or loss on curtailment is recognised
immediately in profit or loss. The company recognises gains
and losses on the settlement of a defined benefit plan when
the settlement occurs.
The company has following defined benefit plans:
a) Gratuity
The company provides for its gratuity liability based on
actuarial valuation of the gratuity liability as at the Balance
Sheet date, based on Projected Unit Credit Method, carried
out by an independent actuary and contributes to the gratuity
fund. The contributions made are recognized as plan assets.
The defined benefit obligation as reduced by fair value of
plan assets is recognized in the Balance Sheet. Re¬
measurements are recognized in the Other Comprehensive
Income, net of tax in the year in which they arise.
b) Leave Encashment
Leave encashment is payable to eligible employees at the
time of retirement. The Liability for leave encashment, which
is defined benefit scheme, is provided on Actuarial Valuation
as at the Balance Sheet Date, based on projected unit credit
method, carried out by the Independent Actuary.
1.9 Inventories
i) Inventories are valued as follows:
Inventory comprises property for sale and the
property under construction (Work in progress)
Inventories are valued at cost except for finished
goods .Finished goods are valued at cost or market
value whichever is lower.
Completed real estate project for sale is valued at
lower of cost and net realizable value. Cost is
determined by including cost of land, materials,
services and other related overheads.
Construction work in progress is valued at cost
which comprises of land materials, services and
other related overheads.
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