3) MATERIAL ACCOUNTING POLICIES
This note provides a list of the material accounting policies adopted in the preparation of
these financial statements. These policies have been consistently applied to all the years
presented, unless otherwise stated.
a) Property, plant and equipment
• Recognition and measurement
Freehold land is carried at historical cost. All other items of property, plant and
equipment are stated at cost less accumulated depreciation and accumulated
impairment loss, if any. Cost comprises of purchase price and any directly
attributable costs of bringing the asset to its working condition for the intended
use. Any trade discounts and rebates are deducted in arriving at the purchase
price.
Borrowing costs that are directly attributable to acquisition, construction &
production of a qualifying asset for the period up to the date, the asset is ready for
its intended use or sale are included in the cost of the asset to which they relate.
Capital work-in-progress comprises of the cost of property, plant and equipment
that are not yet ready for their intended use as at the balance sheet date.
Advances paid towards the acquisition of property, plant and equipment
outstanding at each reporting date are disclosed under “Other non-current
assets".
• Subsequent costs
The cost of replacing a part of an item of property, plant and equipment is
recognised in the carrying amount of the item if it is probable that the future
economic benefits embodied within the part will flow to the company and its cost
can be measured reliably. The carrying amount of the replaced part is
derecognised. The costs of the day-to-day servicing of property, plant and
equipment are recognised in the statement of profit and loss as incurred.
• Derecognition
An item of property, plant and equipment is derecognised upon disposal or when
no future economic benefits are expected from its use or disposal. Any gains and
losses on disposal of an item of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant
and equipment, and are recognised net and disclosed within other income or
expenses in the statement of profit and loss.
• Depreciation methods, estimated useful lives and residual value
Depreciation is calculated over the depreciable amount, which is the cost of an
asset, or other amount substituted for cost, less its residual value. Depreciation is
recognised in the statement of profit and loss on a straight-line basis over the
estimated useful lives of each part of an item of property, plant and equipment as
prescribed in Schedule II of the Companies Act 2013, as assessed by the
management of the company based on technical evaluation except in the case of
following assets:
b) Intangible assets
• Recognition and measurement
Intangible assets are recognised when the asset is identifiable, is within the control
of the company, and 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
reliably measured.
Intangible assets acquired by the company that have finite useful lives are
measured at cost less accumulated amortisation and any accumulated
impairment losses. Internally generated intangible assets are not capitalized & the
related expenditure is recognized in the statement of profit & loss when incurred.
The amortisation period and the amortisation method for finite-life intangible
assets is reviewed at each financial year end and adjusted prospectively, if
appropriate
• Derecognition
An item of intangible asset is derecognised upon disposal or when no future
economic benefits are expected from its use or disposal. Any gains and losses on
disposal of intangible asset are determined by comparing the proceeds from
disposal with the carrying amount of intangible asset and are recognised net and
disclosed within other income or expenses in the statement of profit and loss.
• Amortisation
Intangible assets are amortised over their estimated useful lives on a systematic
basis that reflects the pattern in which the asset's future economic benefits are
expected to be consumed by the entity. Where such a pattern can be reliably
determined and is best reflected by the number of units sold, the units-of-sales
method is applied.
c) Leases
• Company as a lessee
The Company's lease asset classes primarily consist of leases for Residential Flat.
The Company assesses whether a contract contains a lease, with the 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 in exchange for consideration. To
assess whether a contract conveys the right to control the use of an identified
asset, the Company assesses whether: (i) the contract involves the use of an
identified asset (ii) the Company has substantially all of the economic benefits
from use of the asset through the period of the lease and (iii) the Company has the
right to direct the use of the asset.
At 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 or another systematic basis, if that basis is
more representative of the pattern of lessee's benefit.
The cost of the right-of-use asset measured at inception shall comprise of the
amount of the initial measurement of the lease liability adjusted for any lease
payments made at or before the commencement date less any lease incentives
received, plus any initial direct costs incurred and an estimate of costs to be
incurred by the lessee in dismantling and removing the underlying asset or
restoring the underlying asset or site on which it is located. The right-of use assets
is subsequently measured at cost less any accumulated depreciation,
accumulated impairment losses, if any and adjusted for any remeasurement of the
lease liability. The right of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the end of the lease term.
Right-of-use assets are tested for impairment whenever there is any indication
that their carrying amounts may not be recoverable. Impairment loss, if any, is
recognised in the Statement of Profit and Loss.
The Company measures the lease liability at the present value of the lease
payments that are not paid at the commencement date of the lease. The lease
payments are discounted using the interest rate implicit in the lease, if that rate
can be readily determined. If that rate cannot be readily determined, the Company
uses incremental borrowing rate. For leases with reasonably similar
characteristics, the Company, on a lease-by-lease basis, may adopt either the
incremental borrowing rate specific to the lease or the incremental borrowing rate
for the portfolio. The lease payments shall include fixed payments, variable lease
payments, residual value guarantees, exercise price of a purchase option where
the Company is reasonably certain to exercise that option and payments of
penalties for terminating the lease, if the lease term reflects the lessee exercising
an option to terminate the lease. The lease liability is subsequently remeasured by
increasing the carrying amount to reflect interest on the lease liability, reducing
the carrying amount to reflect the lease payments made and remeasuring the
carrying amount to reflect any reassessment or lease modifications or to reflect
revised in-substance fixed lease payments.
Lease liability and Right of Use assets have been separately presented in the
Balance Sheet and lease payments have been classified as financing cash flows.
d) Impairment of non-financial assets
The Company assesses at each balance sheet date whether there is any indication
that an asset or cash generating unit (CGU) may be impaired. If any such indication
exists, the company estimates the recoverable amount of the asset. The recoverable
amount is the higher of an asset's or CGU's fair value less costs of disposal or its value
in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount,
the asset is considered impaired and is written down to its recoverable amount.
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. In determining fair value
less costs of disposal, recent market transactions are considered.
Impairment losses are recognised in the statement of profit and loss. They are
allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and
then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
e) Inventories
Raw materials, stores and spares are valued at lower of cost and net realizable value.
Cost is determined using weighted average method.
Work in process and finished goods other than by-products are valued at lower of cost
and net realizable value. Cost includes direct material cost, labour cost and
expenditure incurred in normal course of business in bringing inventories to its
location and a proportion of manufacturing overhead based on normal operating
capacity but excluding borrowing costs. Cost is arrived at by absorption cost method.
By-products are valued at net realisable value.
Necessary provisions are made for obsolete and non-moving inventories as per the
policy framed by the management and the value of inventory is net of such provision.
Net realizable 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.
f) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks and cash on
hand and short-term deposits with an original maturity of three months or less, which
are subject to an insignificant risk of changes in value.
g) Revenue recognition
Revenue from sale of goods is recognised when all significant risks and rewards of
ownership of the goods are passed on to the buyer, recovery of the consideration is
probable, the associated costs can be estimated reliably, there is no continuing
effective control over, or managerial involvement with, the goods, and the amount of
revenue can be measured reliably. It excludes Goods and Service tax (GST). Sales are
stated net of discounts, rebates and returns.
h) Other income
• Interest income
Interest income from financial asset is recognized when it is probable that the
economic benefits will flow to the company & the amount of income can be
measured reliably. Interest income from debt instruments is recognized using the
Effective Interest Rate method (EIR). EIR is the rate that exactly discounts the
estimated future cash receipts over the expected life of the financial instrument or
a shorter period, where appropriate, to the gross carrying amount of the financial
asset.
• Any other incomes are accounted for on accrual basis.
i) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of
a qualifying asset that necessarily takes a substantial period of time to get ready for
its intended use or sale are capitalised as part of the cost of the asset. Borrowing costs
consist of interest and other costs that an entity incurs in connection with the
borrowing of funds. Transaction costs in respect of long-term borrowings are
amortised over the tenor of respective loans using effective interest method. All other
borrowing costs are expensed in the period in which they are incurred. Borrowing costs
also includes exchange differences arising from foreign currency borrowings to the
extent they are regarded as an adjustment to the borrowing costs.
j) Foreign currency transactions and balances
Transactions in currencies other than the Company's functional currency (i.e. foreign
currencies) are recognised at the rates of exchange prevailing at the dates of the
transactions.
At the end of each reporting period, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at that date. Exchange differences
on monetary items are recognised in the Statement of Profit and Loss in the period in
which they arise.
k) Employee Benefits
• 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, expected cost of bonus and short-term compensated absences, ex-gratia,
performance pay etc. are recognised in the period in which the employee renders
the related service.
• Post-employment benefits
Defined contribution plans
Provident fund scheme is a defined contribution plan. The company has no further
payment obligations once the contributions have been paid. The contributions are
recognised as employee benefit expenses when they are due. The Company has a
policy of accounting gratuity on actuarial basis & leave encashment liability on
actual basis.
Company's liability towards gratuity and compensated absences is determined
using the projected unit credit method, with actuarial valuations being carried out
at the end of each annual reporting period. Remeasurement, comprising actuarial
gains and losses, the effect of the changes to the return on plan assets (excluding
net interest), is reflected immediately in the balance sheet with a charge or credit
recognised in other comprehensive income (OCI) in the period in which they occur.
Remeasurement recognised in the other comprehensive income is reflected
immediately in retained earnings and is not reclassified to profit or loss. Net
interest is calculated by applying the discount rate at the beginning of the period to
the defined benefit liability or asset. Defined benefit costs are categorised as
follows:
• service cost (including current service cost, past service cost, as well as gains and
losses on curtailments and settlements);
• net interest expense or income; and
• remeasurement
The Company presents the first two components of defined benefit costs in the
Statement of Profit and Loss in the line item "Employee benefits expense".
The retirement benefit obligation recognised in the balance sheet represents the
actual deficit or surplus in the Company's defined benefit plans. Any surplus
resulting from this calculation is limited to the present value of any economic
benefits available in the form of refunds from the plans or reductions in future
contributions to the plans.
Provision for compensated absences which are expected to be utilised within the
next twelve months are treated as current compensated absences and beyond
next twelve months as non-current compensated absences. For the purpose of
presentation, the allocation between current & non-current provision has been
disclosed as determined in actuary report.
Defined benefit plans
The Company do not have any Defined Benefit Obligation plan.
l) Income tax
Income tax expense comprises of current tax and net change in the deferred tax asset
& deferred tax liability during the year. It is recognised in the statement of profit and
loss except to the extent that it relates to the items recognised directly in OCI.
• 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 based on the taxable profits
computed for the current accounting period. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively enacted, at the
end of the reporting date.
• Deferred tax
Deferred tax is provided using the balance sheet method on temporary differences
between the tax base of assets and liabilities and their carrying amounts for
financial reporting purposes at the reporting date.
Deferred tax liabilities are recognised for all taxable temporary differences, except
when the deferred tax liability arises from the initial recognition of goodwill or an
asset or liability in a transaction that is not a business combination and, at the time
of the transaction, affects neither the accounting profit nor taxable profit or loss.
Deferred tax assets are recognised for all deductible temporary differences, the
carry forward of unused tax credits and any unused tax losses. Deferred tax assets
are recognised 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 utilised, except when the deferred
tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss.
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. Un¬
recognized 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 assets and liabilities 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 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.
• Minimum Alternate Tax (MAT) credit
Minimum Alternate Tax (MAT) credit is recognized as an asset only when & to the
extent there is convincing evidence that the company will pay Income Tax higher
than that computed under MAT, during the period that MAT is permitted to be set
off under the Income Tax Act, 1961 (specified period). MAT Credit of reporting period
is to be recognized in the financial year in which Income tax return of the reporting
period is filed with Income Tax authority, the said assets is created by way of credit
to the statement of profit & loss & shown as MAT credit entitlement. The company
reviews the same at each Balance Sheet date.
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