2. SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of Preparation
The financial statements are prepared in accordance with the Indian Accounting Standards (Ind AS) notified under
Section 133 of the Companies Act, 2013 (the Act) [Companies (Indian Accounting Standards) Rules, 2015] and other
relevant provisions of the Act.
The Financial Statements have been prepared on a historical cost basis, except for certain financial instruments that
are measured at fair values at the end of each reporting period. Company’s financial statements are prepared in Indian
Rupees ('), which is also its functional currency.
2.2 Measurement of fair values
The Company’s accounting policies and disclosures require the measurement of financial assets and liabilities at fair
values. The Company has established policies and procedures with respect to the measurement of fair values.
The Company classifies the fair value of its financial instruments in the following hierarchy, based on the inputs used in
their valuation:
Level 1 - The fair value of financial instruments traded in active markets is based on quoted (unadjusted) market prices
at the end of the reporting period.
Level 2 - The fair valuation of instruments not traded in active markets is determined based on observable market data
and by using valuation techniques.
Level 3 - Where one or more of the significant inputs are not from observable market data, fair values are determined
in whole or in part using a valuation model based on assumptions that are neither supported by prices from
observable current market transactions in the same instrument nor are they based on available market data. An
adjustment to a Level 2 input that is significant to the entire measurement results in a fair value measurement
categorized within Level 3 of the fair value hierarchy if the adjustment uses significant unobservable inputs.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the company determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest
level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
2.3 Revenue Recognition
Revenue is recognized when control of services is transferred to the customer at an amount that reflects the consideration
to which the Company is entitled in exchange for those services, regardless of when the payment is being made. Revenue
is measured at the fair value of the consideration received or receivable, considering contractually defined terms of
payment.
Revenue from rendering of services is recognized with reference to the stage of completion determined based on an
estimate of work performed, and when the outcome of the transaction can be estimated reliably.
Dividends: Dividend income is recognized when the Company’s right to receive the payment is established, it is probable
that the economic benefits associated with the dividend will flow to the entity and the amount of dividend can be measured
reliably. This is generally when the shareholders approve the dividend.
Interest Income: For all debt instruments measured at amortized cost, interest income is recognized on a time proportion
basis, considering the amount outstanding and effective interest rate.
Rental Income: Rental income arising from operating leases is accounted for on a straight-line basis over the lease
terms and is included in other income in the statement of profit and loss.
2.4 Financial Assets
Initial Recognition
All financial assets are initially recognized at fair value. Transaction costs that are directly attributable to the acquisition
or issue of financial assets, which are not at fair value through profit or loss, are adjusted to the fair value on initial
recognition.
Subsequent Measurement
Financial Asset measured at Amortized Cost (AC)
A financial asset is measured at amortized cost if it is held within a business model whose objective is to hold the asset
to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount outstanding. After initial measurement, such
financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method.
Financial assets at lair value through other comprehensive income: (FVTOCI)
Financial assets are subsequently measured at fair value through other comprehensive income if these financial assets are
held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial
assets and the contractual terms of financial asset give rise on specified dates to cash flows that are solely payments of
principal and the interest on the principal outstanding.
Financial assets at Fair value through profit or loss: (FVTPL)
Any financial asset not subsequently measured at amortized cost or at fair value through other comprehensive income,
is subsequently measured at fair value through profit or loss. Financial assets falling in this category are measured at
fair value and all changes are recognized in the Statement of Profit and Loss.
Investments in Subsidiary and Associates
The Company has accounted for its investments in Subsidiary at cost.
All other equity instruments, including investment in Associates, are measured at fair value, with value changes on these
instruments, excluding dividends, are recognized in the Other Comprehensive Income (OCI).
De-Recognition
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire
or it transfers the financial asset. For Instruments measured at fair value through OCI, there is no recycling of the amounts
from OCI to profit and loss on sale of investment. However, the Company may transfer the cumulative realized gain or
loss on sale of investment within equity.
2.5 Financial Liabilities
Initial Recognition
All financial liabilities are initially recognized at fair value. Transaction costs that are directly attributable to the acquisition
or issue of financial liabilities, which are not at fair value through profit or loss, are adjusted to the fair value on initial
recognition.
Subsequent Measurement
Financial liabilities are subsequently carried at amortized cost using the effective interest method. For trade and other
payables maturing within one year from the balance sheet date, the carrying amounts approximate fair value due to the
short maturity of these instruments.
De-Recognition
A financial liability (or a part of a financial liability) is derecognized when the obligation specified in the contract is
discharged or cancelled or expires.
Impairment of Financial Assets
The Company applies the Expected Credit Loss (ECL) model for recognizing impairment losses, if any on financial assets.
12 months ECL represents the expected default events on the financial asset that are possible within 12 months after the
reporting date. Where the credit risk on the financial assets has not increased significantly since initial recognition, the
loss is measured at an amount equal to 12 months ECL. Where the credit risk on financial assets has increased significantly
since initial recognition, the loss is measured at an amount equal to the lifetime expected credit loss.
Oilsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the balance sheet when the Company
has a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize
the asset and settle the liability simultaneously.
2.6 Leases
The Company’s lease asset classes primarily consist of leases for land and buildings for providing business processing
and support services. 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 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 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.
Right-of-use (ROU) 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 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 asset 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 domicile of these leases. Lease liabilities are remeasured with a corresponding adjustment to the
related right of use asset if the Company changes its assessment whether it will exercise an extension or a termination
option.
For a lease modification that is not accounted for as a separate lease, the remeasurement of the lease liability is accounted
by decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination of the lease for lease
modifications that decrease the scope of the lease and any gain or loss relating to the partial or full termination of the
lease is recognized in statement of profit or loss.
Lease liability and ROU assets have been separately presented in the Balance Sheet and lease payments have been classified
as financing cash flows.
2.7 Employee Benefits
SHORT TERM EMPLOYEE BENEFITS
As per the employment policy of the Company, short-term employee benefits for services rendered by employees are
recognized during the period when the services are rendered.
POST EMPLOYMENT BENEFITS
Defined Contribution plans
Superannuation
The Company contributes to the Superannuation fund, which is managed by the Life Insurance Corporation of India
(LIC). The contributions are charged to the Statement of Profit and Loss.
Provident Fund
The Provident Fund contributions are made to the government administered Provident Fund and Employees’ Pension
Scheme under the Employees Provident Fund Act and to Employees’ State Insurance Schemes on behalf of its employees.
The contributions are charged to Statement of Profit and Loss.
Defined benefit plans
Gratuity
The Company provides a lump sum payment to eligible employees, at retirement or resignation of employment based
on the last drawn salary and years of employment with the Company as per the provisions of the Payment of Gratuity Act,
1972. The Company makes contributions to a gratuity fund administered by trustees and managed by LIC of India.
The liability or asset recognized in the Balance Sheet in respect of a defined gratuity plan is the present value of defined
benefit obligation at the end of the reporting period less the fair value of plan assets. Gratuity liability is a defined benefit
obligation and is recorded based on actuarial valuation using the projected unit credit method made at the end of the
year.
The present value of defined benefit obligation is determined by discounting the estimated future cash out flows by reference
to market yields at the end of the reporting period on government bonds that have terms approximating to the terms
of the related obligation. The gratuity liability and net periodic gratuity cost is actuarially determined after considering
discount rates, expected long term return on plan assets and increase in compensation levels. Re-measurement gains
or losses arising from Experience Adjustments and changes in actuarial assumptions are recognized in the period they
occur, directly in the Other Comprehensive Income. They are included in the statement of changes in equity and in the
Balance Sheet. Re-measurements comprising actuarial gains or losses and return on plan assets (excluding amounts
included in net interest on the net defined benefit liability) are not reclassified to Statement of Profit or Loss in subsequent
periods.
Changes in present value of the defined benefit obligation resulting from plan amendments or curtailments are recognized
immediately in the Statement of Profit and Loss.
Leave Encashment
The Company contributes to a staff leave encashment scheme managed by SBI Life Insurance Company Limited. The
Company accounts its liability based on an actuarial valuation, as at the Balance Sheet date, using the Projected Unit
Credit method.
2.8 Share Based Payments
Employee Stock Options
Sundaram Finance Limited, the erstwhile holding company, has an employee stock option scheme in accordance with
SEBI guidelines 1999 for extending the scheme to eligible employees of the Company, being a subsidiary company.
Accordingly, the Company recognizes the compensation expense relating to share-based payments in accordance with
IND AS 102 - Share based payments.
2.9 Income Taxes
Income-tax expense comprises current tax (amount of tax for the period determined in accordance with The Income
Tax law) and deferred tax charge or credit (reflecting the tax effects of temporary differences between tax bases of assets
and liabilities and their carrying amounts in the financial statements). Taxes are recognized in the Statement of Profit
and Loss except to the extent it relates to items directly recognized in equity or in the Other Comprehensive Income.
Current tax
Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with
the Income Tax Act, 1961. Current tax comprises the tax payable on the taxable income or loss for the year and any
adjustment to the tax payable in respect of previous years. It is measured using tax rates enacted or substantively enacted
at the reporting date.
Current tax assets and liabilities are offset only if, the Company: has a legally enforceable right to set off the recognized
amounts; and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Deferred Tax
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable income.
The measurement of deferred tax reflects the tax consequences that would follow from the way the Company expects,
at the reporting date, to recover or settle the carrying amount of its assets and liabilities. It is measured using tax rates
enacted or substantively enacted at the reporting date.
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized to the
extent that it is probable that future taxable income will be available against which the deductible temporary differences
can be utilized.
Deferred tax assets are reviewed at each reporting date and based on management’s judgement, are reduced to the extent
that it is no longer probable that the related tax benefit will be realized.
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become
probable that future taxable profits will be available against which they can be used.
Deferred tax assets and liabilities are offset only if the Company:
a) has a legally enforceable right to set off current tax assets against current tax liabilities; and
b) the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority.
Current and Deferred tax for the year- OCI
Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other
comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other
comprehensive income or directly in equity respectively.
2.10 Property, plant, and equipment
The property plant and equipment are the assets held for use in the supply of services.
Property, plant, and equipments are stated in the balance sheet at cost (net of duty/ tax credit availed) less accumulated
depreciation and accumulated impairment losses.
Cost of acquisition is inclusive of freight, non-refundable duties & taxes and other directly attributable costs of bringing
the asset to its working condition for the intended use.
Freehold land is not depreciated.
An item is recognized as property plant and equipment if and only if it is probable that future economic benefits associated
with the item will flow to the Company and its costs can be measured reliably.
Subsequent expenditure is added to the carrying amount or recognized as a separate asset only when it is probable that
future economic benefits associated with the item will flow to the Company and the cost can be measured reliably.
Depreciation commences when the assets are ready for their intended use. Where the property plant and equipment are
not ready for its intended use as on the balance sheet date it is disclosed as capital work in progress
Depreciation is recognized to write off, the cost of assets less their residual values over their useful lives, using the written
down value method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each
reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
Estimated useful lives of the assets, based on technical assessment, which are different in certain cases from those
prescribed in Schedule II to the Act, are as follows:
The property plant and equipment with definite life are reviewed for impairment whenever the events or changes indicate
that their carrying value may not be recoverable.
Depreciation charge for impaired assets is adjusted in future periods in such a manner that the revised carrying amount
of the asset is allocated over its remaining useful life.
An item of the property plant equipment is derecognized upon disposal or when no future economic benefits are expected
to arise from the continued use of asset. Any gain or loss arising from the disposal or retirement of the item of property
plant equipment is determined as the difference between the sale proceeds and carrying amount of the asset and is
recognized in profit and loss.
2.11 Investment Property
Properties held to earn rental income or for capital appreciation or both and that is not occupied by the Company are
classified as Investment Property.
It is measured initially at cost of acquisition including transaction costs, borrowing cost and other directly attributable
costs in bringing the asset to its working condition for its intended use.
Subsequent expenditure is capitalized to the asset carrying amount only when it is probable that the future economic
benefit associated with the expenditure will flow to the company.
Depreciation is provided on written down value method by adopting useful life prescribed under schedule II to the
Companies Act, 2013 after retaining 5% of original cost as residual value for Buildings.
Though the Company measures investment property using cost-based measurement, the fair value of investment property
is disclosed in the notes. Fair values are determined by a property valuer, having appropriate recognized professional
qualifications and recent experience in the location and category of the property being valued.
Investment properties are derecognized either when they have been disposed-off or when they are permanently withdrawn
from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds
and the carrying amount of the asset is recognized in the statement of profit and loss in the period of derecognition.
2.12 Intangible assets
Intangible assets are identified non-monetary assets without physical existence. Intangible assets represent Computer
software whose cost is amortized over their expected useful life on a straight-line basis.
Intangible assets with finite useful lives that are acquired separately are capitalized and carried at cost less accumulated
amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over the estimated
useful life of the asset.
Intangible assets are recognized in books only when it is probable that future economic benefits associated with the asset
will flow to the company and the cost can be measured reliably.
The cost of the intangible asset shall include the purchase price, including non-refundable duties and taxes, all the directly
attributable costs to bring the intangible to the present location, working condition and intended use.
2.13 Assets Held for Sale
Non-current assets or disposal groups comprising of assets and liabilities are classified as “held for sale” when all the
following criteria are met: (i) decision has been made to sell, (ii) the assets are available for immediate sale in its present
condition, (iii) the assets are being actively marketed and (iv) sale has been agreed or is expected to be concluded
within 12 months of the Balance Sheet date.
Subsequently, such non-current assets and disposal groups classified as ‘held for sale’ are measured at the lower of its
carrying value and fair value less costs to sell. Non-current assets held for sale are not depreciated or amortized.
2.14 Impairment of Assets
The carrying amounts of assets are reviewed at each balance sheet date to ascertain impairment based on internal /
external factors. An impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount.
The recoverable amount is the higher of the net selling price of the assets and their value in use.
The impairment loss recognized in the prior accounting period is reversed if there has been a change in the estimate of
recoverable amount.
2.15 Cash and Cash equivalents
For presentation in the statement of cash flows, cash and cash equivalents include cash on hand, deposits held at call
with financial institutions, other short-term, highly liquid investments with original maturities of three months or less
that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value,
and bank overdrafts.
2.16 Trade receivables
Trade receivables, that do not contain a significant financing component, are recognized at transaction price.
2.17 Foreign Currency Transactions
Transactions in foreign currency are accounted at the exchange rates prevailing on the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated at the functional currency closing rates of exchange
at the reporting date.
Exchange differences arising on settlement or translation of monetary items are recognized in Statement of Profit and Loss
except to the extent of exchange differences which are regarded as an adjustment to interest costs on foreign currency
borrowings that are directly attributable to the acquisition or construction of qualifying assets, are capitalized as cost of
assets.
Non-monetary items that are measured in terms of historical cost in a foreign currency are recorded using the exchange
rates 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 was measured. 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 the
item (i.e., translation differences on items whose fair value gain or loss is recognized in OCI or Statement of Profit and
Loss are also recognized in OCI or Statement of Profit and Loss, respectively).
2.18 Dividend
The final Dividend on shares is recorded as a liability on the date of approval by the Shareholders and interim dividends
are recorded as a liability on the date of declaration by the Company's Board of Directors.
2.19 Cash Flow Statement
Statement of cash flows are reported using the indirect method, whereby profit for the period is adjusted for the effects
of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments and
item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing
and financing activities of the Company are segregated.
2.20 Provisions and Contingent Liabilities
Provisions are recognized when the Company, as a result of a past event, has a present obligation and it is probable that
the Company will be required to settle the obligation for which a reliable estimate can be made.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation
at the end of the reporting period, considering the risks and uncertainties surrounding the obligation. When a provision
is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of
those cash flows (when the effect of the time value of money is material). When discounting is used, the increase in the
provision due to the passage of time is recognized as a finance cost.
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