NOTE 2: MATERIAL ACCOUNTING POLICIES
2.1 Statement of Compliance and Basis of Preparation:
The Standalone 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 (as amended from time to time) and
presentation requirements of Division II of Schedule III to the Companies Act, 2013, (Ind AS compliant Schedule III), as
applicable to the Standalone Financial Statements.
The Standalone financial statements have been prepared on a historical cost basis, except for certain financial assets
and liabilities measured at fair value (refer accounting policy regarding financial instruments). The Standalone financial
statements are presented in INR and all values are rounded to the nearest lakhs (INR 00,000), except when otherwise
indicated.
2.2 Summary of Material Accounting Policies:
a) Current versus non-current classification:
The Company segregates assets and liabilities into current and non-current categories for presentation in the balance sheet
after considering its normal operating cycle and other criteria set out in Ind AS 1, “Presentation of Financial Statements”.
For this purpose, current assets and liabilities include the current portion of non-current assets and liabilities respectively.
Deferred tax assets and liabilities are always classified as non-current.
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 period up to twelve months as its operating cycle.
b) Foreign Currencies:
Items included in the financial statements of the Company are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’). The financial statements are presented in Indian
Rupees (INR), which is the Company’s functional and presentation currency.
Transactions in foreign currencies are initially recorded at their respective functional currency (i.e. Indian rupee) spot rates
at the date the transaction first qualifies for recognition.
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 the statement of profit and loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated
using the exchange rates at the date when the fair value is determined. 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 profit or loss are also
recognized in OCI or profit or loss, respectively).
In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it)
on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the
transaction is the date on which the Company initially recognises the non-monetary asset or non-monetary liability arising
from the advance consideration. If there are multiple payments or receipts in advance, the Company determines the
transaction date for each payment or receipt of advance consideration
c) Fair Value Measurement:
The Company measures financial instruments, such as, investments at fair value at each balance sheet.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either:
• In the principal market for the asset or liability, or
• In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the
fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement
as a whole:
• Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is
directly or indirectly observable
• Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable
External valuers are involved for valuation of significant assets, such as properties and unquoted financial assets, and
significant liabilities, such as contingent consideration. Involvement of external valuers is decided upon annually by the
Board after discussion with and approval by the Company’s Audit Committee. Selection criteria include market knowledge,
reputation, independence and whether professional standards are maintained. Valuers are normally rotated every three
years. The Board decides, after discussions with the Company’s external valuers, which valuation techniques and inputs
to use for each case.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
d) 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.
Classification and Measurement of Financial Assets
The Company classifies its financial assets in the following measurement categories:
• those to be measured subsequently at fair value (either through other comprehensive income, or through profit or
loss), and
• those measured at amortized cost.
The classification of financial assets at initial recognition depends on the Company’s business model for managing the
financial assets and the financial asset’s contractual terms of the cash flows.
In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give
rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This
assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that
are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.
The Company’s business model for managing financial assets refers to how it manages its financial assets in order to
generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows,
selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within a business
model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified
and measured at fair value through OCI are held within a business model with the objective of both holding to collect
contractual cash flows and selling.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or
convention in the marketplace (regular way trades) are recognised on the trade date, i.e., the date that the Company
commits to purchase or sell the asset.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive
income. For investments in debt instruments, this will depend on the business model in which the investment is held. For
investments in equity instruments, this will depend on whether the Company has made an irrevocable election at the time
of initial recognition to account for the equity investment at fair value through other comprehensive income. The Company
reclassifies debt investments when and only when its business model for managing those assets changes.
At initial recognition, the Company measures a financial asset at its fair value plus, in the case of a financial asset not
at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. However,
trade receivables that do not contain a significant financing component are measured at transaction price.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
• Financial assets at amortised cost (debt instruments)
• Financial assets at fair value through other comprehensive income (FVTOCI) with recycling of cumulative gains and
losses (debt instruments)
• Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon
derecognition (equity instruments)
• Financial assets at fair value through profit or loss
Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely
payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently
measured at amortized cost and is not part of a hedging relationship is recognized in profit or loss when the asset is
derecognized or impaired. Interest income from these financial assets is included in finance income using the effective
interest rate method.
Fair value through other comprehensive income (FVOCI): Assets that are held for collection of contractual cash flows
and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest,
are measured at fair value through other comprehensive income (FVOCI). Movements in the carrying amount are taken
through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and
losses which are recognized in profit and loss. When the financial asset is derecognized, the cumulative gain or loss
previously recognized in OCI is reclassified from equity to profit or loss and recognized under other income. Interest
income from these financial assets is included in other income using the effective interest rate method.
Fair value through profit or loss (FVTPL): Financial assets in this category are those that are held for trading and have
been either designated by management upon initial recognition or are mandatorily required to be measured at fair value
under Ind AS 109 i.e. they do not meet the criteria for classification as measured at amortised cost or FVOCI. A gain or
loss on a debt investment that is subsequently measured at fair value through profit or loss is recognized in profit or loss
and presented in the statement of profit and loss under other income in the period in which it arises. Interest or dividend
income, if any from these financial assets is separately included in other income.
Investment in subsidiaries, associates
A subsidiary is an entity that is controlled by another entity. An associate is an entity over which the Company has
significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the
investee but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights
to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
Impairment of Financial Assets: The Company assesses on a forward-looking basis the impairment allowance
associated with its assets carried at amortized cost and FVTOCI debt instruments. The impairment methodology applied
depends on whether there has been a significant increase in credit risk.
Equity Investments (in subsidiaries and associates): Investments in subsidiaries and associates 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 immediately to its recoverable amount. On disposal of investments in subsidiaries and
associates, the difference between net disposal proceeds and the carrying amounts are recognized in the statement of
profit and loss.
Equity investments (other than Investments in subsidiaries and associates): The Company subsequently measures
all equity investments at fair value. Where the Company’s management has elected to present fair value gains and losses
on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and
losses to profit or loss. Dividends from such investments continue to be recognized in profit or loss as other income when
the Company’s right to receive payments is established. Impairment losses (and reversal of impairment losses) on equity
investments measured at FVOCI are not reported separately from other changes in fair value.Changes in the fair value of
financial assets at fair value through profit or loss are recognized in other income in the statement of profit and loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a Company of similar financial assets) is
primarily derecognized (i.e. removed from the Company’s Standalone balance sheet) when the rights to receive cash
flows from the asset have expired, or the Company has transferred its rights to receive cash flows from the asset or has
assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’
arrangements and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the
Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred
control of the asset.
Financial liabilities
Initial recognition and measurement and presentation
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and
borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Company’s financial liabilities include trade and other payables, loans and borrowings including bank overdrafts,
financial guarantee contracts and derivative financial instruments.
Subsequent measurement
For purposes of subsequent measurement, financial liabilities are classified in two categories:
• Financial liabilities at fair value through profit or loss
• Financial liabilities at amortized cost (loans and borrowings)
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term.
This category also includes derivative financial instruments entered into by the Company that are not designated as
hedging instruments in hedge relationships as defined by Ind AS 109.
Gains or losses on liabilities held for trading are recognized in the profit or loss.
Financial liabilities at amortised cost (Loans and borrowings)
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR
method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR
amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an
integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss. This category
generally applies to borrowings. For more information refer Note 15(a).
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When
an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the
original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the
statement of profit and loss.
Reclassification of financial assets
The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no
reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which
are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets.
Changes to the business model are expected to be infrequent. The Company’s senior management determines change
in the business model as a result of external or internal changes which are significant to the Company’s operations. Such
changes are evident to external parties. A change in the business model occurs when the Company either begins or
ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies
the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting
period following the change in business model. The Company does not restate any previously recognised gains, losses
(including impairment gains or losses) or interest
Original classification - FVTOCI
Revised classification - FVTPL
Accounting treatment - Assets continue to be measured at fair value. Cumulative gain or loss previously recognized in OCI
is reclassified from equity to profit or loss the reclassification date.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the Standalone balance sheet if there
is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to
realize the assets and settle the liabilities simultaneously.
e) Revenue from contract with customer:
Revenue from contracts with customers is recognised when the performance of service is completed for the customer at
an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services. The
Company has concluded that it is the principal in its revenue arrangements with customers.
Revenue from sale of services is recognized at the point in time when performance of service is completed for the
customer, generally at the time of departure of vessel.
Interest Income
For all financial instruments measured at amortized cost, interest income is recorded using the effective interest rate
(“EIR”), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life
of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. When
calculating the effective interest rate, the Company estimates the expected cash flows by considering all the contractual
terms of the financial instrument but does not consider the expected credit losses.
Dividend Income
Dividend Income is recognized when the right to receive payment is established.
Other Income
Profit / loss on sale of investments is recognized at the time of such sale / redemption and is computed based on weighted
average cost. Income and expense on account of changes in fair value is recognized based on the fair value of the
investments as on the balance sheet date.
Contract balances
Trade receivables
A receivable is recognised if an amount of consideration that is unconditional (i.e., only the passage of time is required
before payment of the consideration is due).
Impairment of financial assets
The Company measures impairment loss allowance associated with its assets based on historical trend, industry practices
and the business environment in which the entity operates or any other appropriate basis. The impairment methodology
applied depends on whether there has been a significant increase in credit risk.
For trade receivables, the Company applies a simplified approach in calculating expected credit losses (ECLs), recognizing
a loss allowance based on lifetime ECLs at each reporting date. The Company has established a provision matrix derived
from historical credit loss experience, and this is adjusted for forward-looking factors specific to the debtors and the
broader economic environment. In addition, the Company follows a policy for evaluating the recoverability of receivables
and recording impairment losses at each period-end. This evaluation considers individual customer accounts, collection
trends, and prevailing economic and business conditions to ensure that the impairment reflects current and relevant
information.
Impairment loss allowance (or reversal) is recognized as income/ expense in the statement of profit and loss (P&L). This
amount is reflected under the head ‘Other expenses’ in the P&L.
Contract liabilities
A contract liability is recognised if a payment is received, or a payment is due (whichever is earlier) from a customer before
the Company transfers the related services. Contract liabilities are recognised as revenue when the Company performs
under the contract (i.e. transfers control of the related services to the customer).
f) Taxes:
Current Income Tax
Tax expense comprise current tax expenses and deferred tax.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation
authorities in accordance with the Income tax Act, 1961. The tax rates and tax laws used to compute the amount are those
that are enacted or substantively enacted, at the reporting date.
Current income tax relating to items recognized outside profit or loss is recognized outside profit or loss (either in other
comprehensive income or in equity). Current tax items are recognized in correlation to the underlying transaction either in
OCI or directly in equity.
Deferred Tax
Deferred tax is provided using balance sheet approach on temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and
any unused tax losses. Deferred tax assets 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, 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 and does not give rise to equal taxable and deductible temporary
differences;
> In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences
will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can
be utilized.
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 utilized.
Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized 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
realized 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 relating to items recognized outside statement of profit and loss is recognized outside statement of profit and
loss (either in other comprehensive income or in equity). Deferred tax items are recognized in correlation to the underlying
transaction either in OCI (Other Comprehensive Income) or directly in equity.
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.
The net amount of tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables
in the balance sheet.
g) Property, plant and equipment:
Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses,
if any. Cost comprises the purchase price and any cost attributable to bringing the asset to its working condition for its
intended use. Capital work in progress is stated at cost.
When significant parts of plant and equipment are required to be replaced at intervals, the Company depreciates them
separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in
the carrying amount of the 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 management believes that these estimated useful lives are realistic and reflect fair approximation of the period over
which the assets are likely to be used.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon
disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising
on derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the statement of profit and loss when the asset is derecognised.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each
financial year end and adjusted prospectively, if appropriate.
h) Intangible Assets:
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible
assets are carried at cost less any accumulated amortization and accumulated impairment losses.
Intangible assets are with finite life of 3 years and are amortized over the useful economic life and assessed for impairment
whenever there is an indication that the intangible asset may be impaired.
The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least
at the end of each reporting period.
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.
i) Borrowing Costs:
Borrowing costs includes interest and amortization of ancillary cost over the period of loans which are incurred in connection
with arrangements of borrowings.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or sale are capitalized 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. Borrowing cost also
includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
j) Leases:
The Company assesses at contract inception whether a contract is or contains a lease. That is, if the contract conveys the
right to control the use of an identified asset for a period of time in exchange for consideration.
Company as a lessee
The Company applies a single recognition and measurement approach for all leases, except for short-term leases and
leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets
representing the right to use the underlying assets.
(i) Right-of-use asset:
The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying
asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes
the amount of lease liabilities recognized, 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 life of the assets for lease hold premises is between 0-5
years.
(ii) Lease Liabilities:
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of
lease payments to be made over the lease term. The lease payments include fixed payments (including in substance
fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate,
and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for
terminating the lease, if the lease term reflects the Company exercising the option to terminate.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the
lease commencement date because the interest rate implicit in the lease is not readily determinable. After the
commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for
the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification,
a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a
change in an index or rate used to determine such lease payments) or a change in the assessment of an option to
purchase the underlying asset.
(iii) Short-term leases and leases of low-value assets
The Company applies the short-term lease recognition exemption to its short-term leases of machinery and
equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not
contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office
equipment that are considered to be low value.
The Company applies the low-value asset recognition exemption on a lease-by-lease basis, if the lease qualifies as
leases of low-value assets, with a value when new of up to INR 4 lakhs. In making this assessment, the Company
also factors below key aspects:
• The assessment is conducted on an absolute basis and is independent of the size, nature, or circumstances
of the lessee.
• The assessment is based on the value of the asset when new, regardless of the asset’s age at the time of the
lease.
• The lessee can benefit from the use of the underlying asset either independently or in combination with other
readily available resources, and the asset is not highly dependent on or interrelated with other assets.
• If the asset is subleased or expected to be subleased, the head lease does not qualify as a lease of a low-value
asset.
Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line
basis over the lease term.
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