2 (B) MATERIAL ACCOUNTING POLICY
A) Property, plant and equipment
An item of property, plant and equipment is recognised as an asset if it is probable that the future economic benefits
associated with the item will flow to the Company and its cost can be measured reliably. This recognition principle is
applied to the costs incurred initially to acquire an item of property, plant and equipment and also to costs incurred
subsequently to add to, replace part of, or service it. All other repair and maintenance costs, including regular
servicing, are recognised in the statement of profit and loss as incurred. When a replacement occurs, the carrying
value of the replaced part is de-recognised. Where an item of property, plant and equipment comprises major
components having different useful lives, these components are accounted for as separate items.
The estimated useful lives of assets are as follows:
Nature of Assets Estimated Useful Life
Office & Electrical Equipment 10 Years
Furniture & Fixtures 10 Years
Motor Vehicles 8 Years
Computers 3 Years
Office Premises 30 Years
Property, plant and equipment are stated at cost, less accumulated depreciation and impairment. Cost includes
all direct costs and expenditures incurred to bring the asset to its working condition and location for its intended
use. Trial run expenses (net of revenue) are capitalised. Borrowing costs incurred during the period of
construction is capitalised as part of cost of the qualifying assets.
The gain or loss arising on disposal of an asset is determined as the difference between the sale proceeds and
the carrying value of the asset, and is recognised in the statement of profit and loss.
B) Intangibles
Subsequent to initial recognition, intangible assets with definite useful lives are reported at cost less accumulated
amortisation and accumulated impairment losses.
C) Depreciation and amortisation of property, plant and equipment and intangible assets
Depreciation is provided on prorata basis on straight line method at the rates determined based on estimated useful
lives of tangible assets where applicable, specified in Schedule II to the Act. These charges are commenced from the
dates the assets are available for their intended use and are spread over their estimated useful economic lives or, in
the case of leased assets, over the lease period, if shorter. The estimated useful lives of assets and residual values are
reviewed regularly and, when necessary, revised. No further charge is provided in respect of assets that are fully
written down but are still in use. Depreciation on assets under construction commences only when the assets are
ready for their intended use.
D) Impairment
i) Tangible and Intangible Assets
At each balance sheet date, the Company reviews the carrying values of its property, plant and equipment and
intangible assets to determine whether there is any indication that the carrying value of those assets may not be
recoverable through continuing use. If any such indication exists, the recoverable amount of the asset is reviewed in
order to determine the extent of impairment loss (if any). Where the asset does not generate cash flows that are
independent from other assets, the Company estimates the recoverable amount of the cash generating unit to which
the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future
cash flows have not been adjusted. An impairment loss is recognised in the statement of profit and loss as and when
the carrying value of an asset exceeds its recoverable amount.
Where an impairment loss subsequently reverses, the carrying value of the asset (or cash generating unit) is increased
to the revised estimate of its recoverable amount so that the increased carrying value does not exceed the carrying
value that would have been determined had no impairment loss been recognised for the asset (or cash generating
unit) in prior years. A reversal of an impairment loss is recognised in the statement of profit and loss immediately.
ii) Investment in Subsidiaries and Associates
The carrying amount of the investment is tested for impairment in accordance with Ind AS 36 Impairment of Assets as
a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its
carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of
that impairment loss is recognised in accordance with Ind AS 36 to the extent that the recoverable amount of the
investment subsequently increases.
E) Leases
The Company determines whether an arrangement contains a lease by assessing whether the fulfillment of a
transaction is dependent on the use of a specific asset and whether the transaction conveys the right to use that asset
to the Company in return for payment. Where this occurs, the arrangement is deemed to include a lease and is
accounted for either as finance or operating lease.
Leases are classified as finance leases where the terms of the lease transfers substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases.
The Company as lessee
(i) Operating lease - Rentals payable under operating leases are charged to the statement of profit and loss on a
straight line basis over the term of the relevant lease unless another systematic basis is more representative of the
time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under
operating leases are recognised as an expense in the period in which they are incurred. In the event that lease
incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate
benefit of incentives is recognised as a reduction of rental expense on a straight line basis, except where another
systematic basis is more representative of the time pattern in which economic benefits from the leased asset are
consumed.
(ii) Finance lease - Finance leases are capitalised at the commencement of lease, at the lower of the fair value of the
property or the present value of the minimum lease payments.The corresponding liability to the lessor is included in
the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and
reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are recognised in the statement of profit and loss over the period of the lease.
The Company as Lessor
Amounts due from lessees under finance leases are recognised as receivables at the amount of the Company’s net
investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic
rate of return on the Company’s net investment outstanding in respect of the leases.
Rental income from operating leases is generally recognised on a straight-line basis over the term of the relevant
lease. Where the rentals are structured solely to increase in line with expected general inflation to compensate for the
Company’s expected inflationary cost increases, such increases are recognised in the year in which such benefits
accrue.
F) Financial instruments
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual
provisions of the instrument. Financial assets and liabilities are initially measured at fair value. Transaction costs that
are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets
and financial liabilities at fair value through profit and loss) are added to or deducted from the fair value measured on
initial recognition of financial asset or financial liability. The transaction costs directly attributable to the acquisition of
financial assets and financial liabilities at fair value through profit and loss are immediately recognised in the statement
of profit and loss.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial instrument and of allocating
interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts future
cash receipts or payments through the expected life of the financial instrument, or where appropriate, a shorter
period.
a) Financial assets
Cash and bank balances
Cash and bank balances consist of:
(i) Cash and cash equivalents - which includes cash in hand, deposits held at call with banks and other short term
deposits which are readily convertible into known amounts of cash, are subject to an insignificant risk of change in
value and have maturities of less than one year from the date of such deposits. These balances with banks are
unrestricted for withdrawal and usage.
(ii) Other bank balances - which includes balances and deposits with banks that are restricted for withdrawal and
usage.
Financial assets are subsequently measured at amortised cost if these financial assets are held within a business
model whose objective is to hold these assets in order 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.
Financial assets measured at fair value
Financial assets are measured at fair value through other comprehensive income if these financial assets are held
within a business model whose objective is to hold these assets in order to collect contractual cash flows or to sell
these financial assets 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.
The Company in respect of equity investments (other than in subsidiaries, associates and joint ventures) which are not
held for trading has made an irrevocable election to present in other comprehensive income subsequent changes in
the fair value of such equity instruments. Such an election is made by the Company on an instrument by instrument
basis at the time of initial recognition of such equity investments.
Financial asset not measured at amortised cost or at fair value through other comprehensive income is carried at fair
value through the statement of profit and loss.
Impairment of financial assets
In accordance with Ind AS 109, the Company applies expected credit loss (ECL) model for measurement and
recognition of impairment loss on the following financial assets:
• Financial assets that are debt instruments, and are measured at amortised cost e.g., loans, debt securities, deposits
and trade receivables
• Financial assets that are debt instruments and are measured as at FVTOCI
• Trade receivables or any contractual right to receive cash or another financial asset that result from transactions that
are within the scope of Ind AS 18.
The Company follows ‘simplified approach’ for recognition of impairment loss allowance on trade receivables. The
application of simplified approach does not require the Company to track changes in credit risk. Rather, it recognises
impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition.
For recognition of impairment loss on other financial assets and risk exposure, the Company determines that whether
there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased
significantly, 12-month ECL is used to provide for impairment loss. However, if credit risk has increased significantly,
lifetime ECL is used. If, in a subsequent period, credit quality of the instrument improves such that there is no longer a
significant increase in credit risk since initial recognition, the Company reverts to recognising impairment loss
allowance based on 12-month ECL.
Lifetime ECL are the expected credit losses resulting from all possible default events over the expected life of a
financial instrument. The 12-month ECL is a portion of the lifetime ECL which results from default events that are
possible within 12 months after the reporting date. ECL is the difference between all contractual cash flows that are
due to the Company in accordance with the contract and all the cashflows that the entity expects to receive (i.e., all
cash shortfalls), discounted at the original EIR.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/expense in the
statement of profit and loss. This amount is reflected under the head ‘other expenses’ in the statement of profit and
loss. The balance sheet presentation for various financial instruments is described below:
Financial assets measured as at amortised cost: ECL is presented as an allowance, i.e., as an integral part of the
measurement of those assets in the balance sheet. The allowance reduces the net carrying amount. Until the asset
meets write-off criteria, the Company does not reduce impairment allowance from the gross carrying amount.
Debt instruments measured at FVTOCI: Since financial assets are already reflected at fair value, impairment allowance
is not further reduced from its value. Rather, ECL amount is presented as ‘accumulated impairment amount’ in the
OCI.
For assessing increase in credit risk and impairment loss, the Company combines financial instruments on the basis
of shared credit risk characteristics with the objective of facilitating an analysis that is designed to enable significant
increases in credit risk to be identified on a timely basis.
The Company does not have any purchased or originated credit-impaired (POCI) financial assets, i.e., financial assets
which are credit impaired on purchase/ origination.
The Company de-recognises a financial asset only when the contractual rights to the cash flows from the asset expire,
or it transfers the financial asset and substantially all risks and rewards of ownership of the asset to another entity.
If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to
control the transferred asset, the Company recognises its retained interest in the assets and an associated liability for
amounts it may have to pay.
If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the
Company continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds
received.
b) Financial liabilities and equity instruments
Classification as debt or equity
Financial liabilities and equity instruments issued by the Company are classified according to the substance of the
contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all
of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
Financial Liabilities
Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured
at amortised cost, using the effective interest rate method where the time value of money is significant.
Interest bearing bank loans, overdrafts and issued debt are initially measured at fair value and are subsequently
measured at amortised cost using the effective interest rate method. Any difference between the proceeds (net of
transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in
the statement of profit and loss.
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company’s obligations are discharged,
cancelled or they expire.
Derivative financial instruments
In the ordinary course of business, the Company uses certain derivative financial instruments to reduce business risks
which arise from its exposure to foreign exchange and interest rate fluctuations. The instruments are confined
principally to forward foreign exchange contracts and interest rate swaps. The instruments are employed as hedges
of transactions included in the financial statements or for highly probable forecast transactions/firm contractual
commitments. These derivatives contracts do not generally extend beyond six months except for interest rate
derivatives.
Derivatives are initially accounted for and measured at fair value from the date the derivative contract is entered into
and are subsequently re-measured to their fair value at the end of each reporting period.
G) Employee benefits
Defined contribution plans
Payments to defined contribution plans are charged as an expense as they fall due. Payments made to state managed
retirement benefit schemes are dealt with as payments to defined contribution schemes where the Company’s
obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.
Defined benefit plans
For defined benefit retirement schemes the cost of providing benefits is determined using the Projected Unit Credit
Method, with actuarial valuation being carried out at each balance sheet date. Re-measurement gains and losses of
the net defined benefit liability/(asset) are recognised immediately in other comprehensive income. The service cost
and net interest on the net defined benefit liability/(asset) is treated as a net expense within employment costs.
Past service cost is recognised as an expense when the plan amendment or curtailment occurs or when any related
restructuring costs or termination benefits are recognised, whichever is earlier.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit
obligation as reduced by the fair value plan assets.
Compensated absences
Short term compensated expenses are charged to the Statement of Profit and Loss in the year in which the related
service is rendered.
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