1.06 Summary of material accounting policies
Accounting policy information is expected to be material if users of an entity's
financial statements would need it to understand other material information in
the financial statements.
The Company applied the guidance available under paragraph 117B of Ind AS
1, Presentation of Financial Statements in evaluating the material nature of the
accounting policies.
The following are the material accounting policies for the Company:
1.07 Property, plant and equipment
The cost of an item of property, plant and equipment are recognised as an
asset if, and only if it is probable that future economic benefits associated with
the item will flow to the Company and the cost of the item can be measured
reliably.
Freehold land is carried at historical cost less any accumulated impairment
losses. Items of property, plant and equipment (including capital-work-in
progress) are stated at cost of acquisition or construction less accumulated
depreciation and impairment loss, if any.
Cost includes expenditures that are directly attributable to the acquisition of
the asset i.e., freight, non-refundable duties and taxes applicable and other
expenses related to acquisition and installation. Borrowing costs for acquisition
of PPE (fixed assets) are capitalized till such assets are ready to be put to use.
The cost of self-constructed assets includes the cost of materials and other
costs directly attributable to bringing the asset to a working condition for its
intended use.
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.
PPE which are not ready for intended use as on the date of Balance Sheet are
disclosed as “Capital Work-in-Progress”.
Any gain or loss on disposal of an item of property, plant and equipment is
recognised in profit or loss.
Subsequent expenditure
Subsequent expenditure is capitalised only if it is probable that the future
economic benefits associated with the expenditure will flow to the Company
and the cost of the item can be measured reliably.
Depreciation
Depreciation on items of PPE is provided on written down value basis,
computed on the basis of useful lives as mentioned in Schedule II to the
Companies Act, 2013. Depreciation on additions/disposals is provided on a
pro-rata basis i.e., from/up to the date on which asset is ready for use/disposed-
off.
1.08 Investment property
Investment property is property (land or a building or part of a building or both)
held to earn rentals or for capital appreciation or both, rather than for:
(a) Use in the production or supply of goods or services or for administrative
purposes; or
(b) Sale in the ordinary course of business. Recognition and measurement:
An investment property shall be recognised as an asset when and only
when:
(a) It is probable that the future economic benefits that are associated
with the investment property will flow to the entity; and
(b) The cost of the investment property can be measured reliably.
An investment property shall be measured initially at its cost. Transaction
costs shall be included in the initial measurement. The company adopted cost
model prescribed in Ind AS 16 for accounting its investment property. The fair
value of investment property has been determined by the Management.
Cost Model
After recognition as an asset, an item of investment property shall be carried at
its cost less any accumulated depreciation and any accumulated impairment
losses.
Depreciation
Depreciation on items of Investment Property is provided on written down
value basis, computed on the basis of useful lives mentioned in Schedule II to
the Companies Act, 2013. Depreciation on additions/disposals is provided on
a pro-rata basis i.e., from/up to the date on which asset is ready for use/
disposed-off. The residual values, useful lives and method of depreciation are
reviewed at each financial year end and adjusted prospectively, if appropriate.
Land is non-depreciable asset as per the Schedule II of the Companies Act,
2013.
1.09 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.
The Company assesses the classification and measurement of a financial
asset based on the contractual cash flow characteristics of the asset and the
Company's business model for managing the asset.
For an asset to be classified and measured at amortised cost, its contractual
terms should give rise to cash flows that are solely payments of principal and
interest on the principal outstanding (SPPI).
Initial recognition and measurement
All financial assets are recognized initially at fair value plus, in the case of
financial assets not recorded at fair value through profit or loss, transaction
costs that are attributable to the acquisition of the financial asset. Purchases
or sales of financial assets that require delivery of assets within a time frame
established by regulation or convention in the market place (regular way trades)
are recognized on the trade date, i.e., the date that the Company commits to
purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified as
under:
(a) Financial assets at amortised cost
Financial assets are subsequently measured at amortised cost using
the effective interest rate (EIR) as per Ind AS 109 'Financial Instruments'
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.
Trade Receivables are initially measured at their transaction price as
defined in Ind AS 115.
(b) Financial assets at fair value through other comprehensive income
(FVTOCI)
Financial assets are 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 that give rise on specified dates to sole
payments of principal and interest on the principal amount outstanding
and by selling financial assets.
(c) Financial assets at fair value through profit or loss (FVTPL)
Financial assets are measured at fair value through profit or loss
unless it is measured at amortised cost or at fair value through other
comprehensive income on initial recognition. The transaction costs
directly attributable to the acquisition of financial assets and liabilities
at fair value through profit or loss are immediately recognised in profit
or loss.
Investments in equity instruments are classified as FVTPL, unless
the related instruments are not held for trading and the Company
irrevocably elects on initial recognition of financial asset on an asset-
by-asset basis to present subsequent changes in fair value in other
comprehensive income.
Equity Instruments
All equity investments under the scope of Ind AS 109 are measured at fair
value. The Company classified all equity instruments at FVTOCI, and
accordingly all fair value changes on the equity instruments, excluding
dividends, are recognized in the OCI. There is no recycling of the amounts from
OCI to statement of profit and loss.
Derecognition
A financial asset (or, where applicable, apart of a financial asset or part of a
group of similar financial assets) is primarily derecognized (i.e., removed from
the Company's balance sheet) when:
a) The rights to receive cash flows from the asset have expired, or
b) 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'
arrangement; and either (i) the Company has transferred substantially
all the risks and rewards of the asset, or
(ii) the Company has neither transferred nor retained substantially all
the risks and rewards of the asset,but has transferred control of the
asset.
When the Company has transferred its rights to receive cash flows from an
asset or has entered in to a pass-through arrangement, it evaluates if and to
what extent it has retained the risks and rewards of ownership. When it has
neither transferred nor retained substantially all of the risks and rewards of the
asset, nor transferred control of the asset, the Company continues to recognize
the transferred asset to the Extent of the Company's continuing involvement. In
that case, the Company also recognises an associated liability. The transferred
asset and the associated liability are measured on a basis that reflects the
rights and obligations that the Company has retained.
In case of de-recognition of a revalued asset, the corresponding portion of the
revaluation surplus as is attributable to that asset is transferred to retained
earnings on such de-recognition. Such transfers to retained earnings are made
through Other Comprehensive Income and not routed through profit or loss.
The company assesses at each reporting period/balance sheet date whether
a financial asset or a group of financial assets is impaired.
In accordance with Ind AS 109, the company uses “Expected Credit Loss”
(ECL) model, for evaluating impairment of Financial Assets other than those
measured at Fair Value Through Profit and Loss (FVTPL).
Expected credit losses are measured through a loss allowance at an amount
equal to:
* The 12 months expected credit losses (expected credit losses that
result from those default events on the financial instrument that are
possible within 12 months after the reporting date);
* Full lifetime expected credit losses (expected credit losses that result
from all possible default events over the life of the financial
instrument);
The company follows simplified approach for recognition of impairment loss
allowance on loans given, trade receivables and under the simplified approach,
the company does not track changes in credit risk. Rather, it recognizes
impairment loss allowance based on lifetime ECL at each reporting date right
from its initial recognition. The company uses a provision matrix to determine
impairment loss allowance on loans given and trade receivables. The provision
matrix is based on its historically observed default rates over the expected life
of loans given and trade receivables and is adjusted for forward looking
estimates. At every reporting date, the historical observed default rates are
updated.
For other assets, the company uses 12-month ECL to provide for impairment
loss where there is no significant increase in credit risk. If there is significant
increase in credit risk full lifetime ECL is used.
The Company recognises loss allowances for Expected Credit Losses (ECLs)
on the financial instruments like Loans and Advances to customers, Trade
and other receivables.
Credit-impaired financial assets
A financial asset is 'credit-impaired' when one or more events that have a
detrimental impact on the estimated future cash flows of the financial asset
have occurred. Credit-impaired financial assets are referred to as Stage 3
assets. Evidence of credit-impairment includes observable data about the
following events:
• significant financial difficulty of the borrower or issuer;
• a breach of contract such as a default or past due event;
• the lender of the borrower, for economic or contractual reasons relating to
the borrower's financial difficulty, having granted to the borrower a
concession that the lender would not otherwise consider;
• the disappearance of an active market for a security because of financial
difficulties.
Definition of default
The Company considers the following as constituting an event of default:
• the borrower is past due more than 90 days on any material credit
obligation to the Company; or
• the borrower is unlikely to pay its credit obligations to the Company in full.
Significant increase in credit risk
The Company monitors all financial assets that are subject to the impairment
requirements to assess whether there has been a significant increase in
credit risk since initial recognition. If there has been a significant increase in
credit risk the Company will measure the loss allowance based on lifetime
rather than 12-month ECL.
b. Financial liabilities
Classification as Debt or Equity
Debt and equity instruments issued by the Company are classified as either
financial liabilities or as equity in accordance with the substance of the
contractual arrangements and the definitions of a financial liability and an
equity instrument. The company has not issued any debt instruments.
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities
at fair value i.e., 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.
Subsequent measurement
The measurement of financial liabilities depends on their classification.
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
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. Separated embedded derivatives are
also classified as held for trading, unless they are designated as effective
hedging instruments. Gains or losses on liabilities held for trading are
recognised in the statement of profit and loss.
Financial liabilities designated upon initial recognition at fair value through
profit or loss are designated as such at the initial date of recognition, and only
if the criteria in Ind AS 109 are satisfied. For liabilities designated as FVTPL,
fair value gains/losses attributable to changes in own credit risk are recognized
in OCI. These gains/loss are not subsequently transferred to the statement of
profit and loss.
However, the Company may transfer the cumulative gain or loss within equity.
All other changes in fair value of such liability are recognised in the statement
of profit and loss.
De-recognition
A financial liability is derecognized when the obligation under the liability is
discharged or cancelled or expired. 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 de-recognition of the original liability and the
recognition of a new liability. The difference in the respective carrying amounts
is recognised in the statement of profit and loss.
Reclassification of financial assets and liabilities
The Company determines classification of financial assets and liabilities on
initial recognition. After initial recognition, no re-classification is made for
financial assets which are equity instruments and financial liabilities. For
financial assets which are debt instruments, a re-classification is made only if
there is a change in the business model for managing those assets. 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 re-classification prospectively from the re¬
classification 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.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is
reported in the balance sheet, if there is a currently enforceable legal right to
offset the recognised amounts and there is an intention to settle on a net
basis, to realise the assets and settle the liabilities simultaneously.
1.10 Cash and cash equivalents
Cash and bank balances comprise of cash balance in hand, in current accounts
with banks, and other short-term deposits. For this purpose, “short-term” means
investments having maturity of three months or less from the date of investment,
and which are subject to an insignificant risk of change in value. Bank overdrafts
that are repayable on demand and form an integral part of our cash management
are included as a component of cash and cash equivalents for the purpose of
the statement of cash flows. The Company is not having any overdraft facility/
limits from any bank/financial institution.
1.11 Impairment of non-financial assets
The carrying amounts of the Company's non-financial assets, other than
deferred tax assets are reviewed at each reporting date to determine whether
there is any indication of impairment.
If any such indication exists, then the asset's recoverable amount is estimated.
For good will and intangible assets that have in definite lives or that are not yet
available for use, an impairment test is performed each year at March 31.
There coverable amount of an asset or cash-generating unit (as defined below)
is the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are counted 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 or
the cash-generating unit.
For the purpose of impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from continuing use that
are largely independent of the cash inflow of other assets or groups of assets
(the “cash-generating unit”).
Intangible assets and property, plant and equipment are evaluated for
recoverability whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. For the purpose of 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 Generated Units (CGU) to which the asset belongs. If such assets
are considered to be impaired, the impairment to be recognized in the statement
of profit and loss is measured by the amount by which the carrying value of the
assets exceeds the estimated recoverable amount of the asset. An impairment
loss is reversed in the statement of profit and loss if there has been a change
in the estimates used to determine the recoverable amount. The carrying
amount of the asset is increased to its revised recoverable amount, provided
that this amount does not exceed the carrying amount that would have been
determined (net of any accumulated amortization or depreciation) had no
impairment loss been recognized for the asset in prior years. An impairment
loss in respect of goodwill is not reversed. In respect of other assets, impairment
losses recognized in prior periods are assessed at each reporting date for any
indications that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that
the asset's carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortization, if no impairment
loss had been recognized.
An impairment loss is recognized in the statement of profit and loss if the
estimated recoverable amount of an asset or its cash-generating unit is lower
than its carrying amount. Impairment losses recognized in respect of cash¬
generating unit are allocated first to reduce the carrying amount of any goodwill
allocated to the unit and then to reduce the carrying amount of the other assets
in the unit on a pro-rata basis.
1.12 Employee benefits
Short term employee benefits
Short-term employee benefits are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid if the Company has
a present legal or constructive obligation to pay this amount as a result of past
service provided by the employee and the obligation can be estimated reliably.
The Company is not having any defined contribution plans and defined benefit
plans at present.
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