2 MATERIAL ACCOUNTING POLICIES
a) Basis of Preparation
(i) Statements of Compliance
The Financial Statements of the Company comply
in all material aspects with Indian Accounting
Standards ('Ind AS') notified under Section 133
of the Companies Act, 2013 ('the Act') read with
the Companies (Indian Accounting Standards)
Rules, 2015 as amended from time to time and
other relevant provisions of the Act. Accounting
policies have been consistently applied to all the
financial year presented in the financial statements
except where a newly issued accounting standard
is initially adopted or a revision to the existing
accounting standard requires a change in the
accounting policy hitherto in use.
The Balance Sheet, the Statement of Changes
in Equity, the Statement of Profit and Loss and
disclosures are presented in the format prescribed
under Division III of Schedule III of the companies
Act, as amended from time to time that are required
to comply with Ind AS. The Statement of Cash Flows
has been presented as per the requirements of Ind
AS 7 Statement of Cash Flows.
(ii) Historical Cost Convention
The financial statements have been prepared on
a historical cost basis, except for certain financial
instruments which are measured at fair value.
(iii) Preparation of Financial Statements
The Company is covered in the definition of
Non-Banking Financial Company as defined
in Companies (Indian Accounting Standards)
(Amendment) Rules, 2016. As per the format
prescribed under Division III of Schedule III to
the Companies Act, 2013 on 11 October 2013,
the Company presents the Balance Sheet, the
Statement of Profit and Loss and the Statement of
Changes in Equity in the order of liquidity.
(iv) Use of Estimates and Judgements
The preparation of the financial statements in
conformity with Ind AS requires that management
make judgments, estimates and assumptions that
affect the application of accounting policies and
the reported amounts of assets, liabilities and
disclosures of contingent assets and liabilities as of
the date of the financial statements and the income
and expense for the reporting period. The actual
results could differ from these estimates. Estimates
and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate
is revised and in any future periods affected.
Management believes that the estimates used in
preparation of financial statements are prudent
and reasonable.
b) Revenue recognition
The Company recognises revenue from contracts with
customers based on a five step model as set out in
Ind AS 115, Revenue from Contracts with Customers,
to determine when to recognize revenue and at
what amount. Revenue is measured based on the
consideration specified in the contract with a customer.
Revenue from contracts with customers is recognised
when services are provided and it is highly probable that
a significant reversal of revenue is not expected to occur.
Revenue is measured at fair value of the consideration
received or receivable. Revenue is recognised when
(or as) the Company satisfies a performance obligation
by transferring a promised service (i.e. an asset) to
a customer. An asset is transferred when (or as) the
customer obtains control of that asset
When (or as) a performance obligation is satisfied,
the Company recognizes as revenue the amount of
the transaction price (excluding estimates of variable
consideration) that is allocated to that performance
obligation.
The Company applies the five-step approach for
recognition of revenue:
• Identification of contract(s) with customers;
• Identification of the separate performance
obligations in the contract;
• Determination of transaction price;
• Allocation of transaction price to the separate
performance obligations; and
• Recognition of revenue when (or as) each
performance obligation is satisfied"
(i) Interest income
Interest income is recognized on accrual basis.
Interest is recognized in the Statement of Profit
and Loss as it accrues on a time proportion basis
taking into account the amount outstanding and
the rate applicable except in the case of Non¬
Performing Assets (NPAs) where it is recognized,
upon realization.
(ii) Gains and losses from securities
Gains and losses from securities held as Stock-in¬
trade are recognized on trade dates on "first-in first-
out basis".
(iii) Dividend Income
Dividend income is recognized in the statement of
profit or loss on the date that the Company's right
to receive 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 reliably measured. This is generally
when the shareholders approve the dividend.
c) Income Tax
The income tax expense or credit for the period is the tax
payable on the current period's taxable income based
on the applicable income tax rate for each jurisdiction
adjusted by changes in deferred tax assets and liabilities
attributable to temporary differences and to unused
tax losses. Current and deferred tax is recognized in
profit or loss, except to the extent that it relates to items
recognized in other comprehensive income or directly
in equity. In this case, the tax is also recognized in other
comprehensive income or directly in equity, respectively.
(i) Current Tax
Current Tax items are recognised in correlation to
the underlying transaction either in the Statement
of Profit and Loss, other comprehensive income or
directly in equity as determined in accordance with
the provisions of the Income Tax Act, 1961. Current
tax assets and current tax liabilities are off set when
there is a legally enforceable right to set off the
recognized amounts and there is an intention to
settle the asset and the liability on a net basis.
(ii) Deferred Tax
Deferred tax is provided in full, using the liability
method, on temporary differences arising between
the tax bases of assets and liabilities and their
carrying amounts in the financial statements.
However, deferred tax liabilities are not recognized
if they arise from the initial recognition of goodwill.
Deferred tax is determined using tax rates (and
laws) that have been enacted or substantially
enacted by the end of the reporting period and
are expected to apply when the related deferred
income tax asset is realized or the deferred income
tax liability is settled.
Deferred tax assets are recognized for all deductible
temporary differences and unused tax losses only if
it is probable that future taxable amounts will be
available to utilize those temporary differences and
losses.
Deferred tax liabilities are not recognized for
temporary differences between the carrying
amount and tax bases of investments in subsidiaries
where the Company is able to control the timing of
the reversal of the temporary differences and it is
probable that the differences will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset when
there is a legally enforceable right to offset current
tax assets and liabilities and when the deferred tax
balances relate to the same taxation authority.
d) Cash and Cash Equivalents
For the purpose of presentation in the statement of
cash flows, cash and cash equivalents includes 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.
e) Financial Instruments
Initial recognition and measurement
Financial assets and financial liabilities are recognized
when the entity becomes a party to the contractual
provisions of the instrument. Regular way purchases and
sales of financial assets are recognized on trade-date, the
date on which the Company commits to purchase or sell
the asset.
At initial recognition, the Company measures a financial
asset or financial liability at its fair value plus or minus,
in the case of a financial asset or financial liability not
at fair value through profit or loss, transaction costs
that are incremental and directly attributable to the
acquisition or issue of the financial asset or financial
liability, such as fees and commissions. Transaction costs
of financial assets and financial liabilities carried at fair
value through profit or loss are expensed in profit or loss.
Immediately after initial recognition, an expected credit
loss allowance (ECL) is recognized for financial assets
measured at amortized cost.
When the fair value of financial assets and liabilities
differs from the transaction price on initial recognition,
the entity recognizes the difference as follows:
a) When the fair value is evidenced by a quoted
price in an active market for an identical asset or
liability (i.e. a Level 1 input) or based on a valuation
technique that uses only data from observable
markets, the difference is recognized as a gain or
loss.
b) In all other cases, the difference is deferred and the
timing of recognition of deferred day one profit or
loss is determined individually. It is either amortized
over the life of the instrument, deferred until the
instrument's fair value can be determined using
market observable inputs, or realized through
settlement.
When the Company revises the estimates of future cash
flows, the carrying amount of the respective financial
assets or financial liability is adjusted to reflect the new
estimate discounted using the original effective interest
rate. Any changes are recognized in profit or loss.
Fair value of financial instruments
Some of the Company's assets and liabilities are measured
at fair value for financial reporting purpose. 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 regardless
of whether that price is directly observable or estimated
using another valuation technique.
Financial assets
(i) Classification and subsequent measurement
The Company has applied Ind AS 109 and classifies
its financial assets in the following measurement
categories:
• Fair value through profit or loss (FVTPL);
• Fair value through other comprehensive
income (FVOCI); or
• Amortised cost.
1. Financial assets carried at amortised cost
A financial asset is measured at the amortised
cost if both the following conditions are met:
• The asset is held within a business
model whose objective is to hold assets
for collecting contractual cash flows, and
• Contractual terms of the asset give rise
on specified dates to cash flows that
are solely payments of principal and
interest (SPPI) on the principal amount
outstanding. After initial measurement,
such financial assets are subsequently
measured at amortised cost using the
effective interest rate (EIR) method.
Amortised 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
amortisation is included in interest
income in the Statement of Profit and
Loss.
2. Equity Instruments
Equity instruments are instruments that meet
the definition of equity from the issuer's
perspective; that is, instruments that do not
contain a contractual obligation to pay and
that evidence a residual interest in the issuer's
net assets.
All investments in equity instruments
classified under financial assets are initially
measured at fair value, the Company may,
on initial recognition, irrevocably elect to
measure the same either at FVOCI or FVTPL.
The Company makes such election on an
instrument-by-instrument basis. Fair value
changes on an equity instrument is recognised
as revenue from operations in the Statement
of Profit and Loss unless the Company has
elected to measure such instrument at FVOCI.
Fair value changes excluding dividends, on
an equity instrument measured at FVOCI are
recognized in OCI. Amounts recognised in
OCI are not subsequently reclassified to the
Statement of Profit and Loss. Dividend income
on the investments in equity instruments are
recognised as 'Revenue from operations' in
the Statement of Profit and Loss.
All investment in subsidiary companies are
valued at cost whereas other investment are
measured at FVTPL.
(ii) Impairment
The Company recognizes impairment allowances
using Expected Credit Losses ("ECL") method on all
the financial assets that are not measured at FVPTL:
ECL are probability-weighted estimate of credit
losses. They are measured as follows:
• Financials assets that are not credit impaired
- as the present value of all cash shortfalls
that are possible within 12 months after the
reporting date.
• Financials assets with significant increase in
credit risk - as the present value of all cash
shortfalls that result from all possible default
events over the expected life of the financial
assets.
• Financials assets that are credit impaired - as
the difference between the gross carrying
amount and the present value of estimated
cash flows
Financial assets are written off / fully provided for
when there is no reasonable certainty of recovering
a financial asset in its entirety or a portion thereof.
However, financial assets that are written off could
still be subject to enforcement activities under
the Company's recovery procedures, taking into
account legal advice where appropriate. Any
recoveries made are recognised in the Statement
of Profit and Loss.
(iii) Derecognition
A financial asset is derecognised only when :
The Company has transferred the rights to receive
cash flows from the financial asset or retains the
contractual rights to receive the cash flows of
the financial asset, but assumes a contractual
obligation to pay the cash flows to one or more
recipients.
Where the Company has transferred an asset, the
Company evaluates whether it has transferred
substantially all risks and rewards of ownership
of the financial asset. In such cases, the financial
asset is derecognised. Where the entity has not
transferred substantially all risks and rewards of
ownership of the financial asset, the financial asset
is not derecognised.
Where the Company has neither transferred a
financial asset nor retains substantially all risks and
rewards of ownership of the financial asset, the
financial asset is derecognised if the Company has
not retained control of the financial asset. Where
the Company retains control of the financial asset,
the asset is continued to be recognised to the
extent of continuing involvement in the financial
asset.
Financial Liabilities
(i) Initial recognition and measurement
Financial liabilities are classified at amortised
cost or FVTPL. A financial liability is classified as
at FVTPL if it is classified as held for trading, or it
is a derivative or it is designated as such on initial
recognition. Financial liabilities at FVTPL are
measured at fair value and net gains and losses,
including any interest expense, are recognised
in profit or loss. Other financial liabilities are
subsequently measured at amortised cost using
the effective interest method. Interest expense and
foreign exchange gains and losses are recognised
in profit or loss. Any gain or loss on derecognition is
also recognised in Statement of Profit or loss.
(ii) Subsequent measurement
Financial liabilities are subsequently measured at
amortised cost using the EIR method. Financial
liabilities carried at fair value through profit or loss
is measured at fair value with all changes in fair
value recognised in the Statement of Profit and
Loss.
(iii) Derecognition
A financial liability is derecognised when the
obligation specified in the contract is discharged,
cancelled or expires.
f) Offsetting financial instruments
Financial assets and liabilities are offset and the net
amount is reported in the balance sheet where there
is a legally enforceable right to offset the recognised
amounts and there is an intention to settle on a net basis
or realise the asset and settle the liability simultaneously.
The legally enforceable right must not be contingent on
future events and must be enforceable in the normal
course of business and in the event of default, insolvency
or bankruptcy of the Company or the counterparty.
g) Financial guarantee contracts and loan
commitments
Financial guarantee contracts are contracts that require
the issuer to make specified payments to reimburse the
holder for a loss it incurs because a specified debtor fails
to make payments when due, in accordance with the
terms of a debt instrument. Such financial guarantees
are given to banks, financial institutions and others on
behalf of group companies to secure loans, overdrafts
and other banking facilities.
h) Property, Plant and Equipment
Property, plant and equipment are stated at cost of
acquisition less accumulated depreciation. Cost includes
expenditure that is directly attributable to the acquisition
and installation of the assets.
Subsequent costs are included in the asset's carrying
amount or recognized as a separate asset, as appropriate,
only when 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. The
carrying amount of any component accounted for as a
separate asset is derecognized when replaced. All other
repairs and maintenance are charged to profit or loss
during the reporting period in which they are incurred.
Depreciation methods, estimated useful lives and
residual value
Depreciation is calculated using the straight-line method
to allocate their cost, net of their residual values, over
their estimated useful life prescribed under Schedule II
to the Companies Act, 2013. The Company provides pro¬
rata depreciation from the date of installation till date
the assets are sold or disposed. Leasehold improvements
are amortised over the term of underlying lease.
Derecognition
The carrying amount of an item of property, plant and
equipment is derecognized on disposal or when no
future economic benefits are expected from its use or
disposal. Gains and losses on disposals are determined
by comparing proceeds with carrying amount and are
recognized in the statement of profit and loss when the
asset is derecognized.
i) Impairment of non-financial assets
At each reporting date, the Company assesses whether
there is any indication based on internal / external
factors, that an asset may be impaired. If any such
indication exists, the Company estimates the recoverable
amount of the asset. The recoverable amount of asset is
the higher of its fair value or value in use. Value in use
is based on the estimated future cash flows, discounted
to their present value using a pre-tax discount rate that
reflects the current market assessment of time value of
money and the risks specific to it. If such recoverable
amount of the asset or the recoverable amount of the
cash generating unit to which the asset belongs is less
than its carrying amount, the carrying amount is reduced
to its recoverable amount and the reduction is treated as
an impairment loss and is recognised in the statement
of profit and loss. All assets are subsequently reassessed
for indications that an impairment loss previously
recognised may no longer exist. An Impairment loss is
reversed if there has been a change in estimates used
to determine the recoverable amount. Such a reversal is
made only to the extent that the assets carrying amount
would have been determined, net of depreciation or
amortization, had no impairment loss been recognised.
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