3. Summary of significant accounting policies
a) Current versus Non-current classification
The Company presents assets and liabilities in the balance sheet based on current/ Non-current
classification.
Assets
An asset as current when it is:
- Expected to be realised or intended to sold or consumed in normal operating cycle
- Held primarily for the purpose of trading
- Expected to be realised within twelve months after the reporting period, or
- Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least
twelve months after the reporting period
Current assets include the current portion of non-current financial assets. All other assets are classified as
non-current.
Liability
A liability is current when:
- It is expected to be settled in normal operating cycle
- It is held primarily for the purpose of trading
- It is due to be settled within twelve months after the reporting period, or
- There is no unconditional right to defer the settlement of the liability for at least twelve months after the
reporting period
Current liabilities include the current portion of non-current financial liabilities. The Company classifies all
other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
Operating cycle
The operating cycle is the time between the acquisition of assets for processing and their realisation in cash
and cash equivalents. The Company has identified twelve months as its operating cycle basis the nature of
business except real estate which may exceed twelve months and vary on project to project basis depending
on the life of the project.
b) Property, plant and equipment
Property, plant and equipment including capital work in progress is stated at cost, net of accumulated
depreciation and accumulated impairment losses, if any. Cost includes expenditure that is directly
attributable to the acquisition of the asset.
Subsequent expenditures related to an item of property, plant and equipment 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 repair and maintenance costs are recognised in the Statement of Profit and Loss during
the reporting period in which they are incurred.
The present value of the expected cost for the decommissioning of an asset after its use is included in the
cost of the respective asset if the recognition criteria for a provision are met.
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 de-recognition 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.
Depreciation methods, estimated useful lives and residual values
Assets are depreciated to the residual values on a written down value method over the estimated useful
lives of the assets, derived as per the Divison -II of Schedule III of the Companies Act, 2013, which are as
follows:-
In case of intangible assets, amortistion has been done considering useful life derived on the basis of
management judgement and estimate.
The residual values are not more than 5% of the original cost of the asset. The assets' residual values and
useful lives are reviewed at each financial year end or whenever there are indicators for impairment, and
adjusted prospectively, as appropriate.
As asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are
included in Statement of Profit and Loss within other gains/ (losses). Depreciation is calculated on a pro-rata
basis for assets purchased/ sold during the year.
c) Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that a non-financial asset maybe
impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company
estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash¬
generating units' (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined
for an individual asset, unless the asset does not generate cash inflows that are largely independent of those
from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable
amount, the asset is considered impaired and is written down to its recoverable amount.
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. In determining fair value less costs of disposal, recent market transactions are taken
into account. If no such transactions can be identified, an appropriate valuation model is used. Impairment
losses, if any, are recognized in Statement of Profit and Loss.
A previously recognised impairment loss is reversed only if there has been a change in the assumptions
used to determine the asset's recoverable amount since the last impairment loss was recognised. The
reversal is limited to the extent the carrying amount of the asset does not exceed its recoverable amount, nor
exceed the carrying amount that would have been determined, net of depreciation or amortisation, had no
impairment loss been recognised for the asset in prior years. Such reversal is recognized in the Statement
of Profit and Loss when the asset is carried at the revalued amount, in which case the reverse is treated as
a revaluation increase.
d) Leases - Company as a lessee
The determination of whether an arrangement is(or contains) a lease is based on the substance of an
arrangement at inception date: whether fulfilment of the arrangement is dependent on the use of a specific
asset or assets and the arrangement conveys a right to use the asset, even if that right is not explicitly
specified in an arrangement.
A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially
all the risks and rewards incidental to ownership to the Company is classified as a finance lease.
Finance leases are capitalised at the commencement of the lease at the inception date fair value of the
leased property or, if lower, at the present value of the minimum lease payments. Lease payments are
apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the
Statement of Profit and Loss, unless they are directly attributable to qualifying assets, in which case they are
capitalized in accordance with the Company's policy on the borrowing costs.
Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty
that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the
shorter of the estimated useful life of the asset and the lease term.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term and
escalation in the contract, which are structured to compensate expected general inflationary increase are
not straight-lined. Contingent rents are recognized as expense in the period in Statement of Profit and Loss
in which they are incurred.
e) Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and short-term deposits
with an original maturity of three months or less, which are subject to an insignificant risk of changes in
value. Bank overdrafts that are repayable on demand and form an integral part of the Company's cash
management are included as a component of cash and cash equivalents for the purpose of the Statement
of Cash Flows.
f) 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.
Financial assets
Initial recognition and measurement
All financial assets are initially recognised when the Company becomes a party to the contractual provisions
of the instrument. All financial assets are recognised 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 assets.
Classification and subsequent measurement
For the purpose of subsequent measurement, the Company classifies financial assets in following
categories:
- Financial assets at amortized cost
- Financial assets at fair value through other comprehensive income (FVTOCI)
- Financial assets at fair value through profit or loss (FVTPL)
- Equity investments measured at fair value through other comprehensive income (FVTOCI)
Financial assets at amortised cost
The category applies to the Company's trade receivables, unbilled revenue, other bank balances, security
deposits, etc.
A financial asset being a 'debt instrument' is measured at amortised cost if both the following conditions are
met:
a) The asset is held within a business model whose objective is to hold assets for collecting contractual
cash flows and
b) 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.
This category is most relevant to the Company. 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 finance income in the Statement of Profit and Loss. The losses arising from impairment
are recognised in the Statement of Profit and Loss.
Financial assets at FVTOCI
A financial asset being a 'debt instrument' is measured at FVTOCI if both the following conditions are met:
• The objective of the business model is achieved both by collecting contractual cash flows and selling the
financial assets, and
• The asset's contractual cash flows represent SPPI.
Debt instruments included within the FVTOCI category are measured initially as well as at each reporting date at
fair value. Fair value movements are recognized in the other comprehensive income (OCI). However, the Company
recognizes interest income, impairment losses & reversals in the Statement of Profit and Loss. On de-recognition of
the asset, cumulative gain or loss previously recognised in OCI is reclassified from the equity to Statement of Profit
and Loss.
Financial assets at FVTPL
FVTPL is a residual category for debt instruments. Any debt instrument, which does not meet the criteria for
categorization at amortized cost or at FVTOCI, is classified at FVTPL.
Debt instruments included within the FVTPL category are measured at fair value with all changes recognized in the
Statement of Profit and Loss.
In addition, the Company may elect to designate a debt instrument, which otherwise meets amortized cost or FVTOCI
criteria, as at FVTPL. However, such election is allowed only if doing so reduces or eliminates a measurement or
recognition inconsistency (referred to as 'accounting mismatch').
Equity investments
All equity investments in scope of Ind AS 109 are measured at fair value. Equity instruments which are held for
trading and contingent consideration recognised by an acquirer in a business combination to which Ind AS103
applies are classified as at FVTPL.
De-recognition
A financial asset (or, where applicable, a part of a financial asset) is primarily derecognised (i.e. removed from the
Company's balance sheet) when:
• The contractual rights to receive cash flows from the asset have expired, or
• The Company has transferred its contractual rights to receive cash flows from the financial 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 (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.
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 financial assets that are debt instruments and are initially measured at fair
value with subsequent measurement at amortised cost e.g. Trade receivables, unbilled revenue etc.
The Company follows 'simplified approach' for recognition of impairment loss allowance for 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 whether
there has been a significant increase in the credit risk since initial recognition. If credit risk has not increased
significantly, twelve month ECL is used to provide for impairment loss. However, if credit risk has increased
significantly, lifetime ECL is used. If, in the subsequent period, credit quality of the instrument improves such that
there is no longer a significant increase in credit risk since initial recognition, then the entity reverts to recognising
impairment loss allowance based on a twelve month ECL.
ECL is the difference between all contractual cash flows that are due to the Company in accordance with the
contract and all the cash flows that the entity expects to receive (i.e., all cash shortfalls),discounted at the original
EIR.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans
and borrowings or payables, as appropriate.
All financial liabilities are recognised initially at fairvalue 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,
security deposits, etc.
Classification and subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at FVTPL
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.
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 risks are recognized in OCI. These gains/ loss are
not subsequently transferred to 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 or
Loss.
Financial liabilities at amortised cost
This category includes security deposit received, trade payables etc. After initial recognition, such liabilities are
subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in Statement of
Profit and Loss when the liabilities are derecognised as well as through the EIR amortisation process. 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 as finance costs in the Statement of Profit and Loss.
De-recognition
A financial liability is derecognised 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
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
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.
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.
g) Revenue recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the
revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable,
taking into account contractually defined terms of payment and excluding taxes or duties collected on behalf of the
government.
The following specific recognition criteria must also be met before revenue is recognized:
Sale of goods
Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have
been passed to the customer. Sales are net off sales returns, free quantities delivered and trade discounts.
Export Incentives
The Company recognises Export incentives such as MEIS License as per accounting principal i.e. on accrual
basis.
Commission
When the Company acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised
is the net amount of commission earned by the Company. Further, Company also provides serivces related to
Export Facilitation and the same has been recognised as sale of services under Revenue from Operations.
Rental income
Rental income from investment property is recognised as part of revenue from operations in profit or loss on a
straight line basis over the term of the lease except where the rentals are structured to increase in line with expected
general inflation. Lease incentives granted are recognised as an integral part of the total rental income, over the
term of the lease. Rental income from sub-leasing is also recognised in a similar manner and included under other
income.
Interest income
Interest income on financial assets (including deposits with banks) is recognised as it accrues in Statement of
Profit and Loss, using the effective interest rate (EIR) method (i.e. time proportionate basis) which is the rate that
exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a
shorter period, where appropriate, to the net carrying amount of the financial asset.
Government grants
An unconditional government grant related to a biological asset that is measured at fair value less cost to sell is
recognised in profit or loss as other income when the grant becomes receivable. Other government grants are
recognised initially as deferred income at fair value when there is reasonable assurance that they will be received
and the Company will comply with the conditions associated with the grant, they are recognised in profit or loss
as other operating revenue on a systematic basis. Grants that compensate the Company for expenses incurred
are recognised in profit or loss as other operating revenue on systematic basis in which such expenses are
recognised.
Other operating income
Other operating income is recognised on accrual basis (i.e. time proportionate basis) in the accounting period in
which services are rendered and in accordance with the terms of the agreement.
h) Inventories
Inventories are valued at the lower of cost or net realisable value. The cost of inventories is based on the first-in¬
first-out formula, and includes expenditure incurred in acquiring the inventories, production or conversion costs and
other costs incurred in bringing them to their present location and condition.
Cost incurred in bringing each product to its present location and conditions are accounted for as follows:
• Raw materials: Purchase cost on first-in-first out basis
• Finished goods and work in progress: Cost of direct materials and labour and a proportion of manufacturing
overheads based on the normal operating capacity, but excluding borrowing costs
• Inventory related to real estate division: Valued at cost incurred
• Inventory related to stock-in-trade: Purchase cost on first-in-first out basis
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and selling expenses.
Raw materials, components and other supplies held for use in production of finished goods are not written down
below cost except in cases where material prices have declined and it is estimated that the cost of the finished
products will exceed their net realisable value.
Obsolete, slow moving, defective inventories, shortage/ excess are identified at the time of physical verification of
inventories and wherever necessary provision/ adjustment is made for such inventories.
i) Income taxes
Income tax expenses comprises of current tax and deferred tax. It is recognised in the Statement of Profit and Loss
except to the extent that it relates to items recognised in other comprehensive income or directly in equity.
Current tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to
be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are
those that are enacted or substantively enacted, by the reporting date.
Current income tax relating to items recognised outside profit or loss is recognised outside profit or loss (either
in other comprehensive income or in equity). The management periodically evaluates positions taken in the tax
returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes
provisions where appropriate.
Deferred tax
Deferred tax is provided using the liability method 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 liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for
all deductible temporary differences, carry forward of unused tax credits and unused tax losses, 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 utilised.
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
utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised 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 period when the
asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively
enacted at the reporting date.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the
Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Minimum Alternate Tax ('MAT') credit entitlement under the provisions of the Income-tax Act, 1961 is recognised as
a deferred tax asset when it is probable that future economic benefit associated with it in the form of adjustment of
future income tax liability, will flow to the Company and the asset can be measured reliably. MAT credit entitlement
is set off to the extent allowed in the year in which the Company becomes liable to pay income taxes at the enacted
tax rates. MAT credit entitlement is reviewed at each reporting date and is recognised to the extent that is probable
that future taxable profits will be available against which they can be used. MAT credit entitlement has been
presented as deferred tax asset in the Balance sheet. Significant management judgement is required to determine
the probability of recognition of MAT credit entitlement.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current
income tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and
the same taxation authority.
j) Dividend payments
Final dividend is recognized, when it is approved by the shareholders and the distribution is no longer at the
discretion of the Company. However, interim dividends are recorded as a liability on the date of declaration by the
Company's Board of Directors.
k) Borrowing costs
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 capitalised as part of the cost of the
asset. All other borrowing costs are expensed in the period in which they occur. 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.
l) Retirement and other employee benefits
Short term employee benefits are measured on undiscounted basis and are expensed as the related service
is provided. A liability is recognised 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 amount of
obligation can be estimated reliably.
The Company post-employment benefits include defined benefit plan and defined contribution plans.
Contribution payable by the Company to the central government authorities in respect of provident fund, pension
fund and employee state insurance are defined plans. A defined contribution plan is a post-employment benefit
plan under which an entity pays fixed contributions to a statutory authority and will have no legal or constructive
obligation to pay further amounts. The Company contributions to defined contribution plans are recognized in
Statement of Profit & Loss when the related services are rendered. The Company has no further obligations under
these plans beyond its periodic contributions.
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Under the defined
benefit retirement plan, the Company provides retirement obligation in the form of Gratuity. Under the plan, a lump
sum payment is made to eligible employees at retirement or termination of employment based on respective
employee salary and years of experience with the Company.
The cost of providing benefits under this plan is determined on the basis of actuarial valuation carried out as at
the reporting date by an independent qualified actuary using the projected unit credit method. Actuarial gains and
losses are recognised in full in the period in which they occur in the Statement of Profit and Loss. The obligation
towards the said benefit is recognised in the balance sheet as the difference between the fair value of the plan
assets and the present value of the plan liabilities. Scheme liabilities are calculated using the projected unit credit
method and applying the principal actuarial assumptions as at the date of Balance Sheet. Plan assets are assets
that are held by a long-term employee benefit fund or qualifying insurance policies. Gratuity is covered by Gratuity
policy respectively.
All expenses excluding re-measurements of the net defined benefit liability (asset), in respect of defined benefit
plans are recognized in the profit or loss as incurred. Re-measurements, comprising actuarial gains and losses
and the return on the plan assets (excluding amounts included in net interest on the net defined benefit liability
(asset)),are recognized immediately in the Balance Sheet with a corresponding debit or credit through other
comprehensive income in the period in which they occur. Re-measurements are not reclassified to profit or loss in
subsequent periods.
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