6. MATERIAL ACCOUNTING POLICIES
a) Revenue from contracts with customers
Revenue is recognised when a customer receives
services and thus has the ability to direct the
use and obtain benefits from those services.
Revenue is measured at the Transaction price
i.e. an amount that reflects the consideration, to
which an entity expects to be entitled in exchange
for transferring goods or services to customers,
excluding amounts collected on behalf of third
parties. Taxes and duties collected by the seller /
service provider are to be deposited with the
government and not received by the Company on
their own account. Accordingly, it is excluded from
revenue. The Company evaluates its exposure to
significant risks and reward associated with the
revenue arrangements in order to determine its
position of a principal or an agent in this regard.
Consideration payable to a customer includes cash
or credit or other items expected to be payable to
the customer (or to other parties that purchase the
entity's services from the customer). The Company
accounts for consideration payable to a customer
as a reduction from the transaction price unless
the payment to the customer is in exchange for
a distinct service that the customer transfers to
the entity.
i) Revenue from supply of services
Revenue on account of telephony services
(post-paid and prepaid categories, roaming,
interconnect and long distance services) is
recognised on rendering of services. Fixed
Revenues in the post-paid category are
recognised over the period of rendering
of services. Processing fees on recharge
vouchers in case of prepaid category is
recognised over the validity of such vouchers.
Revenue from other services (internet
services, mobile advertisement, revenue
from toll free services, etc.) is recognised on
rendering of services. Revenue from passive
infrastructure is recognised on rendering of
services.
If the consideration in a contract includes a
variable amount, the Company estimates the
amount of consideration to which it will be
entitled in exchange for transferring the goods
to the customer. The variable consideration
is estimated at contract inception and
constrained until it is highly probable that
a significant revenue reversal in the amount
of cumulative revenue recognised will not
occur when the associated uncertainty with
the variable consideration is subsequently
resolved.
Multiple element contracts:
Bundle packages that include multiple
elements, at the inception of the
arrangement, the Company determines
whether it is necessary to separate the
separately identifiable elements and apply
the corresponding revenue recognition policy
to each element. Total package revenue is
allocated among the identified elements
based on their relative standalone price.
ii) Unbilled income
Unbilled income is the right to consideration
in exchange for goods or services transferred
to the customer. If the Company performs
its obligation by transferring goods or
services to a customer before the same is
invoiced to the customer, unbilled income is
recognised for the earned consideration that
is conditional on satisfaction of performance
obligation.
iii) Trade receivables
A trade receivable represents the Company's
right to an amount of consideration that
is unconditional (i.e., only the passage of
time is required before payment of the
consideration is due). Refer to accounting
policies of financial assets in note 6(q)
Financial instruments - initial recognition
and subsequent measurement.
iv) Advance from customer and deferred
revenue
Advance from customer and deferred
revenue is the obligation to transfer services
to a customer for which the Company has
invoiced / received consideration from the
customer. If a customer pays consideration
before the Company transfers services to the
customer, a contract liability is recognised
when the payment is made. Advance
from customer and deferred revenue are
recognised as revenue when the Company
fulfils its performance obligations under the
contract.
v) Interest income
Interest income from a financial asset is
recognised when it is probable that the
economic benefits will flow to the Company
and the amount of income can be measured
reliably. Interest income is recorded using the
applicable Effective Interest Rate (EIR), which
is the rate that exactly discounts estimated
future cash receipts over the expected life of
the financial asset to that asset's net carrying
amount on initial recognition.
vi) Dividend
Dividend income is recognised when the
Company's right to receive the payment is
established.
vii) Cost to obtain a contract
The Company pays sales commission to
its channel partners for each contract that
they obtain and incurs customer verification
expenses. Such costs are deferred over
the average expected customer life-cycle
provided the estimated average customer
life-cycle is higher than twelve months. The
Company re-estimates the average customer
life cycle on a periodic basis.
b) 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 recognises lease liabilities
to make lease payments and right-of-use assets
representing the right to use the underlying assets.
The Company's lease asset classes primarily
consist of leases for passive infrastructure for cell
sites and immovable properties.
i) Right-of-use assets
The Company recognises 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 accumulated impairment losses, and
adjusted for any re-measurement of lease
liabilities. The cost of right-of-use assets
includes the amount of lease liabilities
recognised, 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 lease term.
If ownership of the leased asset transfers to
the Company at the end of the lease term or
the cost reflects the exercise of a purchase
option, depreciation is calculated using the
estimated useful life of the asset. The right-
of-use assets are also subject to impairment
(Refer note 6(l)).
ii) Lease liabilities
At the commencement date of the lease,
the Company recognises lease liabilities
measured at the present value of lease
payments to be made over the lease term.
The lease payments include fixed payments
less any lease incentives receivable and
variable lease payments that depend on an
index or a rate. 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. Variable lease payments that
do not depend on an index or a rate are
recognised as expenses in the period in
which the event or condition that triggers
the payment occurs.
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 re-measured
if there is a modification i.e. a change in
the lease term or a change in the lease
payments or a change in the assessment
of an option to purchase the underlying
asset. The re-measurement of lease liability
is done by discounting the revised lease
payments using the Company's incremental
borrowing rate at the effective date of
modification.
iii) Short-term leases and leases of low-
value assets
The Company applies the short-term
lease recognition exemption to its short¬
term leases (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 that are considered to be of low value.
Lease payments on short-term leases and
leases of low value assets are recognised
as expense on a straight-line basis over the
lease term.
c) Employee benefits
i. Defined Contribution Plan
Contributions to Provident and other funds
are funded with the appropriate authorities
and charged to the Statement of Profit and
Loss when the employees have rendered
service entitling them to the contributions.
Contributions to Superannuation are funded
with the Life Insurance Corporation of India
and charged to the Statement of Profit and
Loss when the employees have rendered
service entitling them to the contributions.
The Company has no obligation other than
contribution payable to these funds.
ii. Defined Benefit Plan
The Company has a defined benefit gratuity
plan which is a funded plan. In case of funded
plan, the Company makes contribution
to a separately administered fund with
the Insurance Companies. The Company
maintains a target level of funding to be
maintained over a period of time based
on estimation of the payments. Any deficit
in plan assets managed by Insurance
Companies as compared to the liability
based on an independent actuarial valuation
is recognised as a liability. The cost of
providing benefits under the defined benefit
plan is determined using the projected unit
credit method, with actuarial valuations being
carried out at periodic intervals.
Re-measurements, comprising of actuarial
gains and losses and the return on plan
assets (excluding amounts included in net
interest on the net defined benefit liability),
are recognised immediately in the Balance
Sheet with a corresponding charge or credit
to Other Comprehensive Income (OCI) in the
period in which they occur. Re-measurements
are not reclassified to Statement of Profit and
Loss in subsequent periods.
Net interest is calculated by applying the
discount rate to the net defined benefit
liability or asset. The Company recognises
the following changes in the net defined
benefit obligation as an expense in the
Statement of Profit and Loss:
• Service costs; and
• Net interest expense or income
iii. Short-term and other long-term
employee benefits
A liability is recognised for benefits accruing
to employees in respect of salaries, wages,
Long Term Incentive Plan (LTIP) and other
short term employee benefits in the period
the related service is rendered at the
undiscounted amount of the benefits
expected to be paid in exchange for that
service.
Provision for leave benefits to employees
is based on actuarial valuation done by
projected unit credit method at the reporting
date. The related re-measurements are
recognised in the Statement of Profit and
Loss in the period in which they arise.
iv. Share- based payments
Equity-settled share-based payments
to employees for options granted by the
Company to its employees are measured at
the fair value of the equity instruments at
the grant date.
The fair value determined at the grant date
of the equity settled share-based payments
is expensed over the period in which the
performance or service conditions are
fulfilled, based on the Company's estimate
of stock options that will eventually vest,
with a corresponding increase in equity. The
fair value of the cash settled share-based
payments is expensed on a straight line
basis over the vesting period, based on the
Company's estimate of stock option that will
eventually vest, with a corresponding increase
in liability. At the end of each reporting
period, the Company revises its estimate of
the number of equity instruments expected
to vest. The impact of the revision of the
original estimates, if any, is recognised in
the Statement of Profit and Loss such that
the cumulative expense reflects the revised
estimate, with a corresponding adjustment
to the equity-settled employee benefits
reserve or liability as applicable.
In respect of cancellation of unvested stock
options, the amount already charged as share
based payment expense is reversed under the
same head in the Statement of Profit and
Loss. In respect of cancellation/expiration
of vested stock options, the amount already
charged as share based payment expense is
adjusted against Retained earnings in Other
Equity.
In respect of modification such as re-pricing
of existing stock option, the difference in fair
value of the option on the date of re-pricing
is accounted for as share based payment
expense over the remaining vesting period.
d) Annual Revenue Share License Fees and
Spectrum Usage Charges
The license fees and spectrum usage charges,
computed basis of adjusted gross revenue, are
charged at prescribed rates to the Statement of
Profit and Loss in the period in which the related
revenue arises as per the Unified License / Unified
Access Service License and DoT amendments
issued from time to time
e) Foreign currency transactions
The Company's financial statements are presented
in Indian Rupees (' which is also the Company's
functional currency. Transactions in foreign
currencies are initially recorded at the ' spot
rate on the date the transaction first qualifies
for recognition. Monetary assets and liabilities
denominated in foreign currencies are translated
at the functional currency spot rates of exchange
on the reporting date.
Exchange differences arising on settlement or
translation of monetary items are recognised on
net basis within finance cost in the Statement of
Profit and Loss.
Non-monetary items that are measured in terms of
historical cost in a foreign currency are recognised
using the exchange rates at the dates of the initial
transactions.
f) Exceptional items
Items of income or expense which are non¬
recurring or outside of the ordinary course of
business and are of such size, nature or incidence
that their separate disclosure is considered
necessary to explain the performance of the
Company are disclosed as exceptional items in
the Statement of Profit and Loss.
g) Taxes
Income tax expense represents the sum of current
tax and deferred tax.
i. Current tax
Current tax assets and liabilities are measured
at the amount expected to be recovered
from or paid to the taxation authorities.
Current tax is based on the taxable income
and calculated using the applicable tax rates
and tax laws. The tax rates and tax laws used
to compute the amount are those that are
enacted or substantively enacted, at the
reporting date.
Current tax relating to items recognised
outside profit or loss is recognised outside
profit or loss in correlation to the underlying
transaction either in OCI or directly in equity.
Deferred tax is recognised on temporary
differences between the carrying amounts
of assets and liabilities in the financial
statements and the corresponding tax bases
used in the computation of taxable profit.
Deferred tax assets are generally recognised
for all deductible temporary differences to the
extent it is probable that taxable profits will
be available against which those deductible
temporary differences can be utilised.
The carrying amount of deferred tax assets
is reviewed at the end of each reporting date
and reduced to the extent it is no longer
probable that sufficient taxable profit will
be available to allow the benefit of part or
that entire deferred tax asset to be utilised.
Unrecognized deferred tax assets are re¬
assessed at the end of each reporting
date and are recognised to the extent 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 realised
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 recognised
outside profit or loss is recognised outside
profit or loss in correlation to the underlying
transaction either in OCI 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 statute.
h) Current / Non - Current Classification
An asset is classified as current when
a) It is expected to be realized or consumed in
the company's normal operating cycle;
b) It is held primarily for the purpose of trading;
c) It is expected to be realized within twelve
months after the reporting period; or
d) If it is cash or cash equivalent, unless it is
restricted from being exchanged or used to
settle a liability for at least twelve months
after the reporting period.
Any asset not conforming to the above is classified
as non-current.
A liability is classified as current when
a) It is expected to be settled in the normal
operating cycle of the company;
b) It is held primarily for the purposes of trading;
c) It is expected to be settled within twelve
months after the reporting period; or
d) The company have no unconditional right
to defer the settlement of the liability for
at least twelve months after the reporting
period.
Any liability not conforming to the above is
classified as non-current.
i) Property, Plant and Equipment
Property, Plant and Equipment (PPE) and Capital
work in progress (CWIP) held for use in the
rendering of services and supply of goods, or for
administrative purposes, are stated at historical
cost less accumulated depreciation as applicable
and accumulated impairment losses, if any. Cost
includes all direct costs relating to acquisition and
installation of Property, Plant and Equipment, non¬
refundable duties and borrowing cost relating to
qualifying assets. CWIP represents cost of property,
plant and equipment not ready for intended use as
on the reporting date. 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.
Subsequent costs are included in the assets
carrying amount or recognised 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 can be measured
reliably. All other repair and maintenance costs are
recognised in the Statement of Profit and Loss as
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.
Freehold land is not depreciated. Depreciation
on all other assets under PPE commences once
such assets are available for use in the intended
condition and location. Depreciation is provided
using straight-line method on pro rata basis over
their estimated useful economic lives as given
below. The useful life is taken as prescribed in
Schedule II to the Companies Act, 2013 except
where the estimated useful economic life has been
assessed to be lower. The depreciation period,
residual value and the depreciation method are
reviewed periodically.
Asset Retirement Obligation (ARO) is capitalized
when it is probable that an outflow of resources
will be required to settle the obligation and a
reliable estimate of the amount can be made. ARO
is measured based on present value of expected
cost to settle the obligation.
An item of property, plant and equipment and any
significant part which meets the criteria for asset
held for sale will be reclassified from property, plant
and equipment to asset held for sale. When any
significant part of property, plant and equipment
is discarded or replaced, the carrying value of
discarded / replaced part is derecognized. Any
gains or losses arising from retirement or disposal
of property, plant and equipment are determined
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 on the date of retirement or disposal.
j) Intangible Assets
Intangible assets acquired separately are measured
on initial recognition at cost. Cost includes all
direct costs relating to acquisition of Intangible
assets and borrowing cost relating to qualifying
assets. Subsequently, intangible assets are carried
at cost less any accumulated amortisation and
accumulated impairment losses, if any. Internally
generated intangibles are not capitalised and the
related expenditure is reflected in the Statement
of Profit and Loss in the period in which the
expenditure is incurred.
The useful lives of intangible assets are assessed
as either finite or indefinite. There are no intangible
assets assessed with indefinite useful life.
Intangible assets with finite lives are amortised
over the useful economic life. The amortisation
period, residual value and the amortisation method
for an intangible asset with a finite useful life are
reviewed periodically. Changes in the expected
useful life or the expected pattern of consumption
of future economic benefits embodied in the
asset are considered to modify the amortisation
period or method, as appropriate, and are
treated as changes in accounting estimates. The
amortisation expense on intangible assets with
finite lives is recognised in the Statement of Profit
and Loss unless such expenditure forms part of
carrying value of another asset.
Intangible assets are amortised on straight line
method as under:
• Cost of spectrum is amortised on straight
line method from the date when the related
network is ready for intended use over the
unexpired period of the spectrum.
• Cost of entry/license fees is amortised
on straight line method from the date of
launch of circle/renewal of license over the
unexpired period of the license.
• Software, which is not an integral part of
hardware, is treated as an intangible asset
and is amortised over its useful economic life
as estimated by the management between
3 to 5 years.
• Brand - Separately acquired brand is shown at
historical cost. Subsequently brand is carried
at cost less accumulated amortisation and
accumulated impairment loss, if any. The
Company amortises brand using the straight
line method over the estimated useful life of
8 years.
Cost of Intangible assets under development
represents cost of intangible assets not ready for
intended use as on the reporting date. It mainly
includes the amount of spectrum allotted to
the Company and related borrowing costs (that
are directly attributable to the acquisition or
construction of qualifying assets) if any, for which
network is not yet ready.
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 recognised
in the Statement of Profit and Loss when the asset
is derecognised.
k) Non - Current Assets Held for sale
Non-current assets and disposal groups are
classified as held for sale if their carrying
amount will be recovered principally through a
sale transaction rather than through continuing
use and its sale is highly probable. The sale is
considered highly probable only when the asset
or disposal groups is available for immediate sale
in its present condition, it is unlikely that the sale
will be withdrawn and the sale is expected to
be completed within one year from the date of
classification. Non-current assets (and disposal
groups) classified as held for sale are measured
at the lower of their carrying amount and fair
value less costs to sell. These are not depreciated
or amortised once classified as held for sale.
Assets and liabilities classified as held for sale are
presented separately in the Balance Sheet.
Non-current assets that ceases to be classified as
held for sale are measured at lower of (i) its carrying
amount before the asset was classified as held for
sale, adjusted for depreciation that would have
been recognised had that asset not been classified
as held for sale, and (ii) its recoverable amount at
the date when the disposal group ceases to be
classified as held for sale.
l) Impairment of Non - Financial Assets
Tangible assets (including Right-to-Use Assets
(ROU)) and Intangible assets are reviewed for
impairment, whenever events or changes in
circumstances indicate that the carrying amount
of such assets may not be recoverable. If any
such indication exists, the recoverable amount of
the asset is estimated in order to determine the
extent of the impairment loss (if any). When it is
not possible to estimate the recoverable amount
of an individual asset, 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 of disposal 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. In determining
fair value less cost of disposal, an appropriate
valuation model is used. If the recoverable
amount of an asset (or cash generating unit) is
estimated to be less than its carrying amount, an
impairment loss is recognised in Statement of
Profit and Loss by reducing the carrying amount
of the asset (or cash-generating unit) to its
recoverable amount.
For assets excluding goodwill, impairment losses
recognized in the earlier periods are assessed at
each reporting date for any indication that the
loss has decreased or no longer exists. If such
indication exists, the Company estimates the
asset's (or cash generating unit's) recoverable
amount. A previously recognized impairment
loss is reversed only if there has been a change
in estimates used to determine the assets'
recoverable amount since the last impairment
loss was recognised. When an impairment loss
subsequently reverses, the carrying amount of the
asset (or a cash-generating unit) is increased to
the revised estimate of its recoverable amount,
but so that the increased carrying amount does
not exceed the carrying amount that would have
been determined had such impairment loss not
been recognised for the asset (or cash-generating
unit) in prior years. Any reversal of an impairment
loss is recognised immediately in the Statement
of Profit and Loss.
m) Investment in Subsidiaries, Associate and
Joint Arrangements
The Company recognises its investment in
subsidiaries, joint venture and associate at cost
less any impairment losses.
n) Borrowing Costs
Borrowing Costs directly attributable to the
acquisition or construction 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 are
incurred. Borrowing costs consist of interest and
other costs that an entity incurs in connection with
the borrowing of funds. Interest income earned on
the temporary investment of specific borrowings
pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for
capitalisation.
o) Inventories
Inventories are valued at cost or net realisable
value, whichever is lower. Cost is determined
on weighted average basis and includes cost of
purchase and other costs incurred in bringing
inventories to their present location and condition.
Net realisable value is the estimated selling price
in the ordinary course of business, less estimated
costs of completion and the estimated costs
necessary to make the sale.
p) Cash and cash equivalents
Cash and cash equivalents in the Balance Sheet
comprise of cash at bank 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. For the
purpose of the Statement of Cash flows, cash and
cash equivalents consist of cash and short-term
deposits, as defined above, net of outstanding
bank overdrafts as they are considered an integral
part of the Company's cash management.
q) Financial Instruments
Initial recognition and measurement
Financial Instruments (assets and liabilities) are
recognised when the Company becomes a party to
a contract that gives rise to a financial asset of one
entity and a financial liability or equity instrument
of another entity.
Financial instruments are classified, at initial
recognition, and subsequently measured
at amortised cost, fair value through other
comprehensive income and fair value through
profit or loss as applicable. Transaction costs
that are directly attributable to the acquisition or
issue of financial assets and financial liabilities,
other than those designated as fair value through
profit or loss (FVTPL), are added to or deducted
from the financial assets or financial liabilities,
as appropriate, on initial recognition. Transaction
costs directly attributable to the acquisition of
financial assets or financial liabilities at FVTPL are
recognised immediately in the Statement of Profit
and Loss.
The liability component of a compound financial
instrument is initially recognised at the fair value
of a similar liability that does not have an equity
conversion option. The equity component is initially
recognised at the difference between the fair value
of the compound financial instrument as a whole
and the fair value of the liability component. Any
directly attributable transaction costs are allocated
to the liability and equity components in proportion
to their initial carrying amounts.
All regular way purchase or sale of financial assets
are recognised and derecognised on a trade date
basis. Regular way purchase or sales are purchases
or sales of financial assets that require delivery
of assets within the time frame established by
regulation or convention in the marketplace.
Subsequent measurement
All recognised financial assets are subsequently
measured in their entirety at either amortised cost
or fair value, depending on the classification of the
financial assets:
a) Financial assets measured at amortised cost
b) Financial assets measured at fair value
through profit or loss (FVTPL)
c) Financial assets measured at fair value
through other comprehensive income
(FVTOCI)
I. Financial assets measured at amortised cost
A financial asset is measured at 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 instruments give
rise on specified dates to cash flows that are
solely payments of principal and interest on
the principal amount outstanding.
After initial measurement, such financial assets
are subsequently measured at amortised cost
using the Effective Interest Rate (EIR) method.
EIR is the rate that exactly discounts estimated
future cash receipts (including all fees and points
paid or received that form an integral part of the
EIR, transaction costs and other premiums or
discounts) through the expected life of the debt
instrument or where appropriate, a shorter period,
to the net carrying amount on initial recognition.
The EIR amortisation is included in other income
in the Statement of Profit and Loss. The losses
arising from impairment are recognised in the
Statement of Profit and Loss. This category
generally applies to trade and other receivables,
loans, etc.
II. Financial assets measured at FVTPL
FVTPL is a residual category for financial assets in
the nature of debt instruments. Financial assets
included within the FVTPL category are measured
at fair value with all changes recognised in the
Statement of Profit and Loss. 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.
Derecognition
A financial asset (or, where applicable, a part of a
financial asset or part of a group of similar financial
assets) is primarily derecognised 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 ‘passthrough'
arrangement; and either
- the Company has transferred
substantially all the risks and rewards
of the asset, or
- 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 following financial assets and credit risk
exposure:
• Debt instruments measured at amortised
cost e.g., loans and bank deposits
• Trade receivables
• Other Financial assets not designated as
FVTPL
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, 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, then the entity reverts to
recognising impairment loss allowance based on
12-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. 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.
The Company follows ‘simplified approach' for
recognition of impairment loss allowance on
Trade receivables (including lease 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 ECL at each reporting date, right
from its initial recognition.
For the purpose of measuring the expected credit
loss for trade receivables, the Company estimates
irrecoverable amounts based on the ageing of
the receivable balances and historical experience.
Further, a large number of minor receivables are
grouped into homogeneous groups and assessed
for impairment collectively depending on their
significance. Individual trade receivables are
written off when management deems them not
to be collectible on assessment of facts and
circumstances. Refer note 15.
III. Financial assets measured at FVTOCI
Financial 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 FVTOCI. 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 recognised in statement of profit
and loss. When the financial asset is derecognised,
the cumulative gain or loss previously recognised
in OCI is reclassified from equity to statement of
profit and loss and recognised in other (gains)/
losses (net). Interest income from these financial
assets is included in other income using the
effective interest rate method.
ii. Financial liabilities
Subsequent measurement
All financial liabilities are subsequently measured at
amortised cost using the EIR method or at FVTPL.
a) Financial liabilities at amortised cost
After initial recognition, interest-bearing
borrowings and other payables are
subsequently measured at amortised cost
using the EIR method. Gains and losses are
recognised in the 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.
b) Financial liabilities at FVTPL
Financial liabilities are classified as FVTPL
when the financial liabilities are held for
trading or are designated as FVTPL on
initial recognition. 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 profit or loss.
De-recognition
A financial liability is de-recognised when the
obligation under the liability is discharged
or cancelled or expires. In case, 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 Statement of Profit and Loss.
iii. Derivative financial instruments
The Company uses derivative financial instruments,
such as forward currency contracts and interest
rate swaps, to manage its foreign currency
risks and interest rate risks, respectively. These
derivative instruments are not designated as cash
flow, fair value or net investment hedges and are
entered into for period consistent with currency
and interest exposures. Such derivative financial
instruments are initially recognised at fair value
on the date on which a derivative contract is
entered into and are subsequently re-measured
at fair value at the end of each reporting period.
Derivatives are carried as financial assets when
the fair value is positive and as financial liabilities
when the fair value is negative. Any gains or
losses arising from changes in the fair value of
derivatives are taken directly to the Statement of
Profit and Loss.
Embedded derivatives
An embedded derivative is a component of a hybrid
(combined) instrument that also includes a non¬
derivative host contract - with the effect that some
of the cash flows of the combined instrument
vary in a way similar to a stand-alone derivative
instrument. An embedded derivative causes some
or all of the cash flows that otherwise would be
required by the contract to be modified according
to a specified interest rate, financial instrument
price, commodity price, foreign exchange rate,
index of prices or rates, credit rating or credit index,
or other variable, provided in the case of a non¬
financial variable that the variable is not specific
to a party to the contract.
If the hybrid contract contains a host that is a
financial asset within the scope of Ind AS 109,
the Company does not separate embedded
derivatives. Rather, it applies the classification
requirements contained in Ind AS 109 to the
entire hybrid contract. Derivatives embedded in all
other host contracts are accounted for as separate
derivatives and recorded at fair value if their
economic characteristics and risks are not closely
related to those of the host contracts and the host
contracts are not held for trading or designated at
fair value through profit or loss. These embedded
derivatives are measured at fair value with changes
in fair value recognised in profit or loss, unless
designated as effective hedging instruments.
iv. Offsetting 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 or to realise the
assets and settle the liabilities simultaneously.
r) Fair value measurement
The fair value of an asset or a liability is measured
using the assumptions that market participants
would use when pricing the asset or liability,
assuming that market participants act in their
economic best interest.
The Company uses valuation techniques that are
appropriate in the circumstances and for which
sufficient data is available to measure fair value,
maximising the use of relevant observable inputs
and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is
measured or disclosed in the financial statements
are categorised 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
For assets and liabilities that are recognised in
the financial statements on a recurring basis,
the Company determines whether transfers have
occurred between levels in the hierarchy by re¬
assessing categorisation (based on the lowest
level input that is significant to the fair value
measurement as a whole) (a) on the date of the
event or change in circumstances that caused
the transfer or (b) at the end of each reporting
period or (c) at the beginning of each reporting
period.
s) Dividend distribution to equity holders
Dividends paid / payable along with applicable
taxes are recognised when it is approved by
the shareholders. In case of interim dividend, it
is recognised when it is approved by the Board
of Directors and distribution is no longer at the
discretion of the Company. A corresponding
amount is accordingly recognised directly in equity.
t) Earnings per share
The earnings considered in ascertaining the
Company's Earnings per share (EPS) is the net
profit / (loss) after tax.
EPS is disclosed on basic and diluted basis. Basic
EPS is computed by dividing the profit / (loss)
for the period attributable to the shareholders of
the Company by the weighted average number of
shares outstanding during the period. The diluted
EPS is calculated on the same basis as basic EPS,
after adjusting for the effects of potential dilutive
equity shares unless the effect of the potential
dilutive equity shares is anti-dilutive.
|